Impending Telstra-SMC partnership puts pressure on PH telecom

26 Oct 2015

Last week, telco rivals PLDT and Globe each announced the launch of new broadband services, which both claimed could offer speeds of up to 1 Gbps in select areas. PLDT’s fiber to the home (FTTH), with offerings that start at 1,899 pesos ($40.90), upgraded the speeds of all its plans to a minimum of 20 Mbps. Globe announced that its 1 Gbps plan will cost a little over $200 per month. It also slashed the prices of its broadband plans by half.

Amid these announcements, the reaction of Filipino internet subscribers on social media was far from positive. Comments ranged from dismay to skepticism. “Instead of offering high-speed internet, telcos should first address the quality of existing services.” Subscribers expressed doubt that premium plans would guarantee that they would get what they paid for. “The promised ‘up to’ speed is misleading because the guaranteed speed can be as slow as 256 Kbps.” Some also complained about the lock-in period of 30 months without the safeguard that the contract can be pre-terminated in case of subpar service.

Many were also quick to point out the timing of such moves. Are PLDT and Globe positioning themselves in preparation for the entry of Telstra and San Miguel Corporation?

The expected joint venture between Australia’s incumbent telco and the Philippines’ food and beverage giant has brought a sort of hope to Filipinos to address the sorry state of internet in the country. SMC’s Ramon Ang believes that there’s room for a third telco, and promises to provide “a good network that will at least work.”

PLDT and Globe claim to be unfazed, of course. Both telcos enjoy high ebitda despite low ARPU when compared to telcos in other countries—this is exactly the lure for a new investor like Telstra. While revenues from legacy services such as voice and SMS are declining, data is fast becoming the telcos’ bread-and-butter. And since the Internet, the telcos argue, is a deregulated value-added service, they can pretty much do whatever they want.

The incumbent telcos enjoy the safety net provided for in Republic Act 7925 or the Public Telecommunications Policy Act—that only public telecoms entities (PTEs) with a Congressional franchise can put up a network. PLDT and Globe own and operate international submarine cables, landing stations, national backbone and middle mile networks, and much of the available spectrum.

This scenario leaves little room for other players to gain an advantage, except those with the resources to invest in its own international submarine cable, landing station, backbone network, and spectrum. The key here is that Telstra and SMC already have those. There are still some missing pieces, however. Eastern's backbone network is mostly in Luzon and SMC has yet to massively deploy base stations in the last mile.

Telstra owns PACNET, the only non-PTE operated submarine cable that lands on Philippine soil. SMC has been beefing up its fiber optic network using its investments in major roads. SMC-owned Eastern Telecoms (ETPI) has buried fiber along the Philippine National Railways (PNR) tracks from Manila to Laguna. It also has fiber running through the Tarlac-Pangasinan-La Union Expressway (TPLEx) and the Southern Tagalog Arterial Road (STAR) Tollway. SMC, through its pool of small telcos, has also acquired spectrum for broadband wireless access from the National Telecommunications Commission.

This means that Telstra and SMC do not have to depend on the network of the incumbent telcos, and can have relative ease in competing. Atty. Francis Acero of believes that this can only be a good thing. “True competition is the most efficient, sustainable way to keep forcing these telcos to continuously improve their inefficiencies,” Acero asserts. He also explains that competition can bring a longer term remedy to market inefficiencies compared to stronger regulation. “Changes in policy between administrations make heavier reliance on regulatory agencies impractical. When the table is set for open competition, history shows that everyone benefits,” Acero says referring to the entry of new mobile operators in the past that led to better and affordable services.

Apart from competition from private telcos, the government has also initiated the public free WiFi and TV White Space initiatives, which are both directed at underserved and unserved areas. During one of the Senate hearings, there was also a proposal from the NTC itself on the possibility of government investing directly in Internet infrastructure.

The potential JV between Telstra and SMC is seen as the much needed shake-up in Philippine telecoms. Filipinos are hopeful and excited about the competition, regardless of what it could bring. But for consumers who have long felt duped by their service providers, anything but the status quo is probably better.

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