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THE
Philippines is apparently not yet ready to take up 3G
(third generation) mobile phone service, as can be
gleaned from a decision of Smart Communications Inc. to
suspend further investments indefinitely in its 3G
network, citing sluggish acceptance by the market.
Napoleon
Nazareno, president of Smart and parent firm Philippine
Long Distance Telephone Co., said, “Future investments
will depend on the demand for 3G services. Right now, we
have more than enough capacity. Why do we need to invest
more if the infrastructure is already there and capacity
is more than enough for now.”
They
have so far invested $60 million that was used up in the
third quarter last year. “We have not made additional
investments since then.”
Earlier,
Smart had programmed some P33 billion to further
bankroll its 3G operation in the next six years on
expectations of losses in the first two years and
break-even only in the third year. However, considering
the slow 3G subscriber take-up, losses may extend up to
the fourth year of operations, according to the
company’s report to the Board of Investments last year.
The
company has installed 1,200 base stations in major
cities, enough to handle millions of 3G subscribers and
in its five-year rollout plan; it plans to raise that to
1,611 cities and towns, ranging from 1st class to 6th
class. The additional rollout is not in suspension.
Smart
has monitored some 400,000 3G-enabled handsets in their
network. Out of that, half subscribe to the service.
Nazareno said the slow subscription to 3G is in part due
to the high price of 3G handsets.
“The
rate for 3G services such as video calling remains very
affordable. It is even pegged at the same rate for local
voice calls. So, the rate for 3G services is not the
main factor why demand is not picking up. Handset price
still remains the major factor,” he said.
The
cheapest 3G phone costs at least P12,000. He expects a
better demand this year with the arrival of more
affordable 3G phones mainly from LG Electronics of
Korea, with the lowest price to be about P6,000.
“LG was
awarded last week during the annual GSMA (Global System
for Mobile Communications Association) meeting in
Barcelona, Spain as the preferential vendor for 3G
handsets. Certainly, this will help stimulate demand for
3G services,” said Nazareno.
Aside
from affordable 3G phones, Nazareno said Smart will
offer more content and applications to spur 3G usage.
“The drop in the cost of handsets is one of the factors
that will drive demand. With more applications at
affordable rates, we hope that demand will pick up.”
Nazareno
conceded they entered “into 3G prematurely, given not
only the price of the handsets but also the apparent
trend of lack of a killer application in other parts of
the world because the government wanted us in and
because we were counting on the incentives.”
Last
year, tax incentives to 3G operators were recalled by
the Board of Investments.
Smart
had appealed. “The impact of an income tax holiday on
Smart’s 3G project would only occur in the medium term.
The government will not have any actual forgone revenues
in the short-term because of expected tax losses at
least for the first two years of the 3G project,” Smart
chief financial officer Anabelle Chua wrote BOI
executive director for project assessment group Lucita
Reyes.
Smart
also argued that the removal of the tax holidays for 3G
is inconsistent with the 2005 Investment Priority Plan
and Executive Order 226.
“The BOI
has no power to disqualify any domestic-oriented or
market-seeking investment in the telco sector, or to
create or impose new disqualifications that are not
provided in the 2005 IPP, from [tax holiday]
entitlement. For the BOI now to remove the incentive is
obviously contrary to and inconsistent with the 2005 IPP
and EO 226.” |
