INCUMBENTS are ready to do battle with the future third telco player, bracing themselves for the expected cash burns and the projected tempering of revenue growth as the newcomer is expected to compete through a price war.
For fixed-line king PLDT Inc., Chairman Manuel V. Pangilinan said his group is prepared to spend as much as P60 billion in capital expenditures (capex) to further improve its network, especially since it is now piloting its first 5G initiative.
“It will probably be similar to the 2018 capex—around P58 billion to P60 billion—most likely,” he said in an interview.
For mobile titan Globe Telecom Inc., Spokesman Yolanda C. Crisanto said her group has reached a certain scale in terms of capital outlays, setting aside 32 percent of revenues for capital in 2018 alone.
“Cash burns have always been along that level in terms of projections,” she said via phone. “Our capital expenditures have always been for improving our network.”
The two officials were responding to a Fitch Ratings note that predicted that the third telco initiative will “raise the capex pressure” on the incumbents, as the provisional third telco player bared its commitments over the next five years.
Aside from this, Fitch also “expects this to temper revenue growth” for both companies, as the third telco player is presumed to enter the market through a price war “as it strives to grab market share in an already highly saturated mobile market.”
Pangilinan noted that his group has yet to determine how big the impact is of the third telco player in the company’s top line, but noted that “the impact of the third player will not be significant in the first year.”
“We’re quite optimistic for 2019, but of course, they can conjure up something that will be new or creative, so we’ll just have to be able to respond to that,” he said.
Pangilinan said his group does not see the third telco up and running by 2019, as it takes a full year for a telco to set up as much as 300 cell towers.
Together, the two incumbents have roughly 15,000 towers in operation. Crisanto said it already expects the third telco to enter the market with low prices to squeeze out market share.
“Now you will know how competitive the industry is. For long, people are saying that we are not competitive, now you will know how competitive we are,” she said.
Mislatel emerged as the provisional third telco player, after two other bidders—Sear Telecommunications Inc. and Philippine Telegraph and Telephone Corp.—were disqualified for submitting incomplete requirements.
Led by Davao-based businessman Dennis A. Uy’s Udenna Corp., China Telecom and Chelsea Logistics Holdings Corp., Mislatel Consortium will be using the congressional franchise of Mindanao
Islamic Telephone Co. Inc. Its bid will still be evaluated, and is expected to be challenged by the disqualified parties.
Nonetheless, the government aims to award the third telco spot by this month.
According to Fitch, the consortium will incur huge cash burns to roll out its network.
“Consequently, only a newcomer with deep pockets and technical expertise would be able to compete effectively against the incumbents,” it said.
The third telco is also expected to handle issues pertaining to spectrum allocation and usage, as the two companies hold the majority of the frequencies in the telco space.
“Even after setting aside spectrum frequencies to the new telco, the incumbents still possess a majority of the rights across a range of spectrum frequencies, some of which were acquired from their joint purchase of San Miguel Corp.’s telecom assets in 2016,” Fitch said.
Thus, it predicts that the new player will “focus on the cost-effective long-term evolution network to accelerate network rollout.”
It noted, however, that the third telco may find it hard to “monetize higher data traffic” at it remains a key challenge in the Philippines.
“The aggressive LTE rollout by the incumbent operators would also raise entry barriers for the newcomer,” Fitch said.
As such, the credit rating company sees “fixed-mobile convergence as advantageous, allowing telcos to tap into the fast-growing home-broadband market to mitigate mobile pressure and retain customers.”
The third telco is seen to break the telco duopoly, as it spurs competition, thereby increasing quality of services while bringing prices down.
But to further improve the telco market, which received a negative outlook from Fitch, the credit watcher suggested that the Philippine government intervene through legislative and policy reforms.
“This includes reevaluation of the current 40-percent foreign-ownership cap for public utilities, infrastructure and tower sharing, as well as spectrum redistribution,” it said.