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By Darwin G. Amojelar, Reporter
AS the global slowdown puts a
brake on the local economy, telecom industry pundits fear a tectonic
shift in the lifestyle of Filipino cellular phone users in the
text-messaging capital of the world.
Before the current crisis, heavy
consumer spending on cellphones and peripherals had triggered the
fastest growth in the country’s telecom sector since the
government liberalized the industry more than a decade ago.
According to the National
Statistical Coordinating Board (NSCB), cellphone subscribers last
year hit 57.3 million, outnumbering landline subscribers 15 to one.
Citing data from the National Telecommunications Commission (NTC),
the NSCB said this trend began in 2000, when mobile phone
subscribers outnumbered their landline peers two to one.
Since 2000, cell-phone
subscription grew at an annual pace of 31.4 percent compared with
just 3.2 percent for landlines.
Consumer spending had been the
Philippine economy’s main driver, with overseas Filipino worker (OFW)
remittances fueling that expansion. But in the second quarter this
year, household expenditures slowed to 3.4 percent from 5.6 percent
last year. Reflecting the cut in family spending on communications,
the telecom sector slowed to 2.6 percent from the 13 percent
expansion seen in the same three-month period last year.
Close watch on
OFW remittances
The country’s economic managers
recently downgraded next year’s growth forecast to between 3.7
percent and 4.7 percent. This year, the government expects the
economy, as measured by the country’s gross domestic product (GDP)
to expand 4.1 percent to 4.8 percent.
Remittance inflows are also
expected to decline as OFW host-countries’ economies slow down. In
the first nine months of the year, OFW money sent home remains
robust, growing 17.1 percent to $12.3 billion year-on-year.
Gerardo Ablaza, Globe Telecom
Inc. president, had said the company is keeping a close watch on OFW
remittances, because this, more than anything else, would determine
how consumer spending would fare in the near term.
“We do expect a slowdown in
remittances, hopefully there will be no contraction,” said the
head of the country’s second largest tele-com company.
Manuel Pangilinan, chairman of
Philippine Long Distance Telephone Co. (PLDT), said the challenge
for next year is keeping consumer spending up.
Next year is “likely to be a
tough year” because of the global economic condition, said the
head of the country’s largest telco.
Shift from post-to pre-paid
cellphones
As people’s expenditures
increase faster than their incomes, the tendency is to tighten their
belts and cut discretionary spending like mobile phone usage,
Edgardo Cabar-rios, NTC director for common carrier and
authorization, said.
He expects postpaid subscribers
in the middle-income bracket to shift to prepaid plans, as their
expenditure on basic necessities increases. In turn, prepaid
subscribers would register more with promo packages that telcos
offer, reducing the average revenue per user (ARPU), a key metric
telcos monitor.
“With the rising food expenses,
subscribers’ extra money for communication will be cut. They will
surely cut down on mobile phone use,” Cabarrios said.
Indeed, the average monthly churn
rate of Globe postpaid subscribers at end-September stood at 1.65
percent, higher than last year’s 1.45 percent. Churn is telecom
jargon for the number of subscriber disconnections, or those
migrating to another type of service or to competitors.
Globe’s postpaid segment
comprises about 3 percent of its total subscriber base. The
company’s net additions in the third quarter slowed to 34,056
subscribers from 58,496 subscribers in the same period last year.
For its prepaid subscribers, the
churn rate stood at 5.42 percent, while sister-brand Touch Mobile
(TM) had 6.52 percent.
Rival Smart Communications Inc.
of PLDT also posted higher churn rates of 1.3 percent for postpaid
subscribers and 4.6 percent for prepaid subscribers. Its
sister-brand Talk ‘N Text had a churn rate of 4.7 percent.
Change in consumer behavior
Delfin Gonzales, Globe chief
financial officer, said consumer behavior is shifting to more
affordable “bucket” load packages.
“One-time or short-term use of
SIM is more prevalent now. Subscribers particularly those in a lower
income segment are now predisposed toward acquiring, using and
throwing away their SIMs and purchas[ing] new ones when they have an
extra income,” he said.
With the change in consumer
behavior, the company’s goal is to drive brand loyalty to manage
the churn level while keeping subscribers, he added.
The Globe executive expects ARPU
levels to remain on the downtrend due to persistent multiple SIM and
promo packages.
Austrialia’s Ovum said telcos
in Asia and the Pacific should focus more on affordable pricing
strategies to attract more subscribers.
“As customers tighten their
belts they will be looking for better value for money. This will
require telcos to target their product development and pricing
strategies more carefully to address different customer segments,”
the research firm said.
Sensitive to operating
expenses
Astro del Castillo, managing
director of First Grade Holdings said the shift of postpaid
subscribers to more affordable packages is part of their “cost
cutting and budget flexibility.”
He said the telecom industry will
not be spared the current economic crisis, adding telcos should be
sensitive to their operating expenses. “They have to balance it,
while attracting more subscribers,” he said.
Prince Yeung, equities analyst at
AB Capital Securities, said telcos should focus more on the mass
market if they want to grow their subscribers.
He said the cost of a pre-paid
SIM (subscriber identification module) card is cheaper than a
postpaid plan. He expects rising subscriber acquisition costs next
year as telcos attract more subscribers to stimulate demand.
In the third quarter, Globe’s
postpaid subscriber acquisition cost rose 24 percent to P6,468,
while its prepaid went up by 11 percent to P31. For TM, acquisition
cost dropped 47 percent to P19.
This is why Globe is focusing on
the mass market of the population.
“I think the opportunity for
growth is in TM than Globe. TM is serving the mass market sector and
the penetration is a little bit lower than the market of Globe,”
Ablaza said.
At end-September, the telco’s
total subscriber base reached 23.7 million subscribers, up 24
percent from last year. The TM brand brought in more than 800,000
new subscribers, its highest quarterly performance.
The PLDT group’s subscriber
base reached 34.2 million, of which Smart had 20.9 million and
Pilipino Telephone Corp. (Piltel) had 13.3 million.
ARPU going down
Yeung said as telcos aggressively
offer promos to stimulate demand, their ARPU goes down.
“They need to grow their
subscribers faster to offset the declining ARPU,” he said.
Globe’s net ARPU for prepaid
plans at end-September was down 17 percent to P207, while TM’s
posted a 32-percent contraction to P105. For postpaid plans,
Globe’s ARPU was down by 9 percent to P1,449 from last year’s
P1,593.
Smart’s prepaid and postpaid
ARPU were also down to P223 and P1,505 from P232 and P1,510,
respectively. Piltel’s was also down to P148 from P159.
Given the lower subscriber net
additions and ARPU, PLDT’s consolidated revenues grew by 5 percent
to P35.24 billion in the third quarter, bringing the first
nine-month revenues to P105.59 billion.
Globe’s service revenues
slipped 1-percent lower to P46.62 billion.
In the wake of the financial
market turbulence, Ovum expects 2009 to be a challenging year for
the Asian telecom industry.
“Telcos in the Asian region
were already facing many challenges,” David Kennedy, Ovum research
director for Asia-Pacific said.
“Ovum does not expect the
crisis to hit Asia as hard as the US, but declining US domestic
demand will certainly affect Asian exporters and hence the rest of
the economy. That includes telcos,” he said.
Short-term pressure on costs
The impact on the telco sector
will be mixed, Kennedy said, adding that the slowing economies will
hit revenue growth, increasing short-term pressure to cut costs.
“We expect many planned
infrastructure projects to be delayed or cancelled in 2009,” he
said.
Given this gloomy forecast for
the industry, Yeung said telcos need some “revenue booster” such
as the Internet broadband to meet 10-percent revenue growth next
year.
“I think Internet broadband is
the next battle ground for telcos. The mobile phone business can’t
go on forever,” he said.
Jorge Sarmiento, NTC deputy
commissioner, said broadband is the future growth area for local
telcos.
“The private sector in the
Philippines has set their sights on this broadband technology, its
applications, innovations and services as the next battleground for
subscribers and revenues because broadband is the next growth
driver,” he said.
The NTC official said broadband
Internet access in the country is available only to a small segment
of the population and there is a significant penetration discrepancy
not only between different regions but also between provinces.
Data from the NTC showed that
Internet broadband connectivity in urban areas stood at 100 percent,
as against 40 percent for rural areas.
The regulator said 70 percent of
households and 75 percent of businesses have access to wireless
broadband service.
As of mid-October, the total
number of digital subscriber lines stood at 739,989.
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