Conclusion
THE telecommunications market is expected to further expand, thanks to the relatively lower smartphone penetration in the Philippines; but with the possible entry of another network player, competition is expected to toughen.
Smartphone penetration is currently at about 50 percent of the population, but mobile-subscriber count is now at 121 million. The wireless subsidiaries of Philippine Long Distance Telephone Co. (PLDT)—Smart and Sun—dominate the market with 68.9 million subscribers, while Globe Telecom Inc. accounts for 53 million.
This is expected to grow to at least 131.97 million by 2019, an analysis by BMI Research of Fitch showed, as more and more users shift to new technologies. Definitely, the incumbents will continue to increase their numbers, but should Telstra Corp. Ltd.’s foray into the Philippine market prove to be as successful as San Miguel Corp. (SMC) hopes, the current network players will find it harder to acquire more customers. “A potential new entrant in the form of San Miguel Corp.’s Bell Telecommunications unit could drive competition in the currently duopolistic market. If its commercial launch is successful, incumbents Globe Telecom and Philippines Long Distance Telephone Co. could have their market positions threatened,” BMI Research said in its 2015 report.
Bell Telecommunications Philippines Inc. is a subsidiary of the food-to-infrastructure firm. It is expected to be used as the corporate vehicle for the new telco player. The research institute said it expects the new player to come in by the fourth quarter of the year. Telstra is expected to shake up the duopolistic structure of the Philippine telecommunications market.
Threat to giants
Alexander Adrian O. Tiu, senior equity analyst at AB Capital Securities Inc., said the entry of Testra through Bell Telecommunications will threaten the profitability of the two telco giants.
“There’s going to be a lot of pressure for both PLDT and Globe if Telstra proceeds through. An entry of a new telecom giant not only would affect the current market share of PLDT and Globe, but would also affect the growth rate of the respective companies,” Tiu said.
“There will also be margin pressure due to competition and this would have a strong impact on the current duopoly,” he added.
While the Australian telecommunications giant SMC have been keeping mum about their initial plans for the Philippines, the prospect of a new entrant already forces the incumbents to work twice as hard to sustain their growth.
“It’s hard to give an estimate on the impact given that Telstra and SMC have not announced a formal plan yet—and what business segment they will focus at. But, depending on how aggressive Telstra is, I can see a possible decline of 5 [percent] to 20 percent in top line,” Tiu said.
PLDT ended the first semester with flat revenues at P85.19 billion, while Globe closed the first half with P53.8 billion in revenues, a 13-percent rise from the year prior.
The entry of a third network player will also put pressure on share prices of the two listed telecommunications companies. “Given that market share, growth and margins may deteriorate, there will be a lot of pressure on PLDT and Globe’s share prices if Telstra decides to enter,” Tiu said.
PLDT shares ended trading at P2,220 each on Tuesday, a 3.34-percent decline from P2,276 posted on Monday. Stocks of Globe also dipped by 2.17 percent to end Tuesday’s trading at P2,250 apiece.
The local bourse posted losses on Tuesday after China reported that its imports in September plunged by 20 percent. Ramon R. Isberto, PLDT spokesman, attributed the decline of his company share prices to the
“recent flight of foreign investors from emerging markets.”
“It has disproportionately affected the stock price of PLDT, which remains one of the most liquid stocks in the Philippine market and, thus, relatively easy to trade. Despite that, and of greater relevance, PLDT clearly remains the largest telecoms player in the Philippines based on market capitalization and overall business,” Isberto said.
In terms of market capitalization, PLDT still is king with P491.74 billion, significantly higher than Globe’s P305.31 billion.
The two largest telecommunications companies in the country posted mixed results in the first half of the year, with net profits of Globe rising by 27 percent, while that of PLDT ceding by 6 percent.
In absolute terms, the largest Filipino telco booked a net income of P18.7 billion, while its rival wrote off P8.7 billion on its records.
Unfazed
Despite the threat posed by Telstra to existing players in the local telco market, Globe President Ernest L. Cu remains unfazed, citing the company’s previous experience as the challenger brand to a very competitive player.
“Globe has been in competition with a much larger, well-funded incumbent, and we will continue to compete moving forward,” Cu said. “Assuming rational business practices, and Telstra will be in business to increase shareholder value, we are confident that we will be able to compete effectively.”
“Today the competitive environment in telco is already intense despite having only two active industry players. To compete in such an environment does not only require substantial resources but a passion for the customer and a culture of innovation,” he said.
Isberto, for his part, said PLDT will do its best to further improve its financial position and vowed to be more aggressive in competing in the hotly contested market.
“We are promoting innovation within the PLDT group and also establishing partnerships with the best tech companies in the world in order to develop and offer engaging digital services that will delight our customers. This also involves transforming our organization, building new digital skills and capacities, and strengthening our relations with our customers,” he said.
The spokesman noted that PLDT does not only compete with Globe alone, but also with other Internet players, hence, it will have to exert more effort to thrive in the ever-changing market.
“Our general view is that in a deregulated industry, such as telecommunications, competition is a fact of life. This competition comes not only from other telcos, but also from Internet players. We need to think and act accordingly,” Isberto said.
Image credits: Nonie Reyes