Olongapo Telecom & Information Technology

Sunday, December 31, 2006

Telecom firms focus on new strategies

By Mary Ann Ll. Reyes
The Philippine Star

The days of ramp-up of cellular subscribers are no longer there.

Faced with this grim but inevitable reality, as the mobile penetration rate (the percentage of the population using mobile phones) nears 40 percent most of which are in Metro Manila and other urban areas, cellular service providers grapple for ways and means to keep the business growing.

"Now, when we talk about the growth in the business, we are as much concerned with subscriber growth rates as with average revenue per user," Globe Telecom president Gerardo Ablaza says.

For his part, Philippine Long Distance Telephone Co. (PLDT) chairman Manuel Pangilinan anticipates that as wireless penetration rate rises, the growth in wireless revenues will moderate. "Thus, Smart and Piltel revenues would grow at rates lower than in previous years, as we mine deeper into the lower economic strata of our society," he said.

During the first nine months of 2006, market leader Smart Communications Inc. together with subsidiary Pilipino Telephone Inc. (Piltel) reported subscriber numbers of around 22.9 million while arch rival Globe registered 14.5 million subscribers. But compared to previous years, subscriber net additions have been lower. With the cellular industry already past its growth stage and nearing maturity, both companies have focused their efforts towards increased usage and developing new businesses beyond cellular.

To encourage more cellular usage, Smart, Globe, and Gokongwei-owned Sun Cellular have offered various bucket pricing mechanisms which in effect lowered mobile call rates. But the bulk of the traffic still comes from text messaging which is now the cheapest form of communication at P1 per text or even lower. Data usage remains low and the onset of 3G or the third generation of mobile technology which promises faster download speeds is not expected to impact on revenues as much as SMS did.

Increased competition in the market has been good for the consumers. Prices have fallen across mobile, IDD and local calls by 30 percent, 26 percent and seven percent, respectively since 1998.

When comparing, for example, average mobile prices in different regions of the world, the decrease in the Philippine market has been 40 percent, larger than in the European Union where prices fell 21 percent, and in the United States , where prices rose by eight percent. Prices in the Philippines have also fallen by more on the average than other countries in Asia-Pacific.

Late last year, the National Telecommunications Commission (NTC) awarded 3G licenses and frequencies to Smart, Globe, Digitel Mobile, and CURE, a company controlled by former Trade Minister Roberto Ongpin. Cellular companies admit they have doubts about 3G, but they would rather be first in the market to offer 3G rather than be left out by the competition.

PLDT alone plans to invest as much as $1 billion over the next three to four years in 3G, broadband, and the next generation network or NGN, the latter to enable the country’s most valuable company to migrate from its legacy copper wire network to a more efficient network that can carry both voice and data.

But there are bright spots for the business. Pangilinan said the onset of broadband products, services, applications and solutions will raise consolidated revenues for PLDT in the coming years by double digits, while PLDT’s call centers and business process outsoutcing (BPO) units will together form a significant portion of consolidated profits from the group. Together with broadband, they are the fastest growing revenue generators of PLDT.

"It is our aim to make broadband access widely available in both our fixed and mobile networks. The historical core of PLDT’S business has been access. Connectivity was our game. In the future, it will increasingly become: connectivity plus – meaning connectively plus value added services. The reason for this is simple: Connectivity will eventually become a commodity. And our competitive advantage will increasingly come from value added services, not just dial tone," the group chairman stressed.

He added that PLDT is working to improve its physical strengths, by shifting its core network from circuit-switches to packet-switch technologies. "Our move to internet protocol-based systems on this next generation network or NGN will give us the flexibility to offer a wide array of innovative products and services at lower cost," he said.

He also revealed that another new business on the horizon is video on the cellular phone or mobile TV, "a boom business waiting to happen." More than 120 mobile operators around the world offer mobile TV service.

Pangilinan adds that 2006 is a year to lay the foundation for earnings growth in 2007. This is being achieved by expanding coverage and enhancing broadband and data capabilities through NGN upgrade and rollout of multi-purpose cellular network elements, as well as the acquisition by ePLDT of SPI and Cymed in order to broaden the PLDT Group’s participation in the growth BPO sector.

The cellular business, however, is far from being dead. When compared with international benchmarks of a peer group of countries with similar GDP per-capita, the penetration levels in the Philippines are at the low end of the scale. The gap to developed countries is even greater. For example, mobile penetration levels in countries like Sri Lanka, Malaysia, Colombia and Thailand are 89 percent, 81 percent, 50 percent, and 47 percent respectively, while for Philippines it is only 39 percent.

Fixed line penetration in the country is also low when compared to other peer countries. Countries like Malaysia , Ecuador and Thailand all have fixed penetration rates above 10 percent, while the Philippine penetration rate in the fixed segment is only four percent. Broadband penetration also is still at minimal level in the Philippines.

PLDT retail business group head Butch Jimenez says 2006 was a transition year for the fixed line business. "We are transitioning from our old legacy network to the next generation network, and from being a predominantly voice company towards data. As in any transition period, we experienced a lot of adjustments, but all in preparation for a strong push in 2007. Broadband will continue to lead the growth as we endeavor to dominate the industry via PLDT mydsl on the wired side and Smartbro on the wireless broadband side," he said.