YEARENDER: A year of changing market dynamics

MANILA, Philippines – To say that 2010 was a difficult year for the Philippine telecommunications industry is an understatement.

The industry’s dynamics have changed dramatically. While consumers rejoice about the barrage of unlimited and bucket priced offerings that brought down the costs of text messaging and mobile voice calls, the revenues of telecommunications companies suffered.

Philippine Long Distance Telephone Co. (PLDT) chairman Manuel Pangilinan explained that market conditions are changing. “From 800 to 900 million text messages outbound every day, this has gone up to 1.2 billion. However, yields have declined from 18 centavos per text to 13 centavos,” he noted. While before, 800 million SMS sent per day meant P144 million in earnings, the yield has now gone down to P104 million. Multiply the difference by 365 days and the amount is just mind-blowing.

PLDT during its third quarter 2010 briefing noted that cellular data/text revenues fell 13 percent to P31 billion, despite a 25-percent increase in text volumes, as they remain under pressure from the proliferation of lower yield offerings, multiple-SIM ownership, and regulator-mandated load validity extensions.

Take the recent May 2010 national and local elections, wherein candidates and their supporters utilized the power of text messaging to solicit support and to campaign. While millions of election-related SMS were being sent, most utilized unlimited/bucket priced offerings.

Globe Telecom president and CEO Ernest Cu said the company’s financial results are reflective of the challenges facing the industry, whereby traffic is growing, but revenues are declining with the market’s increasing preference for unlimited services. Despite an increase in traffic and over-all usage, Globe’s mobile revenues were lower with sustained price pressures resulting from intense competition and subscribers’ increasing preference for lower-yield bucket and unlimited promotions.

Globe’s Super All Txt 20 is one such bucket priced offering. For only P20 a day, a subscriber gets to send 200 text messages to any network which means that each SMS costs only 10 centavos. The company’s Unli Txt All Day allows one to send unlimited text messages to Globe/TM subscribers for one day.

Smart Buddy’s AllTxt Combo Plus gives a subscriber 100 text messages to another Smart subscriber, 10 texts to other networks, plus five minutes of calling, all for just P25.

Sun Cellular’s P25 Superloaded Call and Text Unlimited has free 30 minutes of mobile internet on top of unlimited Sun-to-Sun calls and 10 texts to other networks. Its Sun TextALL, now a permanent product offering, enables a subscriber to send 150 text messages to any network for only P15 a day.

The list goes on and on. Many of these promos are offered for a limited time only, but they are usually renewed.

Forever gone were the days when text messages cost P1 each and telcos were making so much money from text messaging alone.

The mobile telephony sector is now a matured one. The cellular penetration rate has now exceeded 80 percent and the number of Filipinos who still do not use mobile phone services is dwindling. This triggered the search for new revenue streams and the rise of broadband Internet services as the new revenue driver.

But even the cost of mobile Internet access has significantly gone down, thanks to bucket price and unlimited offerings. For just P50 a day, a Globe subscriber is given unlimited access to the Internet using a Globe Tattoo Broadband USB or mobile phone for one day. Smart also offers unlimited mobile surfing for P50 per day while Smart Broadband has its unlimited Internet access promo at P200 good for five days. Sun Broadband prepaid has a similar offering (one day unlimited for P50).

With the entry of a new player, San Miguel Corp./Liberty Telecom’s Wi-Tribe, expect the cost of Internet access to go down even further.

With Filipinos having in their plate so many choices, the one who is able to offer the lowest price and at the same time the best quality of service will emerge the winner.

Now here’s a look at how the industry’s decision makers view 2010 as well as prospects for the coming year:

• “2010 was a challenging year of transition for the telco industry. Competition intensified in the cellular business. Broadband grew strongly. Margins came under pressure even as demand for more network resources increased.  For PLDT, 2010 has been a year when it maintained its market leadership in the face of these challenges. Our focus has been managing this transition where traditional revenue sources such as fixed toll revenues like IDD and NDD were on the decline while new revenue sources such as broadband were on the rise.  We preserved margins by strengthening cost management given the modest top-line growth.

“We expect the challenges of 2010 to carry into next year.  Demand for bucket and unlimited offers in the cellular space will continue.  We expect that broadband will keep growing given the growing popularity of social networking and new access devices such as tablets and smartphones. PLDT will continue to invest in its network in order to fortify its market leadership.” — Napoleon Nazareno, president and CEO, Philippine Long Distance Telephone Co.

• “2010 was quite a competitive year for the telecommunications industry as it experienced a single-digit growth. It also achieved breakthroughs in both 3G and 3.5G (HSDPA) offerings. Consumers have had good experience, especially as new terminals came on Android, Blackberry, IPhone, among others. All in all, it was an exciting year for technology. Next year, we expect further developments in 3.5G. New Android phones are also getting exciting. We are optimistic both about the telco industry and the economy in general. The people have also increased confidence and trust.”

“In 2010, Sun Cellular is the first telco in the Philippines to achieve one million postpaid GSM subscribers. In 2011, we are confident we can achieve robust growth in both 2G and 3.5G as we continue our strong rollout of cellsites. By end of 2011, Sun should be even in number of cellsites as the other two telco players in almost all regions of the country.” — James Go, president, Digital Telecommunications Phils. Inc. (Digitel)

• “Globe has good momentum heading into 2011. Both our postpaid and prepaid business have shown strength going into the end of the year. Our broadband business has also continued to perform well despite the intense competition for subscribers.

“2011 will continue to be a tough year for the industry with the escalating price competition. Unlimited plans and aggressive bucket offerings will continue to erode yields. The competition for market share will escalate amid the prospects of a fourth player emerging.” — Ernest Cu, president and CEO, Globe Telecom

• “2010 was a challenging year for the telcos, as competition intensified and the Internet/social media and new technologies influenced the shift on consumer behavior on how to communicate, putting pressure on traditional revenue sources like voice calls and international long distance calls. Data and internet subscribers continued to increase and is expected to accelerate to the next level of sustained growth.

“It was a difficult year for Bayan but performance was consistent with the industry trend. Total revenue decreased due to lower voice revenues but residential internet and corporate data services posted revenue growth. With sound operating expense management, we expect the year to end in double digit growth in EBITDA.

“Our growth drivers next year would continue to be data and internet services for both consumer and corporate sectors. On the consumer side, we will continue to focus on internet services as we leverage on our cooperation within the Lopez Group to deliver relevant and compelling communication and content services. At the same time, Bayan has been strong in the corporate data sector servicing banks and BPOs, and we hope to gain on the opportunities.” — Rafael Aguado, chief operations officer, Bayan Telecommunications

• “The telecommunications industry will continue to face challenging times, with tough competition and new technologies. It will also continue to suffer from diminishing revenues and increasing capital expenditure. With all these happening, the consumer will continue to benefit while the telcos will continue to fight in keeping their customers while the new telcos look into grabbing customers from the. As for MyPhone, it’s a great year. The device business will continue to grow in leaps and bounds with the mobile phones still leading the way and new affordable devices such as smart phones and tablets coming in strong in the second half of the year. MyPhone will continue to invest in expanding our retail chains and service centers to maintain its excellent quality and after-sales service reputation. Overall, the public will surely be the winner with all the exciting things happening in the telco industry.” — David Lim, chairman, Solid Group, makers of MyPhone

• “The telco industry had a good year but its profitability was greatly reduced due to the highly competitive ‘unlimited plans’ that each provider offered its subscribers. This trend would continue this coming year. What needs to be looked into is the deteriorating service availability or accessibility due to network congestion brought about by the unlimited plans. Customer dissatisfaction has been rising because of higher frequency of dropped calls, delayed SMS, and line unavailability.

“Our agency did very well in terms of revenue generation in line with the President’s directive to raise revenues to help the budget. I immediately directed the National Telecommunications Commission (NTC) to improve its efficiency in the collection of fees and compliance to regulatory requirements. To the credit of the NTC, they immediately implemented the directive resulting in a collection surplus of more than P400 million above target as of end-November. Hopefully, we will hit half a billion pesos above target by yearend. This despite the election ban of several months.” — Ivan Uy, chairman, Commission on Information and Communications Technology (CICT) –Mary Ann LL. Reyes (The Philippine Star)