More than a few people were disappointed with the news last March that a potential venture between conglomerate San Miguel Corp. and Australia’s Telstra Corp. Ltd. fell apart.
The partnership promised a strong contender to the five-year duopoly of Philippine Long Distance Telephone Co. and Globe Telecom, and carried an almost messianic-style solution to the slow and expensive Internet woes in the Philippines.
It did not push through as both parties failed to “come up with an acceptable resolution to some issues.”
It later emerged that Australia’s giant telco had sought and failed to get a guarantee for a refund of its investment from San Miguel, whose prized 700 megahertz frequency is being eyed by incumbent players.
Upcoming change
The timing was also tricky given the upcoming change in the country’s leadership this June.
Filipinos hoping for more options took to the Internet to air their woes, with a common message emerging: “Sayang” (It’s too bad).
A third player is still in the cards. San Miguel plans to launch its mobile Internet service sometime this year, saying this will be a faster and cheaper LTE service than what is currently available.
But until then, the question that remains is what can consumers expect in terms of their services improving? According to independent researcher Mary Grace Mirandilla Santos, not a whole lot just yet.
“People should expect that things won’t change much in the near-term unless some reforms will be put in place,” Santos said in an interview.
Santos, whose research is focused on telecommunications and information communications and technology, is an advocate of broad reforms: An open access law, telco infrastructure sharing, revisiting the foreign ownership cap and updating decades-old regulations.
Encourage more players
The main goal, she said, is to encourage more players to enter the Philippines. To her, the aborted talks between San Miguel and Telstra, while disappointing, was not a complete surprise.
“It was apparent that the risk for Telstra would be higher than what the reward would be,” she said.
The excitement over Telstra-San Miguel, now just San Miguel, still signals a great business opportunity.
The telecommunications industry continues to shift globally.
In the Philippines, telco service providers have seen continuous decline in the use of texting and calling services. Instead, consumers are taking advantage of Internet-based messaging apps and social media.
Networks are likewise being strained as demand for smartphones, whose prices are falling, continue to skyrocket. Smartphones generate much more data—about 37 times compared to feature phones, Cisco said. Moreover, 4G smartphone versions generate three times the data traffic as 3G models.
GSMA, an association of telco operators, expects 4G networks to reach half the global population by 2017, and San Miguel is banking on that trend.
“When we launch, we expect to get plenty of customers right away,” Ramon Ang, San Miguel Corp. president, said in an interview. “It will be a reliable, high-quality Internet service. And at a very very lost cost.”
Ang said a big number of customers would be ready to switch, if a third option would be made available.
He added that San Miguel was still fine-tuning its network, but the launch would happen this year and would initially cover Metro Manila up to Pampanga in the North and Batangas in the South with LTE high-speed Internet.
“I don’t think they (PLDT and Globe) will leave us alone to grab market share. They will have to bring down the price. It’s okay with us. All I want, is once we switch on, they improve their quality so the consumer will win,” Ang said.
Competition is expected to heat up, though not in the same pace and magnitude had a San Miguel-Telstra venture pushed through, according to Fitch Ratings.
“We believe that Telstra’s technology expertise and financial muscle would have been very valuable to the SMC JV,” Fitch said when the deal failed.
Predominantly 2G
“The Philippines’ mobile market is predominantly 2G, despite its high mobile saturation. We believe there are strong value propositions for faster 4G LTE services, and the entry of SMC would have a greater impact on industry profitability over the longer term,” it added.
PLDT and Globe were also rewarded following the collapse of negotiations. PLDT’s share price jumped by more than 11 percent to P1,888.3 the same day (March 14, 2016) the deal was called off, while Globe rose by almost 8 percent to P1,910.
By the end of the first quarter of 2016, PLDT was trading at P1,980 per share while Globe was at P2,220.
Both PLDT and Globe, which serve a country of more than 100 million people, are seeking to grow their digital footprint as consumers demand for more Internet services right on their mobile phones.
But because of the different strategies they pursued, Globe appears to have gained and sustained momentum, while PLDT admitted to anticipating challenges ahead.
PLDT said core earnings were set for a third-straight year of decline in 2016, reflecting the slowdown in its legacy businesses.
Core profit in 2015 slid by 6 percent to P35.2 billion and was poised to drop further to P28 billion this year, its chair Manuel V. Pangilinan said. PLDT service revenue was down 1 percent to P162.9 billion.
However, Internet-related services remained a bright spot. PLDT’s data and broadband revenue grew 16 percent to P48.5 billion, and now account for 30 percent of total service revenue, briefing materials from the company showed.
“We are just being realistic about the current prospects, and what the future will be for PLDT,” Pangilinan said. “It will totally be a different company two or three years from today.”
PLDT, which was aiming to spend P43 billion this year mainly to upgrade services, admitted to stumbling. But Globe, the smaller of the two telcos, says it can only forge ahead with its digital shift—a trend it had spotted early on.
Globe ended 2015 with its core profit growing by 4 percent to P15.1 billion and service revenue jumping 15 percent to P113.7 billion. In March, Globe CEO Ernest Cu announced a new network capacity expansion program, that could increase its earlier-programmed 2016 capital expenditure budget of $750 million.
“It is important for us to be aggressive because subscribers are coming our way. If we don’t deliver on the right experience, they are going to move. So we need to satisfy their needs,” Cu said.
Telcos are also calling for the government’s support, including helping them secure part of San Miguel’s 700 Mhz frequency, good for covering large areas and penetrating walls at much lower cost. With little action from the National Tel
Telecommunications Commission, Cu said the telcos would also lobby lawmakers to help ease bottlenecks in the permitting process for putting up new cell sites.
Cu said telcos were keen on investing in more infrastructure, but it was difficult and costly to do so with all the bureaucratic red tape.
Task for next leader
Beyond that, the country’s next leader would also need to take a broader look at the challenges facing the sector, especially the lack of more players, Santos said.
Santos, who recently did a policy brief on the state of broadband for the Joint Foreign Chambers of the Philippines, said the government needed to do its part.
A big step here is to implement a true open access scheme. She wrote that this would pave the way for the separation of infrastructure from service provisioning.
The current structure encourages a telco to own and maintain a network that provides all services. Open access would open up the market to different players without requiring a Congressional franchise.
But there are some “low-hanging fruits” that the government can focus on, these include spectrum management, which called for a review of all the spectrum available and their reallocation when necessary, and the support of open and neutral Internet exchange points, she said.
Incumbent players have promised that services will improve. Until more options emerge, consumers will just have to hold them to their word.