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Philippines - Market Intelligence Report
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Market Intelligence Reports provide an invaluable mix of vital market data and background information, including telecoms regulation. The dominant telecommunications operator in the Philippines continues to be Philippine Long Distance Telephone Company (PLDT). PLDT was the only full-service operator until new legislation passed in 1993 opened all markets to competition. Some of the markets are unregulated as there is felt to be sufficient competition in those sectors. Others - such as basic telephony, international services, and mobile services - remain subject to regulation as the penetration and stability of competition in these markets is poor. Initially, companies licensed to provide international telecommunications services were required to install 300,000 local exchange lines in areas agreed with the National Telecommunications Commission (NTC), the industry regulator. Similarly, those companies licensed to provide mobile communications services had to install a minimum of 400,000 local exchange lines. These requirements have since been lifted as it has become apparent that few licensees have been able to attract sufficient fee-paying customers away from PLDT and thus fund their fixed-line build-out projects. Recent years have seen significant consolidation within the telecommunications industry: most notable has been PLDT's acquisition of Smart Communications from NTT of Japan and Hong Kong-based First Pacific, with these companies having received significant stakes in PLDT itself in return. Indeed, First Pacific now holds 28% of PLDT and, during 2002, sought to improve its control over PLDT by undertaking a complex ownership transaction with JG Summit Holdings and Summit's president, John Gokongwei; this deal fell foul of Philippine foreign investment limits, however. Nevertheless, with PLDT continuing to report substantial increases in revenues and profits (driven largely by its wireless business), First Pacific is expected to seek alternative ways of increasing its control over PLDT. Nevertheless, minority shareholder NTT DoCoMo of Japan is presently increasing its ownership and aims to raise its stake to around 21% in the near future. The acquisition of Smart gave PLDT access to a nationwide digital cellular network, operating in the GSM 900/1800 bands; this network is now being upgraded with CDMA technology that now provides the basis for a third-generation (3G) mobile platform. To an extent, PLDT's 45% ownership of mobile operator Piltel was largely redundant, but that company's massive debt pile meant that PLDT could not sell its stake, nor could it renege on assurances given to Piltel's creditors that the debt problems would be addressed by the parent company. Piltel's analogue cellular network was decommissioned at the end of 2002 and Piltel's only success lay in reselling capacity on Smart's GSM networks. In a complex series of transactions carried out in 2003 and 2004, Piltel was transferred to Smart, with the larger company ultimately owning 92% of Piltel at the time of writing. The other notable consolidation has been the merger of Globe Telecom and Islacom in 2001; the combined Globe Telecom group is controlled by Philippine conglomerate Ayala Corporation and Singapore Telecom International; Deutsche Telekom sold its direct interest in the company during 2003. As a consequence of the merger, the Globe Telecom group is the second-largest fixed-line operator in the Philippines (in terms of fixed lines installed), though it still trails behind PLDT by a considerable margin. However, its mobile communications business is of a comparable size to that of PLDT's Smart Communications division. Bayan Telecommunications (BayanTel) is the Philippines' fourth-largest carrier (again, in terms of fixed lines installed), but it is the principal owner and investor in the country's alternative domestic long-distance transmission backbone, enabling other new entrants to easily and relatively cheaply provide country-wide services to their customers without needing to negotiate costly interconnection agreements with PLDT, the only other long-distance network operator. BayanTel is not currently active in the cellular market, despite having been granted a cellular licence in May 2000; this licence was suspended in September 2000 when other carriers objected to BayanTel entering the cellular market and was reinstated only after a lengthy legal process that concluded in January 2002. Further legal wranglings held up BayanTel's entry to the cellular market, with a final decision upholding the licensing of BayanTel as a cellular operator being made in August 2002. At the time of writing, it seemed that BayanTel had neither the financial resources nor the management drive to commence work on developing its cellular network, although certain executives continue to suggest that cellular services might be launched ‘soon’. In the meantime, reports of June 2005 indicated that PLDT was seeking to purchase local exchange carriers with provincial assets, enabling PLDT to shore up its declining fixed-line business. BayanTel was named as a likely candidate for acquisition. While PLDT executives did not confirm that acquisition talks were underway, they did not dismiss the speculation out of hand. At the end of 2005, Globe Telecom received from the NTC the frequencies needed to upgrade to 3G wireless services. Globe Telecom quickly rolled-out a basic 3G service, having completed a trial service in July 2005. This development paved the way for other operators to apply for 3G licences in the Philippines, with Smart, Digitel, and new entrant Connectivity Unlimited Resources (CURE) receiving 3G licences soon afterwards. The NTC requires 3G licensees to start building their networks within 12 months and to start providing services within 30 months of receiving a licence. Within 60 months, 3G services should cover 80% of the provinces, towns, and cities in the Philippines.
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