Posted on June 26, 2016 09:57:00 PM
Introspective Business world
Romeo L. Bernardo
This is
the core question that the public and governmental authorities who oversee the
sector need to ask and be assured on.
As a member of the Board of Directors of Globe Telecom with responsibility for corporate governance, accountable not just to shareholders but to all stakeholders, including customers and government authorities, I am fully satisfied that the answer is an unequivocal “Yes.”
Some
history: Former Singapore Prime Minister Lee Kuan Yew famously said in 1992 --
“The Philippines is a country where 98% of the residents are waiting for a
telephone and the other 2% are waiting for a dial tone.” (Check out my Sept. 9,
2011 blog entry entitled “De-monopolizing telecom” by visiting the link -- http://goo.gl/aY1rUr.)
Twenty-five years later, there are as many mobile phones, pocket computers really, than there are people, offering a dizzying array of services fitting any lifestyle and business need. Our progress in telecom has made possible our global leadership in BPO, the key growth driver of the economy. How did we get here?
The long and winding road.
With the reforms introduced by President Ramos during 1992/1993, there was a burst of new entrants, and optimism -- five mobile carriers started, also several landline carriers. The issue was lack of landlines so it was roll-out obligation imposed on those who wanted mobile or international licenses.
The Asian crisis came in the late ’90s. Carriers who were competitively weak found themselves struggling under debt burdens too, and a period of consolidation started. Five mobile carriers became two -- Globe bought Islacom, Smart took over Piltel, and Extelcom went into into financial distress. And those who bet on landline or international went into distress -- PLDT had debt issues, then Smart bought PLDT (but PLDT became the parent), Piltel’s landline went to PLDT, Bayantel was in receivership, PT&T likewise. By 1998-2000, only PLDT/Smart and Globe, with good business models, strong shareholders and scale, were surviving. That was also the strongest growth period in the era of voice/SMS.
The government actually gave Digitel, a small landline company, a mobile license, as they felt the need to have a third mobile player. It took them five years to get to a scale to be a serious third player with more than 10% share.
When 3G arrived, the frequency standards allowed the government to grant 5 licenses: three to the existing players, plus a new one (Cure), and a fifth that Bayan says should have gone to them. Given efficiencies of scale, Cure was bought by Smart, and eventually Bayan got bought by Globe. Digitel by PLDT. So back to two main telco groups. (Thank you to Gil Genio, EVP of Globe for refreshing my recall of all of this.)
So as you can see, there are many reasons why the Philippines ended up with two major telcos -- scale, continuing high capex requirement that can only be funded from overseas or by ploughing back profits into the business, infra difficulties that give incumbents advantage, and in mobile, limits on how frequency are sliced up.
Is this resulting two player structure inimical to public interest?
I think only if they behave in a non-competitive way.
From everything I have seen as a Board Director for over a decade, there is not only competition, but fierce competition.
Globe as the challenger has played its role to the hilt. It has been gaining market share through innovation and improvement in services. For the public, evidence of this abound -- look at the billboards and TV ads, or the daily SKU battle in prepaid, or how for P15 one can get unlimited calling and texting for a day, and how mobile Internet prices have come down -- these are the indicia of competition.
Moreover, more players do not mean better service. Europe is a good example. They had a lot of players competing that led to price competition lowering of EBITDA margins (aside from an aggressive regulator). This has taken away the ability of these telcos to spend for needed rollouts. Eventually, the markets began to consolidate leaving a small number of players. Incidentally in the case of Globe (and I believe likewise for PLDT) it is reinvesting 28%-33% of revenues for capex, significantly more than telcos in most other countries.
Ultimately, it is not concentration per se but harmful behavior that indicates lack of competition that the Competition Law (RA 10667) is concerned about. Even before the passage of that law, Globe has always placed the interest of consumers at the center of its business, the sine qua non for long-term profitability and sustainability of Globe, and the industry. (See “Demonopolizing Telecommunications”).
(The next installment of this column will address observations on poor or costly broad band service of local telcos vs peers, why this is true for fixed line infrastructure but not for mobile, factors that explain these, and what government can do to improve service. Also why the re-assignment of the 700 mhz frequency band from SMC will help majorly advance the interest of consumers vs alternative courses.)
Romeo L. Bernardo is GlobalSource Partners Philippine advisor. He served as Finance undersecretary during the Aquino-1 and Ramos administrations.
Twenty-five years later, there are as many mobile phones, pocket computers really, than there are people, offering a dizzying array of services fitting any lifestyle and business need. Our progress in telecom has made possible our global leadership in BPO, the key growth driver of the economy. How did we get here?
The long and winding road.
With the reforms introduced by President Ramos during 1992/1993, there was a burst of new entrants, and optimism -- five mobile carriers started, also several landline carriers. The issue was lack of landlines so it was roll-out obligation imposed on those who wanted mobile or international licenses.
The Asian crisis came in the late ’90s. Carriers who were competitively weak found themselves struggling under debt burdens too, and a period of consolidation started. Five mobile carriers became two -- Globe bought Islacom, Smart took over Piltel, and Extelcom went into into financial distress. And those who bet on landline or international went into distress -- PLDT had debt issues, then Smart bought PLDT (but PLDT became the parent), Piltel’s landline went to PLDT, Bayantel was in receivership, PT&T likewise. By 1998-2000, only PLDT/Smart and Globe, with good business models, strong shareholders and scale, were surviving. That was also the strongest growth period in the era of voice/SMS.
The government actually gave Digitel, a small landline company, a mobile license, as they felt the need to have a third mobile player. It took them five years to get to a scale to be a serious third player with more than 10% share.
When 3G arrived, the frequency standards allowed the government to grant 5 licenses: three to the existing players, plus a new one (Cure), and a fifth that Bayan says should have gone to them. Given efficiencies of scale, Cure was bought by Smart, and eventually Bayan got bought by Globe. Digitel by PLDT. So back to two main telco groups. (Thank you to Gil Genio, EVP of Globe for refreshing my recall of all of this.)
So as you can see, there are many reasons why the Philippines ended up with two major telcos -- scale, continuing high capex requirement that can only be funded from overseas or by ploughing back profits into the business, infra difficulties that give incumbents advantage, and in mobile, limits on how frequency are sliced up.
Is this resulting two player structure inimical to public interest?
I think only if they behave in a non-competitive way.
From everything I have seen as a Board Director for over a decade, there is not only competition, but fierce competition.
Globe as the challenger has played its role to the hilt. It has been gaining market share through innovation and improvement in services. For the public, evidence of this abound -- look at the billboards and TV ads, or the daily SKU battle in prepaid, or how for P15 one can get unlimited calling and texting for a day, and how mobile Internet prices have come down -- these are the indicia of competition.
Moreover, more players do not mean better service. Europe is a good example. They had a lot of players competing that led to price competition lowering of EBITDA margins (aside from an aggressive regulator). This has taken away the ability of these telcos to spend for needed rollouts. Eventually, the markets began to consolidate leaving a small number of players. Incidentally in the case of Globe (and I believe likewise for PLDT) it is reinvesting 28%-33% of revenues for capex, significantly more than telcos in most other countries.
Ultimately, it is not concentration per se but harmful behavior that indicates lack of competition that the Competition Law (RA 10667) is concerned about. Even before the passage of that law, Globe has always placed the interest of consumers at the center of its business, the sine qua non for long-term profitability and sustainability of Globe, and the industry. (See “Demonopolizing Telecommunications”).
(The next installment of this column will address observations on poor or costly broad band service of local telcos vs peers, why this is true for fixed line infrastructure but not for mobile, factors that explain these, and what government can do to improve service. Also why the re-assignment of the 700 mhz frequency band from SMC will help majorly advance the interest of consumers vs alternative courses.)
Romeo L. Bernardo is GlobalSource Partners Philippine advisor. He served as Finance undersecretary during the Aquino-1 and Ramos administrations.
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