Introspective Romeo L. Bernardo
Posted on July 03, 2016 11:19:00 PM
(This column continues the answer to that core question started in the first installment last week.)
1) Government Participation. This factor is mostly negative,
with unclear and no comprehensive national broadband strategies, no
substantial investment in a national broadband network, inefficient
allocation of limited spectrum resource, decentralized LGU regulation of
taxes and permitting.
2) Geography. The country’s smaller land area, compared to neighbors, can lead to more efficient infrastructure. However, multiple islands require more cables/fibers, including underwater ones.
3) Urbanized demographics. High population density enables economies of scale and faster deployment. On the other hand, infrastructure deployment in rural areas is challenging due to economic and market factors.
4) Economy. Higher gross national income per capita indicates ability and proven willingness of consumers to pay. Broadband affordability is correlated with income. Mix of low speeds vs high speeds affects perceived average speeds. In the Philippines on the downside with more people in a lower income bracket.
THE CHALLENGES
1) On Fixed Line Internet, the key challenges in accelerating investments are long duration returns (high cost of capex per line) and various bureaucracy elements (permits, right of way, and site acquisitions).
Historically, there has been underinvestment in this sector. Other countries had a better landline infrastructure from the starting line. In 1992, the late Singaporean Prime Minister Lee Kwan Yew noted that “98% of Filipinos do not have telephones,” Globe and other telcos leapfrogged using mobile technology, the quickest and most economic way to provide telephone service coverage.
2) On Mobile Internet -- By its nature, mobile requires an interplay between size of spectrum and site/tower density. Greater tower density allows mobile service providers to offer the same quality of service with smaller sizes or allocations of spectrum. Conversely, large slices of spectrum are necessary given low site density.
The Philippines does not have enough towers to support better speeds and affordability, and future growth. As can be seen in the first graph, the Philippines has less than 13,000 towers, while Vietnam has 55,000, Malaysia 22,000, Pakistan 28,000, US 300,000. (Source: TowerXchange, CTIA for US number)
The key challenge in towers and sites are permits, right of way, site acquisition, and broad discretion levels of permitting agencies like LGUs, local entities, and would-be tower neighbors driven by Not In My Backyard (NIMBY) mentality.
I recall a while back, our Globe Board of Directors approved financial resources to accelerate expansion of towers and sites -- we have an accumulated backlog of 3,000 sites. But despite pressure from management and the Board, and utmost effort from our team, Globe can only do 350-450 a year.
The hurdles are real and understandable.
Just to illustrate, our team has had to get 25 permits per cell site, and to deal with at least 120 primary level LGUs individually to build infrastructure. This is one area where the central government can play an enabling role, perhaps under the newly established Department of Information and Telecommunication.
EXPLOSIVE GROWTH
At the same time, there has been explosive growth in mobile internet use. We Filipinos have graduated from being the number one SMS users in the world to being the top users of social media (Facebook, Twitter, etc.) and consumers of movies and music. For Globe alone, in the span of a little over two years, subscribers of mobile Internet have more than doubled from 9 million at the end of 2013 to 24 million. Within that same period, traffic went up from five thousand to 50 thousand terrabytes, tenfold, even as revenue growth from this was controlled at just at three and a half times from P2 billion to P7 billion. Philippine telcos simply cannot sustain mobile Internet delivery service demand growing at 50-70% annually without more frequency and more sites.
THE SMC TRANSACTION ETC.
Against this back drop, San Miguel Corporation has sold all of its telecom assets to Globe and PLDT which has split these 50-50, and returned some frequencies to the NTC. This covers all frequencies, all sites and equipment, three holding companies, and 20 plus companies that has all of their telecom assets. Critical for improving mobile service delivery is the 4G/LTE frequencies in the 700 MHz band which provides longer range, broader reach.
It bears noting that SMC has underutilized this and other frequencies, and with the collapse of its negotiations with Telstra, has poor to nil prospects of utilizing it any time soon. Even for a giant conglomerate like SMC, it has proven most difficult to find a foreign partner who will risk several billions of dollars to invest in a Philippine telco play. For reference, it took Digitel more than five years before it could be profitable, and even then it only had ten% of the market before it decided to sell/merge with PLDT.
The NTC approved the transaction and co-use/ re-assignment of SMC frequencies, considering this is the best and quickest way of improving the service to the public. The approval came with the following conditions:
a) The surrender of frequencies across the spectrum by the two telcos. These frequencies are more than sufficient for a third player to come in and compete head to head with the incumbents.
b) A plan to cover at least 90% of cities and municipalities within 3 years, and to improve Internet speeds significantly within a year.
QUESTIONS
The Internet Society posed probing questions to determine if the two telcos really need the 700 MHz to improve service. The full technical answers to their questions are provided in the letter to them by Gil Genio, Globe Telecom’s Chief Strategy and Technology Officer.
[To read Mr. Genio’s letter posted on Mr. Bernardo’s blog, please visit http://goo.gl/bXKJu7.]
Another frequently asked query is whether the telcos are reinvesting enough or yielding shareholders too much. I mentioned in Part 1 that Globe invests 28-33% of revenues for CAPEX, higher than most telcos elsewhere. Moreover dividend yield averages 3.5% per year are healthy, but far from excessive.
CONCLUDING NOTE
Since 1997, we have gone a long way from a nation where there were only 1.8 million landlines and 0.5 million mobiles to one where there are 120 million mobile SIMs in circulation, about 40 million smart phones, 50 million plus internet users, 40 million plus FB and other social media users. We often forget that there are tens of millions who are now able to use Internet because of the investments of private sector, many times over versus the days of dial up. Even compared to three years ago the number has tripled.
That must count for something. We can always be better, speed could be faster, networks more pervasive, but to be constructive about it means having coherent suggestions and practical solutions, for the larger population. Filipinos do deserve faster and more affordable Internet, mobile or fixed. I do believe that the telcos are doing their part, and will continue to do so. Others need to play their roles.
Romeo L. Bernardo is GlobalSource Partners Philippine advisor. He served as Finance undersecretary during the Aquino-1 and Ramos administrations.
Posted on July 03, 2016 11:19:00 PM
(This column continues the answer to that core question started in the first installment last week.)
What are the realities behind “slow internet” in the
Philippines? The following factors, positive and negative, affect
broadband speed:
|
|
2) Geography. The country’s smaller land area, compared to neighbors, can lead to more efficient infrastructure. However, multiple islands require more cables/fibers, including underwater ones.
3) Urbanized demographics. High population density enables economies of scale and faster deployment. On the other hand, infrastructure deployment in rural areas is challenging due to economic and market factors.
4) Economy. Higher gross national income per capita indicates ability and proven willingness of consumers to pay. Broadband affordability is correlated with income. Mix of low speeds vs high speeds affects perceived average speeds. In the Philippines on the downside with more people in a lower income bracket.
THE CHALLENGES
1) On Fixed Line Internet, the key challenges in accelerating investments are long duration returns (high cost of capex per line) and various bureaucracy elements (permits, right of way, and site acquisitions).
Historically, there has been underinvestment in this sector. Other countries had a better landline infrastructure from the starting line. In 1992, the late Singaporean Prime Minister Lee Kwan Yew noted that “98% of Filipinos do not have telephones,” Globe and other telcos leapfrogged using mobile technology, the quickest and most economic way to provide telephone service coverage.
2) On Mobile Internet -- By its nature, mobile requires an interplay between size of spectrum and site/tower density. Greater tower density allows mobile service providers to offer the same quality of service with smaller sizes or allocations of spectrum. Conversely, large slices of spectrum are necessary given low site density.
The Philippines does not have enough towers to support better speeds and affordability, and future growth. As can be seen in the first graph, the Philippines has less than 13,000 towers, while Vietnam has 55,000, Malaysia 22,000, Pakistan 28,000, US 300,000. (Source: TowerXchange, CTIA for US number)
The key challenge in towers and sites are permits, right of way, site acquisition, and broad discretion levels of permitting agencies like LGUs, local entities, and would-be tower neighbors driven by Not In My Backyard (NIMBY) mentality.
I recall a while back, our Globe Board of Directors approved financial resources to accelerate expansion of towers and sites -- we have an accumulated backlog of 3,000 sites. But despite pressure from management and the Board, and utmost effort from our team, Globe can only do 350-450 a year.
The hurdles are real and understandable.
Just to illustrate, our team has had to get 25 permits per cell site, and to deal with at least 120 primary level LGUs individually to build infrastructure. This is one area where the central government can play an enabling role, perhaps under the newly established Department of Information and Telecommunication.
EXPLOSIVE GROWTH
At the same time, there has been explosive growth in mobile internet use. We Filipinos have graduated from being the number one SMS users in the world to being the top users of social media (Facebook, Twitter, etc.) and consumers of movies and music. For Globe alone, in the span of a little over two years, subscribers of mobile Internet have more than doubled from 9 million at the end of 2013 to 24 million. Within that same period, traffic went up from five thousand to 50 thousand terrabytes, tenfold, even as revenue growth from this was controlled at just at three and a half times from P2 billion to P7 billion. Philippine telcos simply cannot sustain mobile Internet delivery service demand growing at 50-70% annually without more frequency and more sites.
THE SMC TRANSACTION ETC.
Against this back drop, San Miguel Corporation has sold all of its telecom assets to Globe and PLDT which has split these 50-50, and returned some frequencies to the NTC. This covers all frequencies, all sites and equipment, three holding companies, and 20 plus companies that has all of their telecom assets. Critical for improving mobile service delivery is the 4G/LTE frequencies in the 700 MHz band which provides longer range, broader reach.
It bears noting that SMC has underutilized this and other frequencies, and with the collapse of its negotiations with Telstra, has poor to nil prospects of utilizing it any time soon. Even for a giant conglomerate like SMC, it has proven most difficult to find a foreign partner who will risk several billions of dollars to invest in a Philippine telco play. For reference, it took Digitel more than five years before it could be profitable, and even then it only had ten% of the market before it decided to sell/merge with PLDT.
The NTC approved the transaction and co-use/ re-assignment of SMC frequencies, considering this is the best and quickest way of improving the service to the public. The approval came with the following conditions:
a) The surrender of frequencies across the spectrum by the two telcos. These frequencies are more than sufficient for a third player to come in and compete head to head with the incumbents.
b) A plan to cover at least 90% of cities and municipalities within 3 years, and to improve Internet speeds significantly within a year.
QUESTIONS
The Internet Society posed probing questions to determine if the two telcos really need the 700 MHz to improve service. The full technical answers to their questions are provided in the letter to them by Gil Genio, Globe Telecom’s Chief Strategy and Technology Officer.
[To read Mr. Genio’s letter posted on Mr. Bernardo’s blog, please visit http://goo.gl/bXKJu7.]
Another frequently asked query is whether the telcos are reinvesting enough or yielding shareholders too much. I mentioned in Part 1 that Globe invests 28-33% of revenues for CAPEX, higher than most telcos elsewhere. Moreover dividend yield averages 3.5% per year are healthy, but far from excessive.
CONCLUDING NOTE
Since 1997, we have gone a long way from a nation where there were only 1.8 million landlines and 0.5 million mobiles to one where there are 120 million mobile SIMs in circulation, about 40 million smart phones, 50 million plus internet users, 40 million plus FB and other social media users. We often forget that there are tens of millions who are now able to use Internet because of the investments of private sector, many times over versus the days of dial up. Even compared to three years ago the number has tripled.
That must count for something. We can always be better, speed could be faster, networks more pervasive, but to be constructive about it means having coherent suggestions and practical solutions, for the larger population. Filipinos do deserve faster and more affordable Internet, mobile or fixed. I do believe that the telcos are doing their part, and will continue to do so. Others need to play their roles.
Romeo L. Bernardo is GlobalSource Partners Philippine advisor. He served as Finance undersecretary during the Aquino-1 and Ramos administrations.
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