Slow-paced growth in telco sector seen

CEBU, Philippines - An industry analyst is seeing a slow single digit growth for the telecommunication industry this year, as it has been in the “market saturation” level in the last three years.

“The telecommunication market in the Philippines is entering a natural evolution—consolidation,” said Katerina Karla Lizardo, research manager of the XMG Global, an ICT research and advisory company.

Lizardo said with consolidation inevitable, in the light of pending PLDT and Digitel merger, this may potentially drive end-to-end telecommunications upwards.

Although PLDT is adamant that it will not end Sun’s unlimited pricing plans, it is too early to tell on how this will impact the discount cellular product offerings, she said.

“Assuming the merger is approved, it is highly unlikely PLDL would make drastic changes in the near term with Sun already being a strong brand as an alternative or second mobile service to Smart and Globe,” Lizardo said.

XMG Global forecasts competition to remain at the same level prior to the merger in the near term with Globe affirming to stay competitive by increasing capital expenditures to 16 percent and spending a third of its budget on mobile broadband services.

Maintaining its market challenger position, Globe will deliver an adequate level of service across a wide footprint, but face the constant threat of being perceived as a commodity provider.

Nevertheless, the merger will change the Philippines’ telecommunication landscape in the long term. PLDT, Globe and other emerging players will be forced to review and rethink their strategies and can result to changes in services bundling and pricing.

“Size matters in telecom,” she stressed. In the current economic climate, leaders must have substantial market share and respectable financials.

XMG Global benchmark shows that mobile operators, on average, require a market share of 30 percent plus to be profitable.

The merger pushes Sun and Smart’s market share to 69 percent, an increase in network size and coverage, and the ability to synergize, leverage costs and drive economies of scale.

With Globe holding 31 percent market share and with the entry of Liberty, “we expect the market to expand to a new, but uneasy equilibrium that would benefit consumers.”

Overall, XMG Global does not expect further significant decline in pricing or a drastic changes in the telecommunication landscape until the issue of interconnectivity charges are redressed or preferably removed altogether.

The proposed merger brings to light the state of readiness for the NTC (National Telecommunications Commission) to address the merger, the level of deregulation in the country and the perceived competitiveness of this market.

The analysts observed that the regulatory process has been slow, thereby putting a damper on the competitive environment.

According to XMG Global, the light-handed approach by NTC is proving ineffective at letting market forces determine the development of the telecommunication landscape. Until the Philippine telecommunication landscape can transform to full liberalization, the stage for radical changes, healthy competition, differentiated service offerings and price drops will be hard to achieve.

Furthermore, the NTC dictates the interconnection requirements. Interconnectivity charges will need to be dropped if a truly competitive market is to occur for consumer-oriented products such as mobile services.

Leading indicators of market attractiveness and maturity is competition, deregulation, and foreign ownership. Competition is alive, yet deregulation is not complete and foreign ownership is restricted.

Continued competitive pressures with the absence of reform and higher foreign equity will make profitability elusive, and in turn, a market size that can only support no more than three major carriers. Thus, consolidation is inevitable, with more companies most likely to be absorbed.

She said that merger threatens the competitive landscape of the Philippine telecom industry, but more compelling is shedding light to the larger need to bring down entry barriers to foster sustained healthy competition. (FREEMAN)