Philippines forecast: cloudy, little chance of Sun

08 Jun 2011

The jury is still out on the PLDT’s acquisition of rival Sun Cellular – literally - as the 74.1 billion peso deal ($1.7 billion) is still pending approval from the Filipino regulator the NTC.

The move has raised eyebrows across the nation as the deal would leave the country of over 94 million people with only two mobile operators and would give the merged-entity over 70% of the local mobile market share.

Rival Globe Telecom has criticized the deal as anti-consumer and has formally asked to have the deal blocked, although in all likelihood the deal will go through - drastically changing the wireless landscape of the country.

The reason that the deal is making waves in the market is because Sun Cellular, the trading name for Digitel, has been instrumental in making the Philippines’ mobile more competitive. The operator has made extensive headway in recent years and was able to double its market share from 2007 to 2010 and held 16.3% of the total mobile market at the end of 2010, even despite having a smaller network compared to Smart and Globe Telecom.

Sun Cellular was able to accomplish this through their popular “Unlimited Talk & Text” tariffs which allowed customers to make unlimited calls and texts for a flat fee. The operator also attacked the underdeveloped postpaid market with generous tariff schemes and held the lead in the overall postpaid market at the end of 2010 as well. Rivals Globe and Smart were subsequently forced to respond with the end result being a significant increase in minutes per use in the country and a lowering of the overall average voice tariff.

Overall we believe that the merger will be harmful to the market by bringing it back to a duopoly as much of the momentum originally started by Sun Cellular will invariably cease. Smart had even gone as far as to start its one brand Red Mobile which had plans which were virtually identical to those of Sun Cellular but in the long run will probably have an easier time purchasing their rival as opposed to competing head on.

This is worrying as the Philippines has been falling behind other Southeast Asian countries for some time in terms of subscriber uptake. In 2010 all of the major economies in Southeast Asia had a higher penetration rate than that of the Philippines as shown in the exhibit below and all will have more players should the deal finally go through.

Philippines lags by mobile adoption

Should the deal go through, however, there are initiatives that the NTC should take to preserve the overall competitiveness of the market. The Philippines should be able to support at least four mobile operators over the long term and the NTC should facilitate the entrance of more players.

Liberty Telecom, which is owned by San Miguel Corporation and Qtel, is poised to become a major in the market, and the NTC should facilitate interconnection between the two parties when the time comes. The NTC should also facilitate the auction of an additional license to induce competition in the market.

This auction should be closed to any existing player and open to local companies and foreign JVs who meet the local ownership requirement. Finally the NTC should make sure that 3G and eventually 4G spectrum is allocated equally to avoid problems experienced in other markets such as neighbouring Indonesia.

Marc Einstein is Industry Manager at Frost & Sullivan. For more information go to

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