Ms. Aldaba is a fellow of the Philippine Institute for Development Studies (PIDS). She is also involved in an Action for Economic Reforms study on competition in the telecommunications industry, supported by the Local Implementation of National Competitiveness for Economic Growth. This piece was published in the April 4, 2011 edition of the BusinessWorld, pages S1/4 to S1/5.
For more than 50 years, the Philippine Long Distance Company (PLDT) dominated the country’s telecommunications sector. During this entire period, our telecommunications sector was in a dismal state as indicated by the long waiting time to own a telephone, which at worst took more than ten years. Due to underinvestment in the sector, a huge telephone backlog existed, telephone service was generally unavailable and where it was, the service was unreliable.
All these changed with the opening up of the telecommunications sector in the late 1980s up to the early1990s. The entry of new players led to rapid growth in the industry as foreign investment increased and new services emerged. However, despite the entry of new players, PLDT continued to dominate the industry since it owned the backbone network and it accounted for the largest share in the total number of fixed lines. Being the owner of the domestic backbone system, PLDT was able to influence not only the speed but also the terms and conditions for interconnection as well as terms and conditions for revenue-sharing arrangements.
As this developed, First Pacific bought control of PLDT and consolidated its position in the Philippine telecommunications industry by synthesizing the operations of PLDT and First Pacific’s Smart, the leader in the cellular phone market. During that time, Smart and Piltel (PLDT subsidiary) had a combined share of 68 percent of the total number of cellular mobile telephone subscribers while PLDT and Smart together accounted for 43 percent of the total number of installed lines. The merger of the dominant firms in the fixed and mobile markets reinforced PLDT’s position with its combined telephone and cellular phone subscribers of 3.87 million, which accounted for 48 percent of the total number of telephone and cellular phone subscribers. With this strategic move, PLDT retained its market power.
After the consolidation, two companies, PLDT-Smart and Globe, emerged as the formidable telecommunications companies in the country. Competition was muted as the two telecommunications giants offered basically the same prices for their services. For instance, text messages cost P1 each. In 2003, Sun Cellular of Digitel entered the market and started offering 24/7 unlimited call and text messaging. The top two incumbent companies immediately accused Sun Cellular of predatory pricing and filed separate petitions before the National Telecommunications Commission (NTC) to stop Sun Cellular’s service and fix call rates at P5.50 per minute and bar Sun from charging much lower rates. After the NTC ruling in favor of Sun, Smart and Globe also offered fixed rate or “bucket” plans for voice and text services. Smart and Globe were forced to apply restrictions after experiencing network congestions during peak times and even resorted to suspending their promos during holiday seasons.
Overall, competition in cellular mobile service intensified after the entry of Sun Cellular. The telecommunications companies (telcos) have continued to fight for market shares largely focused on unlimited plans and aggressive bucket offers such as Globe’s Super All Txt 20 which, for P20 a day allows a subscriber to send 200 text messages to any network (P0.10/SMS). Globe’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 at P25 gives a subscriber 100 text messages to another Smart subscriber, 10 texts to other networks, plus five minutes of calling. 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 at P15 a day enables a subscriber to send 150 text messages to any network.
While traditional revenue sources like international and national long distance (IDD and NDD) are already on a decline, demand has been strong for new revenue sources, broadband Internet services whose prices have also been declining due to unlimited plans and bucket offerings. For 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 for five days. Sun Broadband prepaid has a similar offering (one day unlimited for P50).
With intense competition, the telcos margins have come under pressure even as demand for more network services increased. PLDT Chairman Manuel Pangilinan pointed out that while daily outbound text messages increased from 800–900 million text messages to 1.2 billion, yields declined from 18 centavos to 13 centavos/text. In 2010, revenues from cellular data/text dropped 13 percent to P31 billion despite a 25 percent increase in text volume (Reyes, M. “A year of changing dynamics.” Philippine Star, December 30, 2010). Globe’s postpaid average revenue per unit (ARPU) fell to PHP1,168 while Smart’s postpaid ARPU remained steady at PHP1,257 (Business Monitor 2010).