A lot has changed in the last two years for the Philippines’ largest telecoms operator PLDT and its mobile unit Smart Communications.
Back in December 2014, Smart had an enviable 60 per cent market share and a mobile user base of 69.8 million. Its consolidated service revenue hit PHP42 billion ($880 million) in Q4 of that year, while mobile revenue reached PHP28.6 billion – both near records for the company.
Nearly 24 months later, the operator’s market share has dropped 10 percentage points to just over 50 per cent, according to GSMA Intelligence. It has shed eight million mobile customers over that period. Its service revenue has declined almost every quarter since then, falling 6 per cent year-on-year in Q3 to PHP38.3 billion.
Meanwhile, rival Globe Telecom has picked up 11 million subs (about half via an acquisition) and boosted its market share from 38 per cent to 49 per cent over the two-year period.
While PLDT has seen a slow decline, it continues to deliver a very healthy 39 per cent EBITDA margin. But its margin on wireless services was just 32 per cent for the first nine months of this year compared with 40 per cent on the fixed side. A year ago the wireless margin was 42 per cent and two years ago it was 44 per cent – both higher than its fixed margin.
Since the beginning of the year, its troubles appear to have accelerated. PLDT CEO Manuel Pangilinan said in May that its Q1 results confirmed that its “digital pivot will be a difficult and complicated process”. In March the operator announced a three-year recovery plan after its 2015 profit dropped 35 per cent. The company noted this week in its Q3 earnings report that the price of data (per megabyte) has fallen 93 per cent since the beginning of 2015 due to rising competition.
That pain has been inflicted in a market with just two mobile players – together with Globe, they control 99 per cent of the country’s mobile connections. That is about to change.
The country’s telecoms regulator announced last week plans to sell unused and unassigned spectrum by the middle of next year in an auction open only to new mobile players. The available spectrum will be sold in one block to give the winner sufficient spectrum to become a viable third operator.
The announcement came just a month after the country’s president Rodrigo Duterte warned the two dominant mobile operators that he will open the market to Chinese competition if they fail to improve their poor service.
Back in August, the Philippines House of Representatives requested that the two operators explain why their broadband service is so poor and why their franchises should not be revoked. The Senate adjourned in June without approving the extension of Smart’s 25-year franchise, which expires next year. The bill with the franchise extension, which has been in the Senate since October 2015, needs to go back to the committee level before it can be filed with the new Congress, which opened in July.
According to wireless coverage mapping firm OpenSignal, the overall speed of the country’s 3G and 4G networks is just 3.13Mb/s, which is slower than India (5.13Mb/s), Myanmar (4.78Mb/s) and Pakistan (3.33Mb/s). The Philippines was ranked 89th out of 95 countries.
PLDT and Globe, temporarily setting aside their rivalry in an attempt to slow the entry of a third player, purchased the telecoms assets of San Miguel Corp, which previously was considering launching a mobile operation in partnership with Australia’s Telstra to inject some much-needed competition into the market. The duopoly had long lobbied the regulator to auction off part of the valuable 700MHz spectrum held by SMC’s units, which some insiders reckon was a key reason the negotiations broke down between Telstra and SMC.
The controversial acquisition has faced strong opposition in many circles, and the Philippines Competitive Commission issued a statement in August warning that the deal is “likely” to negatively impact competition. But an appeals court granted PLDT’s request to temporarily stop the antitrust agency from conducting further proceedings for its pre-acquisition investigation.
Both operators have aggressively pushed ahead with network deployments in the 700MHz band to expand coverage and improve speeds.
With its enhanced spectrum portfolio, but facing competition from an unknown third mobile operator and a rival determined to take over as market leader, Smart needs to rethink its three-year turnaround plan and hope its digital pivot starts to deliver dividends soon. Its move this week to shake up its leadership team is a good start.
The editorial views expressed in this article are solely those of the author and will not necessarily reflect the views of the GSMA, its Members or Associate Members.