The return of telecom duopoly in the country can shore up profits for leading players Philippine Long Distance Telephone Co. (PLDT) and Globe Telecom and may spell cutbacks in the industry’s offering of unlimited voice and text messaging services to consumers, lawmakers said Wednesday.
PLDT recently signed a share-swap deal that will allow it to take majority control of Gokongwei-led Digital Telecommunications, whose cheap services through the Sun Cellular brand have gnawed sharply at the profitability of traditional leaders PLDT and Globe Telecom.
The stellar rise in the stock prices of PLDT and Globe Telecom after the deal was announced indicated a growing perception that with Digitel now out of the way, the two companies can now collect higher prices for their services.
In one of the internal memos issued by Globe management to employees when the PLDT-Digitel deal was announced on Tuesday, the Ayala-led telecom unit said one potentially good outcome was that “PLDT is seen to carry the cost of bringing rationality back to the market by paying for this acquisition and that Globe is seen to benefit from it as profitability remains in a more stable and consolidated market.”
Another internal Globe memo obtained by the Philippine Daily Inquirer said: “We might find ourselves competing in a more rational marketplace with better margins as the new opposition could decide to scale back on the unlimited propositions that undermine industry.”
Consumers are indeed now concerned over what the deal might mean for Sun Cellular’s unlimited and bucket-priced call and text services that the public enjoys.
Sun Cellular introduced unlimited call and text services for fixed monthly fees into the Philippine market, forcing its competitors—Smart of PLDT and Globe Telecom—to follow suit, resulting in lower profits.
“The fear of the public is whether PLDT—that used to oppose unlimited services—might change the brand Sun and everything it stands for,” said Antonio Cruz, president of consumer group TxtPower.
Goodbye to price wars
Technology blogger Abe Olandres of Yugatech.com said the competition between companies, which results in innovation to users, would suffer. “Say goodbye to the price wars (though not really entirely gone). From being a three-way contest, it’s now down to two—PLDT vs. Globe,” he said.
But subscribers may also benefit from the optimization of the two companies’ combined networks, Olandres said. “Big is good for business, but when big becomes bad or monopolistic, that’s what consumers fear,” Cruz said.
Cruz added that the public deserved better services and reduced prices as a result of the deal. “The PLDT-Digitel deal, it is hoped, should improve the Philippines’ standing in terms of Internet service pricing in Southeast Asia,” he said.
Bayan Muna party-list Rep. Teodoro Casiño said he was worried that Sun Cellular’s innovative strategies that helped reduce the cost of services, like unlimited call and text plans and lower rates, would be reversed. “The public has to be wary of potential monopoly practices resulting from this takeover,” Casiño said.
“If this PLDT buyout threatens the economy, puts the interest of the general public in peril, and intimidates an otherwise competitive environment in the telecom business, then perhaps it must be evaluated,” said Quezon City Rep. Winston Castelo.
Castelo said Congress should look into the terms of the buyout because PLDT practically acquired a big market share by “killing a strong competitor.”
Pass antitrust law
Negros Occidental Rep. Alfredo Benitez said PLDT’s purchase of Digitel had made it more urgent for Congress to pass an antitrust law to keep markets competitive and prevent the formation of cartels or monopolies.
“We have to rush the enactment of an antitrust law to determine if the purchase is meant to curtail competition,” said Benitez in a text message.
Insensitivity to complaints
Eastern Samar Rep. Benjamin Evardone was worried that consumer complaints on the poor quality of service and the telephone companies’ insensitivity to complaints would worsen.
“As it is, there are already mounting consumer complaints such as overbilling and dropped calls that are not being addressed by the telcos. This should prod the National Telecommunications Commission (NTC) to intensify its monitoring over the industry players to prevent abuses,” said Evardone.
During the official announcement of the PLDT-Digitel deal on Tuesday, PLDT chair Manuel V. Pangilinan said the operations would remain separate from each other. PLDT has assured subscribers of both mobile brands Smart Communications and Sun Cellular that they would continue to enjoy the same quality of service at the same price.
As a result of the deal, PLDT will be in control of most of the franchises for cellular mobile telephone service in the country.
70% market share
PLDT will also end up with three of the four third-generation or 3G licenses, which companies use to offer mobile broadband services.
TxtPower’s Cruz said the government, particularly the NTC, should ensure that the new PLDT and Sun network would not eventually monopolize the country’s telecom sector.
With the deal, PLDT is expected to have a 70-percent market share in the country’s competitive telecom industry both in terms of revenue and subscribers. Globe Telecom has the remaining 30 percent.
With the PLDT group now controlling the bulk of the market, the pricing power of Globe Telecom has just weakened, said Campos Lanuza & Co. head of research Jose Mari Lacson.
“Selling Globe may be a possibility now if the Ayala Group wants to extract the remaining value in the company. They may also opt to fight it out, but that will require extra resources, which they or their partner, Singapore Telecom, may not be willing to shell out just yet,” Lacson said.
NTC Commissioner Gamaliel Cordoba declined to comment on the deal, saying that the regulator had yet to receive an application to approve the PLDT buyout. The NTC’s green light is required because a franchise given by Congress will change hands.
Challenge to San Miguel
San Miguel Corp. (SMC), which aims to be a major telecom player after forging a joint venture with Qatar Telecom to launch the Wi-Tribe brand, thinks the industry still has space for a third strong player.
“SMC is now in full-swing to build a brand new mobile broadband network that will be robust and reliable. Our network will address voice and data capacity, which we all know is very much congested resulting in rampant dropped calls and slow data speeds,” San Miguel president Ramon S. Ang said.
“Be a little more patient, our services will soon make a huge difference,” he added.
Analyst Lacson said SMC would be affected both positively and negatively by the deal. “The negative is that Liberty will have a tougher time now that the market space just became smaller for the telecom contenders. With its strategic direction currently uncertain given the loss of its top executive [Anastacio Martirez], we wonder how Liberty will try to position itself in this new environment.
“The positive, however, is that San Miguel’s financial strength has increased relative to its perceived rival, First Pacific/PLDT Group. First Pacific has given up a sizable chunk of its equity in the PLDT Group, which weakens its balance sheet to a degree,” Lacson said.
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