Food and beverage, retail more profitable than telco, property ventures, study shows

The capital intensive nature of the telecommunication and real estate businesses has kept their earnings below that of the food and beverage and retail sectors, an academic research study showed.

In a paper by University of the Philippines professor emeritus Epictetus Patalinghug, a comparative outlook at profitability indicators since 1997 showed that retail, and food and beverage companies have averaged higher rates of return than some of the top telecom and real estate companies in the Philippines.

The study cited that over a longer time horizon, telcos such as PLDT and Globe Telecom, as well as property companies like SM Prime and Ayala Land, are earning below the average rate of returns attained by top Philippine firms in other industries.

Department store chain SM, for instance, had a return on assets (ROA) of 14.42 percent, while the ROA of a beer company, such as Asia Brewery, reached 12.13 percent.

PLDT and SM Prime, on the other hand, recorded ROAs of only 9.18 percent and 8.49 percent, respectively. Globe and Ayala Land were even lower in rank with 6.7 percent and 5.96 percent, respectively.

Data show that as telcos and developers aggressively embark on increasing capital expenditures, they must be able to generate enough cash flow to sustain the needed investments in capital-intensive industries.

More significantly, high capital-intensive industries evidently require high margins to be viable.

The lack of government spending on national telecommunications networks, and on much needed housing and transport infrastructure, adds to the challenges of competing in the said industries.

National Telecommunications commissioner Gamaliel Cordoba had earlier noted that all other ASEAN countries have telecom networks wholly owned, partly financed or operated by their respective governments. It is only in the Philippines that entire broadband networks had to be constructed solely by private companies.

The Department of Information and Communications Technology has recognized the need for government support in telecommunications and is planning to put up 250,000 WiFi access points and 47,000 cell sites in the country before President Duterte’s six-year term ends in 2022.

Infrastructure has become one of the top priorities of the current administration, as well, with public spending on infrastructure projects targeted to reach P9 trillion until 2022.

Some of the planned projects include interisland bridges, railways and subways, disaster resiliency and flood control, airports and seaports.