Telecom industry revenues seen growing 2-4 % – S&P

MANILA, Philippines - Revenues in the Philippine telecommunications industry are seen to grow by about two to four percent per year in the coming years as smartphones become more accessible and data usage increases, according to Standard and Poor’s (S&P).

In its Emerging Asia Telecom: Low Leverage Outweighs Stiff Competition and Regulatory Risks report, S&P said the two to four percent per annum growth in revenues would be supported by the declining smartphone prices along with increasing smartphone penetration and data usage in the country.

The country offers growth potential for telco firms with smartphone penetration still low and estimated to reach 35 percent by the end of the year.

While 30 percent of the subscribers have smartphones,  S&P said only a third are using wireless data due to perceived high cost.

Broadband also continues to be a major growth area for the local telecom industry due to the country’s low broadband penetration rate at nine percent.

Against this backdrop, the competition in the telecommunications industry is expected to remain intense in the mobile market  dominated by Philippine Long Distance Telephone Co. (PLDT) and Globe Telecom, Inc.

“We consider the competitive intensity in the Philippine market to be moderate to high, despite being a two-player market. The market is price sensitive, and subject to periodic bouts of intense price competition,” S&P said.

In addition, structural changes in revenue mix – from high-margin legacy voice revenues to lower-margin data and broadband revenues – and rising costs will squeeze industry margins.

The growth in the proportion of postpaid subscribers, S&P said, could alleviate margin pressure over time.

Given opportunities in increasing usage of the Internet, PLDT and Globe are both making huge investments to support network capacity-enhancement requirements, particularly for their data and broadband businesses.

New players including diversified conglomerate San Miguel Corp and ABS-CBN Corp. are also expected to enter the market in the next few years.

Aside from the Philippines, S&P said in the same report other countries in emerging Asia such as Bangladesh, Pakistan, Sri Lanka, India, Indonesia, and Thailand also provide opportunities for strong revenue growth given its rising and young population, strong appetite for telecom services and growing gross domestic product per capita.

On the flip side however, many telecom markets in emerging Asia face significantly greater country and regulatory risks than other telecom markets.

The countries’ strong growth trajectory has also attracted substantial capital and fierce competition.