The third telco

BIZLINKS - Rey Gamboa - The Philippine Star

The fate of a third competitor in a field where the first two wield significant market share that has been developed over a long period of time can be very iffy, which is what neophyte telco Dito Telecommunity is now going through, especially under a new political administration.

Dito, currently still owned by Davao businessman Dennis Uy’s Udenna Corp. in partnership with Chinese state-owned China Telecommunications Corp., is valiantly battling the duopoly of PLDT’s Smart and Globe Telecom in the provision of mobile services to Filipinos.

With expectations of becoming a strong third competitor and with the backing of former president Rodrigo Duterte, who openly lambasted Smart and Globe especially during his first years in office, Dito is struggling to manage its huge losses despite pronounced achievements in increased user subscriptions and network reach.

Keen industry watchers, of course, understand that what Dito is now undergoing is part of an expected process in an industry that is highly capital intensive, and more importantly, where its competitors have been entrenched in the business for decades.

The better question to ask, though, is how long Dito can carry on, more so because of the possible change of ownership structure as a result of Uy giving statements of being open to selling the telecom company after a much publicized skirmish with debt creditors.

A statement by Dito partner China Telecommunications or by Dito itself on behalf of its partner, of continued financial and technical support at this point is much needed to provide some measure of assurance to its claimed 12 million subscribers.

While current Dito subscribers claim that they experience much better download and upload speeds, it has a far smaller community compared to leader Globe (86 million) and Smart (71 million) as at yearend 2021. Connectivity speed, after all, is closely linked to the number of subscribers, as well as cell sites and towers.

Speed war

With Uy parading Dito to new investors, finding a good buyer that will preserve the third telco’s gains, and more importantly, continue posing a challenge to the industry stalwarts is essential.

The Philippines continues to have one of the slowest telecommunication speeds and at much higher costs compared to other Southeast Asian countries despite having been dubbed the text capital of the world, and recently, having one of the highest mobile data users.

Ookla, a renowned free service provider of analysis on internet speeds and other metrics, had commended Dito’s entry into the Philippine market in a report last June for helping bring up the quality of service of its competitors.

Since Dito’s commercial launch last year, Ookla attributed the increased average 4G speeds of Smart and Globe by 42 percent to 18.5 Mbps and 29 percent 12.6 Mbps, respectively, as a response to the third telco’s acknowledged 15.8 Mbps. (United Arab Emirates claims a top speed of 238.06 Mbps.)

Dito has chosen to fight the speed war rather than what past defunct third telco competitors, who have since been absorbed by any of two members of the duopoly. Well and good, but Dito must pay closer attention to how it can maintain and grow its subscribership, as well as protect its significantly growing infrastructure investment.

Teething pains

Dito’s financial report for the second quarter can be damning. While total expenses almost doubled P5.1 billion compared to the previous period last year, its net loss rose by almost four times to P4.63 billion from P1.18 billion.

Such teething pains can be unbearable to both members of the current partnership, and possibly to a new buyer. The timing when interest rates are on the rise can likewise be a big factor despite the solid investments made.

Dito claims it now has on the ground some 5,500 cellular towers that increased its coverage capability to 600 cities and municipalities or effectively 70 percent of the population. This, together with investments made by Converge ICT, which currently focuses on broadband connectivity, have more than tripled telecom infrastructure investments in the Philippines.

To bolster its search for survival, Dito’s parent company has said it is prepared to cede a sizeable chunk of its interest in its subsidiary if only to inject some financial stability to future operations, especially since it expects to revert to a more profitable position only in 2026 or 2027 given continued normal operating conditions.

Growing mobile data use

Despite the gloom and doom that Dito’s financial condition presents, the prospect for the country telecommunications industry remains bullish. Mobile subscriptions are expected to continue growing steadily in the medium term until 2027 as more Filipinos get their hands on a smart phone.

The continued growth of the economy will demand a wider subscriber population in the 4G mobile data market, as more people find value in connecting to the Internet not only for their personal communication needs, but also as a tool to manage their work.

A strong telecommunications sector is essential to transforming the country’s economy to an aspirational upper middle class where its huge low-income population will be empowered to use data and the Internet as tools to improve their lives.

The country’s low mobile phone penetration rate is closely related to individual Filipinos inability to buy a smart phone, even with all the cheap models now available in the market, or to pay for currently high fees to connect to the internet.

As more fiber optic lines are rolled out in the future, the high cost of accessing the internet should significantly drop to make connectivity a less painful cost to users.

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Should you wish to share any insights, write me at Link Edge, 25th Floor, 139 Corporate Center, Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at [email protected]. For a compilation of previous articles, visit www.BizlinksPhilippines.net.


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