PH seen stuck with 2 telco players

As the clamor for a third telco player in the Philippines reached a fever pitch, a respected technology expert delivered a sobering reminder of the cost: Roughly $10 billion to roll out a network and decades before hitting breakeven.

The massive financial resources and an environment where revenues were slowing because of mature market conditions make it unlikely for a private company to go head to head against the PLDT Inc. and Globe Telecom duopoly, said Sean Gowran, Ericsson country head and president of Philippines and the Pacific Islands operations.

Gowran’s figures, which he called “top of the head” calculations, provided a rare, business viability-based insight on how a third telco player might fare in the country’s two-player market, unusual for a region where three or more players was common.

It also came as the government last week signaled that a serious challenger with a large foreign partner was welcome in the Philippines. This was an increasingly popular stand among customers who feel the incumbent telcos have done too little to address network issues, especially on internet quality.

“I think it’s great that we opened the doors,” Gowran said at the sidelines of the Philippine Telecoms Summit 2017 last Friday. “I’m just saying I’m not sure who would want to come.”

Years of consolidation saw the country’s once five-player market get whittled down to the present two.

The last challenger was the Gokongwei family-led operator of Sun Cellular, which was bought by PLDT in 2011. Then PLDT and Globe joined forces in 2016 to acquire San Miguel Corp.’s telco unit, which had yet to start operations, after the conglomerate’s talks with Australia’s Telstra Corp. Ltd. failed.

Gowran said that for a new player to match the nationwide network capacity and coverage of PLDT and Globe, each controlling an almost equal share of the country’s roughly 100 million people, capital spending would amount to $10 billion over five years.

“You have to invest twice as much as they’re investing to catch up,” Gowran said, saying PLDT and Globe have had a headstart of decades, building cell sites and laying down fiber lines.

The target is to achieve around 33-percent market share by year five, an optimistic goal. Given mature conditions, revenue growth will be minimal and will be split among three players, he added.

Gowran assumed the three telcos would take in about P100 billion in annual revenues at that point (PLDT and Globe earned a combined P290 billion in revenues for 2016). He said expenses and capital spending would come in at P80 billion, leaving annual profits of P20 billion.