As the Philippines’ market for handheld devices continues to expand, mobile broadband has been identified as the industry’s most significant driver of growth. Mobile penetration passed 100% in 2012, and, with fast-expanding 3G and 4G LTE networks expected to further bolster revenues and subscribership, mobile operators are boosting capital expenditures as they rush to cover more of the map. Frequency allocation remains a challenge but new spectrum could come on-stream in the medium term. Though the government’s planned re-auction of a high-value 3G licence has faced many delays, recent announcements by the regulator, the National Telecommunications Commission (NTC), indicate that new operators could soon have a chance to bid.
With the second-largest population in South-east Asia after Indonesia, the Philippines has a large consumer base for its mobile market. Penetration in 2012 reached 106%, or 102.3m subscribers, according to a report by PwC. Filipinos are also among the world’s most prolific texters, accounting for 10% of global SMS messages. This could change in the medium term as the country shifts from mobile voice and SMS services to 3G and 4G LTE networks.
Though the market for mobile web is still in its nascent stages, PwC reported that subscribership is expected to grow by 9.6% a year until 2016, driven by swift uptake in mobile broadband services. With such a prospect in view, mobile operators are expanding their revenue and customer bases by building new networks and upgrading old ones. “Several studies have shown a positive correlation between connectivity and growth,” Manuel V Pangilinan, chairman of the Philippine Long Distance Telephone Company (PLDT), told OBG. “This means that internet connectivity contributes to economic growth and even social transformation.”
The roll out of the 3G network began in 2005 when the government opened bidding on five new 3G licences. Despite having five licences on offer, the NTC ultimately granted only four, as it argued that the remaining applicants lacked the capacity to effectively provide 3G services. The four successful companies included Globe Telecom, Connectivity Unlimited Resource Enterprise (CURE), Smart Communications (owned by PLDT), and Sun Cellular. Smart Communications, having acquired CURE in 2008, was itself acquired by PLDT in 2011. As a condition of the latter deal, PLDT agreed to relinquish its CURE licence.
The NTC is currently holding discussions with the government on how to re-auction the vacated spectrum, with local media reporting in April 2014 that the regulatory body was seeking guidance from the Department of Finance on the proposed sale. Many companies have shown interest, including Globe Telecom and San Miguel Corporation. The NTC has said it will set a price floor designed to recover PLDT’s investment, and that the auction is likely to be conducted by sealed bid.
The PLDT has reported that its investment price for the spectrum totalled P2.13bn ($47.2m), although NTC officials say they will hire a team of accountants for an independent assessment. Once this work is complete, a re-auction could be imminent. An eventual sale would bolster expansion of the Philippines’ mobile broadband services and offer new opportunities for private investment.
Delays in spectrum allocation have been a drag on the region’s 3G uptake, which has been relatively slow. Low penetration of smartphones that are equipped for mobile broadband have also dampened growth.
All the same, growing data demand and the introduction of low-cost smartphones, such as the Nokia Lumina series unveiled in the Philippines in March 2014, paint a bright picture for the future of the industry. PwC expects 3G subscriptions to grow at a compound annual rate of 12.7% between 2012 and 2016. PLDT, through its Smart Communications subsidiary, and Globe Telecom are already moving to launch new 4G LTE services, which will improve service delivery and offer faster browsing and download speeds.
The next generation
Smart Communications was one of the first operators to introduce 4G LTE services in the Philippines. In August 2012, it launched LTE service at bands of 850 MHz and 2600 MHz, adding additional capacity at 1800 MHz the following month. These services are already available in larger cities such as Manila, Caloocan, Las Piñas, Makati, Quezon City, San Juan, and Valenzuela, according to Telegeography, a telecoms research firm.
The company is also set to expand this service further. In March 2014, it unveiled plans to extend its 4G LTE network to all major cities by the end of 2014 – areas including Bohol, Bacolod, Davao del Sur, Tagaytay and Ilocos Norte – thus reaching 50% of the population. In addition, the P32bn ($714m) of planned capital expenditures for 2014 will include expanding Smart Communications’ 3G coverage from its current coverage of 71% of the population to 100%.
Globe Telecom, too, is widening its networks. In November 2011, it launched a $790m programme to modernise its services, including the roll-out of a 4G LTE network in Makati, Manila, Pasig, Muntinlupa, Mandaluyong, Cebu City, Boracay and Quezon City. The company’s president and CEO, Ernest Cu, told OBG that the existing network infrastructure in the Philippines was built primarily to handle SMS traffic, which requires considerably less backbone capacity than data-intensive services. Now, in addition to expanding the company’s fibre optic network, Globe Telecom is seeking to standardise the communications protocols used for voice, SMS and data in order to further improve network capacity and help in future proofing the system. In 2014, capital investment in excess of $200m has been earmarked to further expand the data network and build additional capacity, which is becoming more important given high-end customers' growing mobile data needs.
The rising prevalence of smartphones will likely be the main driver of mobile revenues going forward, as consumers alter their preferences by reducing voice and SMS usage and increasing reliance on alternatives such Skype and instant messaging. While this may cause revenue losses with respect to these more traditional offerings, the wider range of data-driven services, such as applications, video-streaming and mobile gaming, will likely compensate over the longer term.