TelCondition Check: A weigh in on the Philippine telecommunications industry (Part 1)

Is there enough improvement in the Philippines' telecommunication services?

The Philippines has been known as the text messaging capital of the world and is now tagged as the world’s “most social nation” because of the diversity in the social media activity of its Internet users. According to the Digital Report in 2017 by We Are Social, Filipinos spend an average of 4 hours and 7 minutes a day on social media sites. This growth in social media activity in the country is attributed to the popularity of smartphones, with half of Filipino mobile Web users using smartphones to browse the Internet. But despite being regarded as the social media capital of the world, the Philippines is considered as a laggard in terms of average internet speed and price as compared to its Asean neighbors.

Internet access is no longer just a privilege for the rich thanks to the ongoing digital revolution. This high rate of usage however, stands in contrast to the currently available internet speed in the country. According to US content service provider Akamai Q3 2016 report, the Philippines remains to have one of the slowest fixed line broadband Internet speed among its peers in the Asia Pacific region with an average speed of 4.2 Mbps. However, the report pointed out that the country had the fastest average mobile internet speed in Asia Pacific in the said period, with an average mobile internet speed of 13.9 Mbps.

In terms of Internet cost, National Telecommunications Commission (NTC) Commissioner Gamaliel Cordoba presented that contrary to popular knowledge, the cost of mobile data in the county is actually cheap, compared to its neighbors. Mobile data in the Philippines costs P0.37 per megabyte of data volume. Fixed broadband data on the other hand is relatively cheap at P0.21 per megabyte. (See Figure 1)

 

Figure 1. Comparative Data Prices of Broadband (NTC)


Despite being the cheapest though, there are still much work on speed and coverage needed. Mary Grace Mirandilla-Santos, an independent researcher on information and communications technology (ICT) and telecommunications policies noted that in 2015 a huge portion of the population – 59 percent of the 101 million Filipinos, 72 percent of the 22.98 million households, 74 percent of the 46,700+ public schools, have no internet access.

But the Department of Information and Communication Technology (DICT) confidently said change is coming for the telecommunications sector, as it pledged to address the issues that hinder the positive development in the country’s telco services on cost, speed, and coverage, as well as solutions for each issue during the recently concluded Philippine Telecoms Summit 2017. DICT, through the multi-sector Summit gathered various industry stakeholders — government agencies and regulators, industry players, experts, and consumers to discuss the problems, issues and possible solutions surrounding the state of telecommunications today.

Third player to break telco duopoly?
DICT Secretary Rodolfo A. Salalima said DICT encourages the entry of new core players in the telecommunications industry to facilitate healthier competition among existing players and to encourage them to offer better services to Filipinos.  The Philippines is open to having more industry players, local and foreign alike, according to Salalima, but he noted that players who want to enter the telco market should be serious in providing public service, and not just to make money. The Information Secretary added that since 1995, through the enactment of Public Telecommunications Act (RA 7925), the Philippines has long been open for a 3rd and 4th player. However, he explained that the potential operator must possess legal, technical and financial credibility and capacity to post a credible and effective competition against existing telcos.

This position was echoed by Mirandilla-Santos, who said the Philippine telecommunications industry is ripe for new investments and emphasized the pressing need to pave the way for the entry of a challenger to the PLDT-Globe Telecom duopoly. Mirandilla-Santos said the long-term solution to the country’s telecommunication issues is to create a market environment conducive to new players and to introduce policy reforms to further drive competition.

On the other hand, other experts see the Philippines stuck with the existing telco players at the moment. Sean Gowran, Ericsson country head and president of Philippines and the Pacific Islands operations said the current Philippine telco market is competitive enough. He added that the highly competitive mobile telco market is unlikely to have a third player, given the huge investment required to rollout network infrastructure. Gowran also explained that the new player will find it difficult to match the investments of PLDT and Globe Telecom in order to catch up with the service of these existing players. In his presentation, Gowran said that around 10 billion USD is needed by an aspiring third player for the initial rollout of mobile telecom infrastructure, and it would take 25 years before it could hit break even. Peter Wallace, founder of the Wallace Business Forum, raised the same points adding that a high network spending which runs in multi-billion dollar investments would be a challenge to any player who wants to enter the market given the commercial reality in the Philippines where spending per person is low because there are more cellphones (130 million) than the country’s population (103 million). 

Meanwhile, University of the Philippines professor, Epictetus Patalinghug shared the findings of his research paper titled, “Assessment of the Structure, Conduct and Performance of the Philippine Telecommunications Industry”, which claims that the only realistic third player in internet in the Philippines is the government because it has the capacity to pour investments in high-cost areas to build the last mile (link from network to user) network that complements existing networks. Patalinghug shared the position of other speakers that a private third player may have difficulty attaining financial viability in the short term due to its late-mover disadvantage. In terms of competition, Patalinghug’s paper also showed that the present telco duopoly structure is characterized as “fiercely competitive” and that these two players do not exercise abusive market power amidst a highly concentrated industry.

The last challenger of the Philippine telco duopoly 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 failed.

To be continued…