Phl better off with 2 telcos – tech expert

The Philippines may be better off having two profitable telecommunication companies providing mobile internet connectivity, a telco industry executive said.

Sean Gowran, president and country manager of telecommunications network operator Ericsson Philippines, said while having a third or even a fourth player could be good for consumers as it provides them more choices, having two strong players allows the companies to raise enough revenues to support massive capital expenditures for infrastructure investments.

Gowran said in an assessment of the local telco industry, currently with the two big players PLDT-Smart and Globe Telecom, the two companies are engaged in fierce competition that forces them to pour massive investments to improve their network infrastructure as they seek to improve the quality of their service to consumers.

“Thirty percent of their revenue were spent for network infrastructure, so that means they are competing, and they are competing for the same number of subscribers,” Gowran said in his presentation on “Investment and Bandwidth Management”at the 2nd day of the first-ever Philippine Telecoms Summit 2017 held recently at the PICC in Pasay City.

‘We don’t have an investment problem, we have a revenue problem,” Gowran said. “Philippine operators’ capex (capital expenditures) intensity has been among the highest.”

Philippine telecom service providers are investing on network infrastructure above the global average in terms of capex and revenues, he said.

Gowran also said a 4th quarter Ericsson speedtest intelligence data study from Ookla they made on the internet speeds in the ASEAN region showed the Philippines was not really lagging far behind its neighbors when it comes to connectivity speed.

“The Philippines today is right in the middle of our neighbors,” Gowran said.

While Singapore was far ahead in internet speed among its ASEAN counterparts, he said the average cost of connectivity in the city-state was $50 while in the Philippines, it was only $2.

Gowran also aired doubts on the financial viability of a third player entering the market.

The executive said they estimated a third player needs to pour an investment of around P500 billion just to catch up with PLDT-Smart and Globe and grab a decent market share.

He pointed out if given an already optimistic time frame of five years to do this, the third player will still have a long way to recoup its P500billion investment.

Gowran said in the GSMA Mobile World Congress 2017 held in Barcelona last week, there was a discussion about the disadvantages of having four or more mobile telcos in a country.

He said GSMA chairman, Indian telecom tycoon Sunil Bharti Mittal, had said a country only needed at most three players while smaller nations could have two carriers.

The analogy, Gowran said, was that in a telco industry with three or four players, there could be two strong players, and the remaining one or two could just be struggling players.

‘We need to be careful about that,” Gowran said.

In his presentation at the summit, Gowran said from 2012 to 2015, local telecom service providers have been investing in network infrastructure at a level significantly higher than the global average in terms of capex and revenues.

Neighboring ASEAN countries such as Thailand and Myanmar put back 20 percent of their revenues into capex over the same period, while Vietnam’s ratio was at 17 percent. Countries such as Singapore and Malaysia were even lower, with a capex level of less than 15 percent. Only Indonesia spent more than the Philippines at 27 percent.

Both PLDT and Globe increased their capex- to-revenue ratio even further in 2016, as they spent 30 percent of their total revenues on network improvement and expansion.

Gowran said the significant investments in Philippine networks are a result of the enormous growth in data traffic in the country, which is driven in large part by video demand and the increased adoption of smartphones.

“Migration to newer technologies such as LTE is the key to providing an efficient network and better customer experience to subscribers, said Gowran, adding “service providers must also capitalize on various business industries’ digitalization revenue opportunities.”