Cisco, Huawei, Ericsson on the hook for Philippine telco's $880M overspend
Next time you blow a project budget, console yourself that you weren’t this bad
Cisco, Huawei, and Ericsson have all been asked to take a hit after a Filipino telco blew its budget by a whopping $880 million and blamed it on bad procurement processes.
This story starts in late 2022 when Filipino telco PLDT issued a press release describing the success of a multi-year program to transform its core networks, lay plenty of fresh fiber optic links, build submarine cables, and create a 5G network.
All of which sounded great, except the telco also detected a "cost overrun" of ₱48 billion ($880 million), or about 20 percent of annual revenue, in commitments made to the vendors it relied on to finish the job and run those networks.
That's quite the corporate governance fail. PLDT quickly announced an investigation, and a plan to work with its major vendors to stop the unplanned spending. Cisco, Huawei, Ericsson and a Chinese telecoms vendor called FiberHome were identified as the major vendors with which PLDT wanted a word.
Yesterday PLDT announced its quarterly results, and that its investigation into the overrun had found "no evidence of fraud, intentional concealment, or bad faith conduct on the part of any employee of the Company."
But it did find – surprise! – that it almost certainly had not followed its own procurement and governance guidelines.
"We have already started adopting and implementing a number of improvements in the end-to-end capex process," CEO Alfredo Panlilio told investors on Thursday. "Just to name a few, we are implementing controls and enhancements in policies, procedures, budget planning approvals and monitoring, including investments in better tracking tools. So a bit of automation is also needed."
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The company's financial statements included news that it had spoken with its major suppliers and reached agreements that will see its future commitments reduced to ₱33 billion ($606 million).
That's still a colossal overrun. And as the four major vendors mentioned above represent 80 percent of PLDT's planned capital expenditure, the carrier is hopeful it can find more savings by seeking similar deals with other suppliers.
Panlilio pinned the overrun on PLDT's inability to understand and manage multi-year contracts.
"It was not an over-order, but really just the monitoring of the capex," he said. "We were not able to include the multi-year contracts."
At a time tech vendors are all very keen on subscriptions, maybe a chat with your accounts team is in order?
Despite the enormous overspend, typhoons, and inflation, Panlilio described 2022 as "a great year for us in terms of performance" because it "marked the start of our multi-year transformation."
"We've made gains across each of the five key pillars, strategic pillars that we focus on: elevating customer experience; improving our standing as a Philippine premier workplace; establishing industry-leading operational excellence; growing profits in core business, and we're also looking at new businesses and capabilities that will also be attractive for us moving forward," he said.
Hopefully those new capabilities include better governance. Few businesses can endure a year as "great" as one in which they discover $880 million of unplanned expenditure. ®