Conclusion
THE move to dismantle the possible entry of San Miguel Corp. (SMC) and Telstra Ltd. Corp. into the Philippine mobile broadband sector was questioned by no other than the top brass of the Filipino diversified conglomerate.
San Miguel President Ramon S. Ang called on Philippine Long Distance Telephone Co. (PLDT) and Globe Telecom Inc. to stop picking on his company, and urged them to focus on addressing the needs of their current subscriber base.
Why pick on us?
“They have more than enough frequency between them. They have almost 300 megahertz of LTE frequency. Why do they need more? All they need is to improve and fine-tune what they have,” he said. “They want to take what is ours to prevent us from operating. Spare us that little bit of frequency.”
Despite this possible setback, Ang expressed his confidence that his company will be successful in this game, no matter that his intentions are not to compete, but to provide quality Internet service in the Philippines.
“The telecom service will now improve, because there is competition. Prices have gone down, even though we have not yet done anything,” he said. “Mobile signal will improve soon, there will be fewer dropped calls.”
The San Miguel official added that he never intended to wage war with the incumbents, but merely wants to end the losing streak of the country in the mobile Internet ratings game in Asia Pacific.
“Honestly, we are not here to engage them into a fight. What we really want to do is to improve the service to the public,” he said.
Pressure telcos
Despite all the challenges that it will face in the future, the possibility of a third network player seems to be inevitable, as Telstra’s chief executive announced that his company is willing to shell out as much as $1 billion this year for the formation of a wireless joint venture with SMC.
Consumers, both in mainstream and social media, are generally excited with the prospect of having another telco provide mobile broadband services in the country.
Quite a few went as far as bashing the incumbents for their slow Internet speeds, despite the high cost of the service relative to its neighbors.
Studies conducted by Ookla, an Internet metrics provider, showed that the Philippines has the second- slowest average download speed among 22 countries in Asia, with an average speed of 3.64 Mbps.
It ranked 176th out of 202 nations around the world. It is eight times slower than the global average broadband download speed of 23.3 Mbps.
Separately, cloud services provider Akamai Technologies found that, while the Philippines might have improved its connection by a percentage point, its overall ranking in Asia still remains at No. 13 out of 15, or the third-worst connection in the region.
Filipinos, according to the first-quarter report of Akamai, enjoyed an average download speed of 2.8 Mbps during the period under review. Trailing behind are India and Indonesia, with 2.3 Mpbs and 2.2 Mbps average speed, respectively.
But is there really something to look forward to with Telstra’s entry? Experts think so.
“One thing we can look forward to is a possible big competitor that is independent of the two big telcos, who can muscle its way into the market given a huge capital investment, and that create enough pressure on the incumbent telcos to shape up and be on their toes,” said Mary Grace Mirandilla-Santos, an independent researcher on information and communications technology and telecommunications policies.
National Telecommunications Commission Director Edgardo V. Cabarios, for his part, emphasized on the advantage that this gives to consumers.
“In any market, improved competition brings better service, better quality and better prices. The main beneficiary of this are the consumers,” he said.
International Data Corp. Philippines analyst Alon Anthony D. Rejano added that the immediate effects of the soon-to-be third party could be felt by consumers as early as now.
“Everyone seems so excited about the coming of Telstra in the market, with the promise to fix the challenges in the Internet connection. As of now, you can see a telco offering a cheaper and speedier connection. We see that the impact on the market is that it enables the incumbents to intensify their offerings and services on the back of the entry of a new telco service provider,” he said.
For example, Globe has reportedly doubled the allocation of data of its postpaid consumers.
“Globe is saying that they have prepared for a new player in the market and have been ready for it. In any business and when you have a competitor, you want to be ahead of the game, right? This means that you have to step up and create new ways to attract more consumers,” Rejano said.
Case in point are PLDT’s launching of fixed-line broadband plan, which is 1 Gbps, and Globe’s upgraded Platinum Broadband plans that have higher bandwidth.
“This means the competition has a positive impact on consumers, which gives them better service at a cheaper price,” he pointed out.
Consumers attitude will be ‘wait and see’
Competition, however, is expected to cut the two incumbents’ market shares.
Luis A. Limlingan, head of research and sales of Regina Capital Development Corp., said that, although the two telcos are at risk, the one near the losing end is the dominant telecommunications player.
“Most likely, a majority of the customers of Telstra will be coming from PLDT, because it has the biggest share in the market. Customers now are willing to jump ship, now that the average revenue per unit is at P140; switching costs are very low,” he said.
Most of these subscribers, Mirandilla-Santos added, will come from the prepaid segment of both telcos.
“While it would make more sense for disgruntled postpaid subscribers to switch, the 24- to 30-month lock-in period and the absence of number portability make switching very inconvenient and costly. Thus, it’s the prepaid users who would more likely readily try out a new service provider,” she said. The switch, however, will take some time, at least according to Rejano.
“Even there is an increasing hype on Telstra, I believe Filipinos will still go through the wait-and-see process, in which they want their peers to try it first, and if proven more effective and better than the incumbents, they will use it. I think that consumer-spending behavior has evolved,” he said.
Rejano added: “The market will patronize a provider that will bring value to them, which considers the cost, quality and convenience of the offering altogether.”
Be prepared
Given the possibility of declining margins due to the entry of Telstra, analysts believe that the two incumbents will have to be more creative and more aggressive in competing in the market.
Alexander Adrian O. Tiu, senior equity analyst at AB Capital Securities Inc., noted that, although the existing telcos have the advantage of brand awareness being in the business for so long, both companies will likely see their bottom lines affected by the entry of a new player.
“PLDT and Globe have the advantage of brand awareness being in the business for so long, unlike San Miguel-Telstra. However, it would be difficult for both companies to sustain their current margins, especially if the San Miguel-Telstra joint venture will be aggressive—and I bet they will,” he said.
Limlingan agreed, saying that this might spook investors of both companies.
“I think investors should be worried, because people are now willing to switch from one telco to another,” he said.
Tiu added: “It’s definitely a cause of concern for investors, especially if San Miguel gets aggressive, as it could reduce market share, margins and growth for both telcos.”
But for Globe President Ernest L. Cu, who was instrumental to Globe’s winning streak in the profitability war, fighting a shade will not be too difficult.
“We’ve been working on our network for 13 years, do you think a new player can deliver the same experience on Day One? Globe has been able to compete with a very large, well-funded incumbent. Do you think we can’t compete with a start-up?” he said.
Since a contract between SMC and Telstra has yet to be signed, Cu holds firmly to his belief that such a competitor is only a “ghost.”
“I don’t get scared of ghosts. All Globe is doing is what it does best—continuing to gain market, continuing to maintain creating innovation to the market and great customer experience,” he said. “We have a formula that worked really well for us on the last five years, so we’ll keep doing it.”
Despite this, Cu did not dismiss that the budding company is a threat.
“They are a threat. Anyone who comes into the market is a threat, but I don’t want to react to a threat that’s not real. Sign the contract, and let’s play,” he said.
Manuel V. Pangilinan, chairman at PLDT, was honest to admit that his company will have to intensify its efforts to protect its consumer base, given the threat of a third player. His group, he said, will continue improving its services by expanding its network coverage and capacity.
“We need to protect our market share for prepaid and postpaid. We’ll feel it immediately, but it depends on what their tactics are. It’s hard to speculate. But, really, they wouldn’t come in without a fanfare. The novelty of a new entrant…some people will be lured to try it,” he said.
Telstra is expected to debut in Manila in 2016, through SMC’s Bell Telecommunications Philippines Inc.
SMC is expected to hold 60 percent of the said company—requiring it to invest as much as $1.5 billion—while the remainder will be held by the Australian telecommunications giant. How Telstra will shake the telco sector up—whether through a price or a services war—that is something that the market will have to anticipate.
“Telstra would position itself like any big telco and investor: Stick to the profitable areas. It is coming in to take advantage of a still largely unserved 4G mobile market. Whether its service will be any better than the two incumbents remains to be seen,” Mirandilla-Santos said.
1 comment
Its pretty obvious that the blocking is a conspiracy to maintain the 2 telcos’ large profit margin which is a by-product of very poor internet services in the country, the 2nd worst in the world. Should Telstra-SMC venture materialize here in the philippines, it might bring down prices and might improve connectivity speed. Lets just hope Telstra-SMC will offer cheaper rates with better connectivity.