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CEO in the news: Salim Group's man in Manila takes a final shot at telecom glory

At 70, Manuel Pangilinan fights to restore PLDT's edge while seeking a successor

Manuel Pangilinan, CEO of PLDT (Photo by Lester Babiera)

MANILA Manuel V. Pangilinan, the chief executive of top Philippine telecommunications company PLDT, receives a briefing each week from what he calls the "kids" of Voyager Innovations, a unit that develops "disruptive" technologies.

They update their boss on how the industry is evolving in the age of the internet and smartphones, and pitch ideas for capitalizing on growth markets like financial technology and e-commerce. A curious Pangilinan listens intently before offering insights on the project proposals, according to a source who has attended the meetings.

"The future of this company does not belong to me anymore," the 70-year-old Pangilinan told the Nikkei Asian Review in an interview on Feb. 17.

Before he hands the reins to someone else, however, he has one final mission: restoring PLDT's dominance.

In mid-February, Pangilinan traveled to Shenzhen to seal a deal with Huawei Technologies for installing fifth-generation wireless broadband technology in the Philippines by 2020. By investing in a more advanced 5G network, Pangilinan aims to address consumer demand for faster internet speeds and gain an edge over rival Globe Telecom, which has taken a big bite out of PLDT's market share.

LONGTIME PARTNERS For nearly two decades, Pangilinan has devoted himself to building the Philippine businesses of First Pacific, the Hong Kong-listed group he founded in 1981 with the backing of the Salim Group, one of Indonesia's largest and most influential conglomerates. Starting with telecommunications, First Pacific has expanded into other strategic industries, such as power, toll roads, water, health care and mining.

Every other week, Pangilinan takes a two-hour flight to Hong Kong to meet with First Pacific executives, including Anthoni Salim, the Salim Group chief executive who also chairs First Pacific.

Pangilinan first encountered Salim and his late father, Sudono Salim, during a 1978 client call in Hong Kong, when Pangilinan was working there as an American Express Bank executive. The meeting led to the Salims supporting Pangilinan in founding First Pacific.

After its establishment, First Pacific went on an acquisition spree, buying companies like Hibernia Bank in San Francisco and Imagineering Australia, a software distributor. It was not until 1998, though, that it decided to expand into the Philippines. This was in the aftermath of the Asian financial crisis and the downfall of Indonesian President Suharto, with whom the Salim Group had close ties.

First Pacific invested in Philippine Long Distance Telephone Co., now PLDT Inc. This investment jump-started the Salim Group's drive to acquire other critical assets in the country.

In 2006, the group set up Metro Pacific Investments, which holds infrastructure assets in Manila Electric, Maynilad Water Services and Metro Pacific Tollways -- all chaired by Pangilinan.

In 2015, First Pacific's major businesses in the Philippines racked up revenue of over 470 billion pesos ($9.33 billion at the current rate) -- equivalent to around 3.5% of the country's gross domestic product.

Pangilinan, who is known locally by his initials MVP, was born to a middle-class family. His mother was a homemaker, while his father was a bank president. He was educated at the Jesuit-run Ateneo de Manila University, where he finished his economics degree with honors.

Immediately after graduating at 20, he pursued an MBA at the University of Pennsylvania's Wharton School, funded by a scholarship from U.S. consumer products giant Procter & Gamble. Pangilinan said his admission to the prestigious business school was a "mistake."

"I didn't know what I was doing," he recalled. "I was doing merger accounting but [as to] what the numbers really mean in the real world, I had no idea."

After getting his master's degree, he returned to the Philippines. But Procter & Gamble did not offer him a job, and he instead became the executive assistant to the president of Phinma, a local investment group.

Lured by the glamour of working overseas, he left the Philippines when he was 29 and moved to Hong Kong to pursue a banking career. This set him on the path to that pivotal meeting with the Salims.

Pangilinan's deal-making experience in Hong Kong has served him well in the Philippines, where many major businesses are led by the scions of wealthy colonial Spanish clans or self-made ethnic Chinese tycoons.

ROUGH PATCH By 2012, it appeared that Pangilinan was winding down his successful career as a Salim Group adviser and top executive of First Pacific. That year, he resigned as head of Manila Electric -- his last chief executive post at a major First Pacific unit in the Philippines.

But with the retirement of longtime PLDT chief executive Napoleon Nazareno, Pangilinan in January 2016 slid back into a seat he had last held in 2003 -- though he had been serving as the telecom company's chairman.

His return to day-to-day management came at a tumultuous time for PLDT.

After 2012, the company's net profit fell, as it devoted more capital to competing with smaller archrival Globe Telecom, a joint venture between Ayala Corp. and Singapore Telecommunications. Globe was gaining ground by promoting more attractive mobile data packages, featuring perks like free Facebook access.

Weakening revenue from traditional services, such as international calls and fee-based messaging, added to the challenge. Free online services like Viber and Whatsapp had changed the game. In three years, PLDT lost an estimated 17 million cellular subscribers, Pangilinan said last November.

"We were late in the migration on the wireless side," he told the Nikkei Asian Review. "We were trying to protect our legacy venues, which was wrong. We did not want to disrupt ourselves, and we did not want to get disrupted."

Pangilinan said shareholders in Hong Kong were disappointed with PLDT's performance, since it had been the Philippines' most profitable and valuable company just a few years earlier.

Investor frustration was reflected in a plunging share price. The stock hit bottom on Dec. 5, 2016, at 1,260 pesos, far below its peak of 3,486 pesos on Sept. 4, 2014. This made it one of the worst-performing blue-chip companies in the Philippines last year.

As of March 3, the price was back up to 1,447 pesos, after rising for a second straight day. An appellate court decision to stop antitrust authorities from probing the Philippine telecom duopoly has been providing some momentum.

On March 7, PLDT said its 2016 net profit fell by 9.5% to 20.01 billion pesos, the lowest in over a decade, as the company continued to spend heavily to defend its market position. Meanwhile, service revenues coming from PLDT's telecom operations dropped 3.5% to 157.2 billion pesos. Pangilinan said underlying profit is expected to improve this year, thanks to growth in the fixed-line business and cost-control measures.

Even though its market capitalization has more than halved, PLDT remains the core business of First Pacific in the Philippines, contributing 35% of operating profit as of the end of June 2016. First Pacific's Philippine ventures accounted for 68% of the group's total operating profit at the end of June.

Philippine President Rodrigo Duterte has pressured PLDT and Globe to improve their services, threatening to break their duopoly by opening the sector to foreign players. In May, PLDT and Globe spent a combined $1.5 billion to jointly purchase San Miguel's telecom assets and frequencies, which were deemed critical for improving internet speeds.

Amid the scramble to sharpen PLDT's competitive edge, Pangilinan is keeping an eye out for a potential successor. He made it clear in the interview that he has high expectations.

MIRACLE WORKER Under the Philippine constitution, the head of a public utility like PLDT must be a Filipino. Pangilinan joked that his successor must also be a "miracle worker" who can "turn water into wine [and] multiply the fish and loaves" like Jesus Christ.

Pangilinan told reporters last year that it should be someone who is digitally savvy and has the "intestinal fortitude to take on this job."

"If you ask me, he has to be ready to die for the job. Give up his family. Those are my strict rules," he said. "If I could see that, you are in."

He added, "You know there is always a price you pay for the life you choose, right?"

Pangilinan easily could have been describing himself -- an unmarried man with a reputation for being a workhorse.

Ramoncito Fernandez, who has held various senior executive positions at Metro Pacific for 23 years, said his boss is a workaholic but practical. "He calls anytime of the day -- sometimes close to midnight -- and calls for weekend meetings. But I would say he is a visionary."

Pangilinan has a track record of positioning First Pacific units in monopolies that are vital to consumers, like water and power distribution, to ensure steady earnings. But even with his knack for business, finding a successor to match his talents is a tall order. Though he once expressed a preference for promoting from within PLDT, he is now casting a wider net and looking at outsiders. Last year, he hired Liza Sichon, a human resources veteran in Silicon Valley, to be PLDT's chief people and culture officer.

Pangilinan said a formal search committee will be convened this year. A decision could be made by 2018, according to local reports.

However, the leadership change will be closely watched by the competition, not to mention investors who are wary of PLDT's future. Pangilinan said there is more to learn about the new telecom landscape, and that he does not mind waiting for the best possible successor.

"I am not in a hurry," he said.

-- CEO in the news

-- Company in focus

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