7 Oct 2009The 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 came 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 represent only a fraction of all Internet subscribers in the country. Internet penetration itself is relatively low compared to the Philippines’ Asian neighbours, remaining under 10 per cent in mid 2009. However, with a deregulated market, strong government support for IT development and an increasingly Internet savvy population the sector is well positioned for growth. In 2006 there was a significant surge in broadband uptake, with an estimated 340,000 subscribers by year-end, rising to almost 500,000 by mid-2007. Coming into 2009, the annual increase in broadband subscribers has been running in excess of 100 per cent for several successive years. Much of this growth can be attributed to the expansion of PLDT’s SmartBro wireless broadband service.

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. However, allegations of bribery and overpricing lead to the government to scrapping its original contract with ZTE Corp. This not only put a dent in plans to raise broadband network coverage, but also undermined potential investor confidence. For future growth to be sustainable the provision of reliable infrastructure remains critical.

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, and offers VSAT and mobile satellite services via Agila II VSAT and ACeS mobile communications satellite operations.

While the Philippines has a low fixed-line penetration, the mobile market has witnessed massive growth. Penetration reached 60 per cent, representing 55 million subscribers by early 2008, and by the end of 2008 had increased to 75.9 per cent or 68.1 million subscribers. PLDT and Globe are the leading players in the mobile market followed by BayanTel.

PLDT operates through its wholly owned subsidiary Smart (which includes Piltel), and ended 2008 with 35 million subscribers and a 55.8 per cent market share, down from 58 per cent at the end of 2007. However, Smart added over 600,000 new mobile subscribers in January and February 2009. Globe Telecom, the country’s second largest mobile operator had a subscriber base of 24.7 million (including both Globe and Touch Mobile subscribers) at the end of 2008, giving it a 36.3 per cent market share, down from 38 per cent at the end of 2007. Late entrant to the mobile market, Sun Cellular, a wholly owned subsidiary of Digital Telecommunications Philippines (Digitel), has been increasing its market share, with 8 million subscribers at the end of 2008 and an11.7 per cent market share, up from 2 million subscribers and a 7 per cent market share a year prior.

A large proportion of recent subscriber growth in the Philippines has been coming from outside the main city of Manila. The big operators, Globe and Smart, have been vigorously competing for lower income segments of the population. Smart captured some of the lower income segment by offering a range of cheap prepaid options. Digitel is aiming to lead the postpaid segment with various lucrative schemes. At Q1 2009, Sun Cellular had 700,000 postpaid subscribers, trailing behind Globe Telecom with 751,944. Smart had 407,464 postpaid subscribers in the same quarter.

In July 2009, Smart gained a controlling stake in Blue Ocean Wireless (BOW). Smart is investing several million USD to speed up the launch of BOW’s latest offering, FleetBroadband (FBB). FBB is the first maritime communications service to provide cost-effective global broadband data and voice simultaneously through a compact antenna.

In December 2005, The Philippines telecoms regulator awarded four 3G licenses to local companies. The licences were awarded to existing GSM operators, Smart, Digitel and Globe, along with new entrant, Connectivity Unlimited Resources Enterprises (CURE). Since the launching of Smart’s 3G services in 2006, it gained over 800 cell sites covering 119 key cities and municipalities by early 2008. 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 roll-out and its call-centre business. Indeed, as part of the deal to obtain 3G licences, companies had to complete the construction of all infrastructure mid 2007 and were expected to roll-out services by 2008. They also had to come up with a 5-year plan for the implementation of these services to at least 80 per cent of the Philippine provinces as opposed to focusing on urban areas.

Smart completed its HSPA roll-out at the end of January 2009, covering Metro Manila, the surrounding suburbs and all major cities. The following HSPA launch was part of a USD 50 million investment allocated for 2008/2009 in order to provide a faster HSPA network. By the end of 2008 Smart had about 1.6 million subscribers using 3G handsets, out of its total subscriber base of 35 million.

In May 2008 the newest player in the local telecommunications space, CURE unveiled it would offer 3G services for free, as long as subscribers agreed to receive advertisements through their handsets. While a risky business model, it would have been 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, but it continues to operate as a separate unit. In late November 2008, CURE launched a W-CDMA with HSDPA cellular service, known as Red Mobile. The service marks the re-launch of CURE following its acquisition by Smart. Red mobile aims to reach a subscriber base of 1 million by 2009 end.

A fifth 3G licence is due to be auctioned, but has caused some issues. In January 2009, the national regulator went ahead with a public consultation on plans to award the fifth 3G licence - despite a court order forbidding the award of the license. The regulator is seeking to bar the existing license holders from bidding for any remaining 3G spectrum - a move which is being opposed by the operators. BayanTel has been engaged in a lengthy legal battle to overturn a previous decision not to award a license to the company. BayanTel is the largest wireless landline provider running on the CDMA platform in Philippines, and it is the majority owner of the second-largest long-distance backbone network.