PH telco sector in crisis

Ben D. Kritz

Ben D. Kritz

ACCORDING to debt watcher Fitch Ratings, the telecom sector in most Asian countries will come under increasing competitive pressure beginning next year, which will force them to increase capital expenditures to keep up, while at the same time reducing their revenue growth.

This is terrible news for the Philippines, where the telecom sector dominated by the duopoly of PLDT and Globe is already in a crisis. The inadequacy of telephone and data services is not much different in character, in fact, than the shortage of electricity that nearly crippled the country in the early 1990s.

Fitch pointed out that along with India, the Philippines is likely to be hit the hardest by the anticipated financial downturn, because the providers in these countries still derive most of their income from voice and text services. In India, the expected problems can be traced directly to competition; the established Indian players are facing a challenge from a well-capitalized new entrant that is undercutting them by offering free voice and text services and data at somewhat less than the prevailing rates.

As far as the Philippines is concerned, Fitch did not provide many specifics except to cite the need for increased capex to build up 4G networks to keep up with growing demand for data services and “the rising importance of network quality.”

The quandary faced by the two Philippine giants is this: Any expansion of their networks is an expensive undertaking, and so to make it financially worthwhile, that expansion is concentrated in demographic areas where the more valuable customers – businesses, and individual customers who are likely to sign up for postpaid plans worth P1,000 or more per month – can be found. Due to the democratization of smart phone technology, however, which makes respectably capable phones available for as little as P1,400, the fastest growing part of the telcos’ customer base is the lower end, mostly prepaid customers who still largely use their phones for conventional text and voice services.

This has left the country with a situation where the existing infrastructure is completely overwhelmed, while the presumably more valuable areas are overdeveloped, which manifests itself in terrible service nearly everywhere – slow data speeds and inconsistent connections, even for simple texts or calls. PLDT and Globe have fought hard, and so far successfully, to keep any other competitors out of the market, but they have bitten off more than they can chew; without a significant change in their business model, they are likely to never be able to catch up.

That should raise the question, “At what point does the government step in and create spaces for competition?”
That government should consider doing that is obvious; telecom services are basic communication, and should be considered a strategic asset. It is also rather obvious that if now is not the moment the government should consider intervening, that moment is coming soon, no later than next year. How the government should intervene is subject to discussion.

While that discussion is ongoing, there is one step the government could take to resolve one of the legitimate complaints of PLDT and Globe, that local processes and general interference make physical expansion of their networks difficult. Too many permits are required to erect a network tower, and in some places, local residences have resisted because of a misguided belief there are health risks associated with them (there are not). A simple remedy would be to make hosting a cellular tower site a condition of the registration of any homeowners’ association, unless, after inspection by a competent authority such as the National Telecommunications Commission (NTC), an area is deemed unsuitable or unnecessary and exempted.

That would at least remove one excuse from the telcos for not expanding their networks faster, and give them a fair chance to justify their continuing duopoly. If they blow it after being given relief on the one legitimate complaint they have made, then the government is even more justified in compelling them to surrender a part of their market share for a third or even a fourth player.


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