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The Philippines Broadband Overview

The Philippine telecommunication sector has come a long way since the 1990s. The nation’s domestic and international fixed-line provider, the Philippines Long Distance Company (PLDT) initially controlled the sector. Following liberalization in 1993, there were 10 new entrants into the Philippine telecoms market. Consequently, tariffs have come down in price and the country’s fixed line population penetration improved considerably. However, in spite of the heavy investments made in the fixed-line sector, in accordance with the Service Area Scheme (SAS), only 50 per cent of the fixed-line capacity has been utilised so far.

Although on a steady increase, broadband subscribers represented only a fraction of all Internet subscribers in the country. However, the Internet sector is well positioned for growth, with a deregulated market, strong government support for IT development and an increasingly Internet savvy population. In 2006 there was a significant surge in broadband uptake, with an estimated 340,000 subscribers by year-end, rising to almost half a million by mid-2007. Much of this growth can be attributed to the expansion of PLDT’s SmartBro wireless broadband service. However, despite positive growth overall broadband penetration remains low, with only 11 broadband services for every 1000 people in the country early in 2008.

Growth could have been further improved by the National Broadband Network (NBN) that the government was planning to roll out across the country from late 2008 at a cost of USD 329 million. Allegations of bribery and overpricing with regard to the NBN deal have swept through the press, leading the government to scrap its original contract with ZTE Corp, the second largest telecommunications firm in China. This not only put a dent in plans to raise broadband network coverage, but also undermines potential investor confidence.

The telecommunications industry is noticeably dominated by the incumbent PLDT, a virtual private monopoly owned by a politically influential family. PLDT was established in 1928 and continues to operate the most extensive nationwide domestic fibre optic network and microwave long-distance network. It offers fixed-line, mobile, satellite, Internet and broadcasting services. The company operates in the GSM mobile segment through its mobile subsidiary, Smart (that includes Piltel) and offers VSAT and mobile satellite services via Agila II VSAT and ACeS mobile communications satellite operations.

While the Philippines has low fixed-line penetration, the mobile market has witnessed massive growth. Penetration has grown quickly to reach 60 per cent (55 million subscribers) by early 2008. PLDT and Globe are the leading players in the mobile market followed by BayanTel. PLDT operates through its wholly owned subsidiary Smart which had a 58 per cent market share at the end of 2007 and over 28.3 million subscribers, while Globe operates through Islacom with a 38 per cent market share. Late entrant to the mobile market, Sun Cellular, a wholly owned subsidiary of Digital Telecommunications Philippines (Digitel), has already managed to sign up over 2 million subscribers by early 2008, and has a 7 per cent market share.

Both PLDT and Smart captured the lower income segment of the mobile market by offering a range of cheap prepaid options, and a large proportion of recent subscriber growth in the Philippines has been coming from outside the main city of Manila, with the big operators, Globe and Smart, vigorously competing for lower income segments of the population.

PLDT currently operates on both AMPS and CDMA networks and leases GSM capacity from Smart. Smart Communications has 2,610 wireless broadband enabled base stations providing high-speed Internet access to over 500 cities and municipalities nationwide. In The Philippines, 3G is being embraced with the entry of High Speed Downlink Packet Access (HSDPA). As a result, The Philippines is now a leader in the area in terms of deployment. Since the launching of Smart’s 3G services in 2006, PLDT it has gained over 800 cell sites covering 119 key cities and municipalities. Globe on the other hand launched its own 3.5G services using HSDPA.

Since 2007, PLDT has stopped looking towards the wireline telecoms market and instead is investing in wireless broadband cell sites, 3G mobile network rollout and its call-centre business. Indeed as part of the deal to obtain 3G licences, companies had to have infrastructure completed by mid 2007, and were expected to roll out services by 2008, in addition to coming up with a five-year plan to implement these services to at least 80 per cent of The Philippine provinces instead of focusing solely on the more profitable urban areas.

In May 2008 the newest player in the local telecommunications space unveiled it would offer 3G services for free, as long as subscribers agreed to receive advertisements through their handsets. Connectivity Unlimited Resource Enterprises (CURE) unveiled its new services offering dubbed “U Mobile”. While a risky business model, it would be difficult for CURE to catch up with “entrenched” mobile network providers by the conservative route. CURE was acquired by Smart Communications for USD 10 million in June 2008, though it will operate as a separate unit.