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Compounded by El Niņo and La Niņa-spawned drought and typhoons which adversely affected agricultural production, the Philippines’ Gross National Product (GNP) fell sharply to 0.1% in 1998, from a 5.8% growth in 1997, and its Gross Domestic Product (GDP) contracted by 0.5%, after posting a 5.1% growth in 1997. Nevertheless, Government economic planners and the private sector are optimistic about the economic outlook for 1999 due to a resurgent agricultural sector, strong growth in exports, a healthy balance-of-payments surplus and the Government’s thrust of lowering interest rates aimed at providing an environment for economic growth. Responding to these developments in the external environment under which it operates, DIGITEL continued strengthening its organization, improving its customer service facilities, systems and processes, expanding and enhancing its telecommunications network and introducing new products and services – all directed towards satisfying the requirements of its customers. In 1998, DIGITEL introduced new products to meet the requirements of a growing market in need of alternative communications services and created marketing programs to allow its customers to use value-added services at affordable prices. DIGITEL undertook these activities:
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 Innovative bundling of the convenience features of telephone
service. The bundling of five convenience features, comprising of Call Waiting, Call
Forwarding, Abbreviated Dialing, Conference Call and Auto Call Back, was introduced to the
market under the brand name "Connect 5". Also, the DIGITEL PIN was bundled with
the International Direct Dialing (IDD) feature to secure the telephone, especially of
frequent users of IDD, from fraudulent calls. These features are a welcome benefit to the
rapidly urbanizing DIGITEL service areas where there is a strong demand for sophisticated
telephone services. |
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Expansion of DIGIKARD’s prepaid card agent network to over 700
agents by the end of 1998. To further widen the distribution of DIGIKARD prepaid cards,
DIGITEL forged significant partnerships with Petron, Mercury Drug and JRS Express Courier
Service. DIGIKARD public payphones have also been installed in the stations and branches
of these companies. A substantial number of cards are now used on subscriber lines
indicating that DIGIKARD has become a popular product for budget-conscious customers.
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DIGITEL permanently reduced its
rates for National Direct Dialing for DIGITEL-to-DIGITEL calls. Dubbed as the
"PAKIKISAMA RATE", it is the first simplified rate for short-and-long-haul
domestic calls. The Pakikisama Rate charges P3.00 per minute for NDD DIGITEL-to-DIGITEL
calls.  Operating in a highly competitive environment, DIGITEL continued to strengthen its Customer Care programs in 1998. These involved diverse programs and activities such as the introduction of new products and services, improvement of front-office processes and focused-training for DIGITEL personnel involved in Customer Care. The Customer Care program aims to provide superior quality customer service to subscribers. As such, DIGITEL adopted Service Level Standards (SLS) for all types of installation and telephone activation procedures to meet a five-day "service turn-around time". A standardized work process and procedure for all customer transactions were also implemented to facilitate servicing of subscriber requests and concerns. |
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| To heighten customer service consciousness and
instill among the Customer Care personnel the mindset that "Customer is King",
the Customer Care Department, in tandem with the Competence Development Department,
launched the DIGITEL Service Quotient (DSQ) training program in 1998. The availability of 100 Customer Centers serving 228 towns and cities all over Luzon remains one of the strengths of DIGITEL. Each of these Customer Centers is strategically located and easily accessible. By spreading out the Customer Centers to high-traffic areas, DIGITEL is in an excellent position to meet the customer care requirements of subscribers. |
 Customer Care programs were strengthened to improve the delivery of services |
| In tandem with the introductions
of additional Customer Centers, DIGITEL introduced the concept of Third-Party Collection
Agents (TPCAs), or accredited establishments where customers can pay their monthly bills.
The TPCAs is designed to provide customers theconvenience of alternative payment centers
and, in turn, help decongest the existing Customer Centers, especially during peak payment
periods. To complement the face-to-face customer servicing facilities at Customer Centers, DIGITEL installed a multi-service Call Center in 1998. Located in Libis, Quezon City, the Call Center has a total of 200 workstations and operates 24 hours a day, seven days a week. It houses all Operator-Assisted, Help Desk Services and telemarketing facilities in one central location. A second Call Center, located in Balagtas, Bulacan is now being readied for commercial operation. To accelerate the production and distribution of billing statements at the shortest possible time and provide the Customer Centers and Call Centers faster response time in answering inquiries, handling complaints, and generating reports, DIGITEL vastly improved the processing power of its Data Center with the upgrade of the AS/400 machines by the fourth quarter of 1998. DIGITEL now has two top-of-the-line E Series model-650s, with one serving as backup to its Hot Site. Extended mirroring synchronizes the two machines to ensure continuous operation, or minimal disruption, in case of failure or disaster. The model-650s are Year 2000 (Y2K) ready. Along with the hardware upgrades, DIGITEL is also installing a new Y2K-compliant version of its Integrated Customer Management System (ICMS). |
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Beginning the second quarter of 1998, DIGITEL embarked on a Y2K compliance program for its computer hardware and software scheduled to be completed by mid-1999. DIGITEL’s Y2K compliance program will guarantee that all its telecommunications products and services will be available to all subscribers before, during, through and beyond the Year 2000 and make the turn of the century – "business as usual." |
| To accommodate rising traffic due
to increased usage and meet long-term demands of the market, DIGITEL upgraded its DIGIKARD
prepaid card platform with the adoption of a newer version of the software in the first
quarter of 1998, and began substantial hardware upgrade and expansion to be completed by
the second quarter 1999. Efficiencies in transmissions will be further improved when
DIGIKARD connects its system to the ATM switches of DIGITEL’s Data Communications
network. The hook-up will decentralize system nodes throughout Regions I to V.
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| To accommodate rising traffic due
to increased usage and meet long-term demands of the market, DIGITEL upgraded its DIGIKARD
prepaid card platform with the adoption of a newer version of the software in the first
quarter of 1998, and began substantial hardware upgrade and expansion to be completed by
the second quarter 1999. Efficiencies in transmissions will be further improved when
DIGIKARD connects its system to the ATM switches of DIGITEL’s Data Communications
network. The hook-up will decentralize system nodes throughout Regions I to V. NETWORK EXPANSION & ENHANCEMENT In 1998, DIGITEL installed an additional 109,398 lines. As of December 31, 1998, DIGITEL had a total of 484,036 lines system-wide. This represents a 29% growth over the 1997 figure of 374,638 lines. More Filipinos now enjoy the benefits of DIGITEL’s fully-digital telecommunications services. |
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 DIGITEL's fully-digital telephones have enhanced the lives of thousands of Filipinos. |
For faster deployment of telephone lines,
DIGITEL made use of Wireless Local Loop (WLL) network in several key areas. This
technology provides superior quality telecommunications services in areas where copper
installations are difficult or not possible. A total of 11,914 WLL lines are now servicing
the provinces of Rizal, Nueva Ecija, Pampanga and Batangas. In 1999, DIGITEL will extend its coverage of Luzon by extending its telephone service to the Metro Manila areas of Malabon, Valenzuela and Quezon City and the province of Tarlac. DIGITEL is now studying the most efficient and reliable network configuration of voice and data services for these newly-granted service areas. |
| To accommodate the growing domestic toll
traffic, further improvements were made on DIGITEL’s Luzon-wide "backbone"
transmission system. In 1998, DIGITEL completed five backbone links consisting of SDH
radio of 35 backbone links connecting Regions I to V. The overall completion of
DIGITEL’s backbone network expansion is expected by the second quarter of 1999. DIGITEL has successfully completed the installation of a Second IGF switch that will handle additional international toll traffic resulting from the Company’s aggressive network expansion program. The new IGF switch is currently equipped to handle a total of 7,590 circuits and has been integrated into DIGITEL’s existing billing system. |
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Pursuant to and in support of the Government’s policy on interconnection, DIGITEL has existing interconnection agreements with major telecommunications carriers such as PLDT, Bayantel, ETPI, Extelcom, Globe, PhilCom, Piltel, PT&T, Liberty Telecom, trunk radio operators, and Government entities involved in telecommunications operations. In addition to this, DIGITEL has also signed agreements with Smart Communications, TELETECH and other provincial operators. The new interconnection links are expected to be commercially activated by the second quarter of 1999. Interconnection agreements with other telecom carriers and provincial operators are presently being negotiated. In addition to the existing direct circuits with AT&T, MCI, British Telecoms and Hong Kong Telecom, DIGITEL has established direct circuits with KDD Japan to provide DIGITEL with direct route for inbound and outbound toll traffic between Philippines and Japan. DIGITEL is also negotiating for the establishment of direct circuits to Taiwan, Australia, Korea and Brunei. Overall, DIGITEL had secured correspondentship agreements with 39 foreign administrations as of December 31, 1998. In June 1998, DIGITEL strengthened the Corporate Planning Group. This group is tasked to provide Top Management with pertinent analysis required for high-level decision making and to help effect the implementation of such decisions. Corporate Planning’s role is to complement and help strengthen the support capabilities of various planning and processing-oriented groups within DIGITEL, such as those within the Business, Network and Finance Divisions. Corporate Planning is also responsible for ensuring the orderly implementation of Company policies and procedures. During the 1999 Business Planning Session, Top Management formalized the creation of key business units to target various customer market and revenue opportunities available within the telecommunications industry. In addition to the existing POTS or Plain Old Telephony Service and the maturing DIGIKARD Prepaid Card Service, new units were formally established for both the Data Communications and Internet Services as well as Inter-Carrier Services. With these strategic business units in place, DIGITEL will be able to maximize earnings derived from its intensive network infrastructure in place throughout Luzon.
The telecommunications service business is a rapidly
changing business, both in way of technology and the business itself. DIGITEL is committed
to keep apace with the use of the latest technology, being operated and maintained by
highly skilled and motivated staff totalling 2,065 by 1998 for the benefit of its
customers. DIGITEL’s operating revenues rose to P3,060.1 million for the year ended December 31, 1998, 1 68% increase from P1,818.2 million for the year ended December 31, 1997. This growth is attributable mainly to the increase in the number of connected lines and the full-year impact on 1998 revenues of (a) the imposition of foreign currency adjustment and higher peso income from Dollar-based international toll revenues resulting from the depreciation of the Peso relative to the U.S. Dollar starting mid-1997; and (b) rate rebalancing implemented starting December 1997 resulting to a net increase in revenues form higher rates for local network and short haul national long distance services, offset by lower rates for international long distance services.
Depreciation an amortization expenses for the year ended December 31, 1998 increased to P1,320.2 million, or by 173%, from P484.0 million for the year ended December 31,1997 due to (a) incremental depreciation totalling P487.3 million in 1998 for certain group of assets arising from the revision of their estimated useful lives effective January 1, 1998, and the full application in 1998 of the straight-line method of depreciation from the modified straight-line method employed up to December 31, 1997 for such assets; (b) full-year effect of the depreciation charges on the capitalized foreign exchange losses resulting from the depreciation of the Peso relative to the U.S. Dollar starting mid-1997; and (c) continuing investment in telecommunications facilities. As a result of the foregoing factors, DIGITEL generated an operating income of P710.0 million in 1998, an improvement of 13% compared with the P627.0 million operating income in 1997. A reduction in other income-net (principally interest income, net of interest expense) from P377.9 million in 1997 to P157.0 million in 1998, due to higher interest expense in 1998, resulted to a pre-tax accounting income of P867.0 million in 1998, from P1, 004.9 million in 1997. DIGITEL registered a net income of P603.2 million in 1998 compared with the 1997 figure of P801.1 million. Earnings per share stood at P.09 and P.13 in 1998 and 1997, respectively. At the end of 1998, DIGITEL’s total assets reached P31.1 billion, a 24% increase from P25.0 billion at the end of 1997. Capital expenditures (CAPEX) amounting to P608 billion in 1998, or 45% more than the 1997 CAPEX of P4.7 billion, contributed the highest asset growth, reflecting the Company’s continuing capital investments. DIGITEL’s financing requirements in 1998 were covered by both internal cash flow and external funds. EBITDA (earnings before interest, taxes, depreciation and amortization) amounted to P2.0 billion, up by 82% from P1.1 billion in 1997. Cash flow from operating activities in 1998 increased by 107% to P2.9 billion from P1.4 billion in 1997. Financing from external sources amounted to P3.9 billion in 1998 from P2.4 billion in 1997. On behalf of the Board of Directors of DIGITEL, we would like to express our most profound thanks to our stockholders and customers for their continuing support and patronage. Our gratitude goes to the various Government agencies, investors, creditors, contractors, and suppliers who have helped ensure another successful year for DIGITEL. Above all, we wish to acknowledge the dedication and industry of all DIGITEL personnel. April 8. 1999
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