November 19, 2015 at 11:50 pm
Darwin G. Amojelar
The entry of Telstra Corp. through a joint venture with San Miguel Corp. is unlikely to shake up the telecom landscape in the Philippines, which is dominated by Philippine Long Distance Telephone Co. and Globe Telecom Inc., according to debt watcher Fitch Ratings.
The credit rating agency said the potential entry of Telstra in the country would have “limited” impact on competition in the telecom market over the next two years.
Fitch cited infrastructure sharing as one of the challenges that Telstra and San Miguel would be facing, because sharing of networks was not mandatory in the Philippines.
This means Telstra and San Miguel would spend billions of pesos to roll out their own mobile and broadband networks, it said.
The planned joint venture between San Miguel and Telstra would see the local conglomerate holding a majority stake, in compliance with the 1987 Constitution, which limits the foreign ownership of utilities to a maximum of 40 percent.
Telstra plans to invest less than $1 billion in the Philippines to roll out the telecom network.
“Initial rollout by the new entrant is likely to focus on mobile broadband services in the first two years, with a likely expansion into mobile telephony once the network build-out is completed,” Fitch said.
It said the joint venture would experience large cash burn, given the significant capital outlay and price competition to build a subscriber base.
Fitch said it also expected the newcomer to face difficulties providing regional mobile coverage in the absence of domestic roaming arrangements.
Telstra currently operates customer service centers in the Philippines that serves its clients globally. San Miguel earlier said it planned to launch mobile broadband services as early as January next year.
The credit rating agency, however, said there was a strong value proposition for faster 4G LTE services and the impact on industry profitability would be greater over the longer term as the country’s mobile market was highly saturated, and was still largely 2G-based.
“The potential joint venture will benefit from Telstra’s technology leadership and financial muscle, and SMC’s 700MHz spectrum-frequency,” Fitch said.
The 700 MHz frequency is more cost-efficient to roll out because of its wider coverage and in-building penetration than higher frequency bands.
Currently, San Miguel’s wi-Tribe and High Frequency hold 80 MHz and 10 Mz in the 700 MHz spectrum. It also owns Express Telecommunications Inc., Eastern Telecommunications Philippines Inc. and Bell Telecommunications Philippines Inc.
PLDT and Globe Telecom earlier asked the National Telecommunications Commission for their fair share of the spectrum.
San Miguel president Ramon Angturned down the request of the two telcos and advised the incumbent players to fine-tune their frequencies.
Fitch said it expected PLDT and Globe to invest in greater capacity ahead of the potential entry of the Telstra-SMC venture.
Fitch said industry capex was likely to increase to around P85 billion in 2016 compared to the P55 billion to P58 billion capex of the industry from 2012 to 2014. PLDT earlier said it invested $3.7 billion in the last five years to expand its network.
“The immediate challenges for telcos would be the acceleration of user migration onto higher data plans, and data monetization. Average monthly data consumption in the Philippines is still low at around 200 megabytes to 300 MB per month, with consumers primarily using data for web browsing and social media applications,” Fitch said.
Of the two incumbent telcos, Globe has a larger exposure to the mobile sector, which accounts for 76 percent of its revenue, following its gain in revenue share in the post-paid segment.
This compares with PLDT, where the wireless business contributes 63 percent of its revenue and fixed-line accounts for the rest.
The combined revenue of PLDT and Globe stood at P211.3 billion in the first nine months. PLDT Group had a mobile phone subscriber base of 67 million and Globe had 50.1 million.
Combined broadband subscriber base of PLDT Group reached 5 million as end-September while Globe had nearly 4 million broadband subscribers.