Asia Times: Philippines: The number's up for fixed lines


	July 18, 2001	atimes.com

Special Reports

Philippines: The number's up for fixed lines
By Mary Ann L Reyes

MANILA - With the fixed voice business becoming increasingly unprofitable, Philippine telecommunications companies are reinventing their businesses and turning to new and more lucrative ventures.

In fact, their entering the highly profitable cellular phone market, which many Filipinos now prefer over fixed telephone lines, is partly to blame for the reduced demand for fixed lines.

Isla Communications is one company that suffered from huge debts due to the reduced demand for fixed lines in the country. In fact, it has already disconnected 70,000 non-paying subscribers, changed its billing system, and sold out to the Ayala Corp-Singapore Telecom-owned Globe Telecoms.

Islacom is a Visayas-based company that has already rolled out about 660,000 of the 700,000 telephone lines it had committed to install in the country. Islacom chief operating officer Gil Genio believes the landline business was really meant to be an obligation, as in exchange for a cellular license companies were required to install fixed 400,000 lines. "The landline business really needs a direct subsidy, either from international long distance or from cellular, or a universal access fund that will partly subsidize putting up telephone lines in unprofitable areas," he said.

The huge capital required for putting up telephone systems, Genio said, would require that a company look at a 15-year horizon before it could start recouping its investments. And these are huge, basically because of the Philippines' dispersed population, it being an archipelago. "The country is better off with wireless telephony," he said.

Because of the current glut in available lines, Genio believes the telephone industry will now be more careful. "We won't see any full-blown roll-outs. Any roll-out of additional lines will now depend on actual demand," he said.

Globe Telecom president Gerardo Ablaza agrees with Genio that the situation will continue to be difficult for the telephone industry. Ablaza points out that the Philippine telecommunications sector is one of the most heavily taxed industries in the country. "We pay a 10 percent value added tax, not to mention another 10 percent as overseas communication tax. We also have to pay out income tax and spectrum users' fee," he said.

Despite current moves to go wireless, the Globe top official, however, believes there is still demand for wireline telephones. "People will still use wirelines for fixed access to the Internet," he noted.

Antonio Samson is executive vice president of the Philippine Long Distance Telephone Co (PLDT), a pioneer in the local telecommunications business. He is also the president and chief executive officer of Mediaquest, a wholly owned subsidiary of PLDT which was thrust into the limelight when it entered into a memorandum of agreement to purchase GMA Network Inc, owner of the country's second largest television station and over 40 radio stations.

According to Samson, the key is to have a rising business such as cellular. "Voice is becoming more and more wireless," he said. Samson believes that the phenomenal growth of mobile telephony in the Philippines is due to the fact that lifestyles are changing and that since more and more people are outside their homes most of the time, the best way to reach them is through their cellular phones.

"Cellular phones offer one a choice between transmitting voice and sending text messages. One family can have one fixed line but each family member can have their own cellular phone," he said. Samson adds that the greatest invention that propelled the Philippine cellular phone business to what it is now is "prepaid cards". He says that with the prepaid card, mobile phone companies do not have problems with unpaid bills.

Samson, who has been with the company for 20 years, was witness to the acquisition by the First Pacific Group led by Manuel V Pangilinan of PLDT from the group of Antonio Cojuangco two years ago. PLDT under Pangilinan bought Smart Communications Inc, then a growing cellular company which has an alliance with Japan's NTCC Communications, in March 2000, and from then it has become an altogether different ballgame for the traditional telephone company.

PLDT likewise established ePLDT in August of last year to serve as the principal corporate vehicle for the former's Internet, e-commerce, and multi-media initiatives and ventures. According to PLDT president and chief executive officer Pangilinan, last year was one in which the strategic foundations for future growth and profitability were put in place.

He said the formation of a strategic alliance with NTT and the acquisition of Smart, together with the creation of ePLDT, has already had a major impact on both PLDT's organization and its revenue base. "PLDT has entered 2001 with a broader range of revenue sources and is well positioned to take advantage of the recovery of the national economy after a year of turmoil," Pangilinan said.

Smart Communications' strong performance during the second half of 2000, when it posted a net income of 1.5 billion pesos (US$28 million), helped lift the PLDT group's net income for the year to 1.1 billion pesos.

With the exception of international long distance, whose revenues fell 15.9 percent due to lower accounting rates for inbound calls and reduced tariffs for outbound calls, all of PLDT's business lines enjoyed an increase in revenues. Cellular service rose by 49.7 percent; data and other network services, 42.3 percent; fixed line, 17.1 percent; and national long distance, 3 percent.

Fixed line or local services are still the single largest revenue source of PLDT at 30.4 percent, but, significantly, revenues from cellular services, which account for 25.2 percent of total revenues, have now overtaken international revenues (20.8 percent) in second place. National long distance accounted for a 16.8 percent share, and the fast-growing data and other network services, 5.2 percent.

PLDT's fixed line still accounts for 67 percent of the market with 3 million subscribers as of December 31, 2000, followed by Digital elecommunications (Digitel) with 12 percent; Bayantel with 7 percent; and Globe-Islacom with 7 percent. Text messages for the PLDT Wireless Group (Smart and Piltel) grew from 46 million messages for January 2000 to 735 million messages for December 2000, or a 15-fold increase in 12 months. The company is also investing billions of pesos to make its fixed copper wires capable of transmitting not only voice, but also data and video.

In the past two years, PLDT has transformed itself from a company of the old to one of the new millennium - from a traditional telephone company with a heavy dependence on voice services into a broadly based, full service telecom and multimedia conglomerate. Its acquisitions and investments of recent years, including one in an e-market place (Bayantrade.com), an Internet data center (Vitro), and a chain of Internet cafes (Netopia) shows that the company is already positioned for future growth - regardless of whether the fixed telephone line business which started it all rebounds or not.

Digital Telecommunications Phils Inc, which is owned by business tycoon John Gokongwei, is another company that has realized early the potential of the Internet. Digitel is the second largest provider of wirelines in the Philippines in terms of working lines and it has 611,000 lines systemwide.

In addition to wireline voice services, Digitel's data subsidiary DigitelOne offers corporate customers and consumers high-speed data transmission and Internet services. In response to future requirements for convergent technologies enabling simultaneous voice and data services transmissions, DigitelOne's ongoing asymmetrical digital subscriber line (ADSL) roll-out addresses the demand for broadband access in both business and high-end residential markets.

In the latter part of 2000, Digitel was awarded provisional authority to engage in the cellular business and plans to start commercial operations of this in middle of next year, with an investment of around 10 billion pesos, which it plans to source from borrowings.

According to Gokongwei, Filipino consumers, following worldwide trends, are showing an increasing preference for wireless communications. Last year, cellular mobile phone companies registered a combined subscriber base of 5.44 million, easily outpacing fixed wire subscribers who numbered only 3.1 million.

This preference for mobile phones, he said, may be partly attributed to the availability of the short message service (SMS), more popularly known as "texting". A few years after its introduction, SMS has transformed the Philippines into the texting capital of the world, with enthusiastic cellphone subscribers sending an estimated 30 million text message a day.

Also, Gokongwei notes that more and more Filipinos are getting connected globally through the Internet. Last year, the Philippines registered a total of 680,000 Internet subscribers, or more than double the 1999 figure of 320,000 subscribers.

The demand for better, more sophisticated technologies to carry voice, data, and video services has prompted carriers to begin working on their own broadband infrastructure, he said.

Other telecommunications companies are also going wireless. Digital trunked radio service operator Nextel Communications, for instance, is investing $50 million this year, partly for the roll-out of more cellsites, and the introduction of packet data services.

Paging company EasyCall Communications, Phils Inc (ECPI), whose traditional message handling business suffered a major setback with the emergence of cellular text-messaging, is also set to reinvent itself to become an information technology firm specializing in electronic customer relationship management.

Benpres Holdings Corp, which owns Bayantel, has over the past few years identified business ventures that will allow it to leverage its vast assets for start-up undertakings with a good potential for steady growth. Benpres chairman Oscar Lopez envisions a new unit, called eLopez, that will be "accountable for building new businesses and leveraging internal resources in the New Economy".

Companies that will comprise eLopez include: Bayantrade dotcom Inc, which is a business-to-business electronic marketplace that will engage in electronic catalogue buying and auctions; Corporate Information Solutions Inc, which will tap the growing market for organizations outsourcing their information technology functions; Customer Contact Center (C3), which will provide contact center solutions for local and foreign service companies, and; BayanMAP Corp, which will provide enhanced geographic information systems.

Last April, the group's cable subsidiary under the trade name SkyCable entered into an agreement with the PLDT cable company HomeCable to merge operations. There are also reports that the Lopez group is selling part of its stake in the country's leading broadcast company ABS-CBN, in order to support its losing businesses, such as the telephone company Bayantel.

"We are banking on the substantial assets we have accumulated thus far to get us into New Economy ventures that require less in terms of financial capital which is scarce nowadays, and more in intellectual capital, which we have in abundance," says Lopez.

Not to be outdone, the government, through the National Telecommunications Commission, is devising ways and means to help the telephone companies recover their losses and reduce the number of unsubscribed telephone lines. The NTC, in fact, is amenable to an industry proposal to install telephone meters, although optional to the customer, to raise more funds for the companies. The NTC is also encouraging companies to offer more value-added telephone features to increase revenues.

"We in the industry are devising ways to increase the number of telephone users and increase the volume of usage of those who already have fixed telephone lines," Globe's Ablaza said.

Islacom's Genio, on the one hand, believes the market for landline telephones will grow only as well as the economy. But with the Philippine economy saddled with a many problems - a growing budget deficit and a weakening currency to name a few - industry players may have to continue to rely on their own resourcefulness and creativity.

According to Lopez, the huge budget deficit inherited by the new government will continue to cast a cloud of doubt on the entire economy for many years to come. "We must all relearn to live with and surmount the same difficulties we faced in the past when political and economic developments conspire to make life interesting for us," he said.

Part 1: A bad connection (Jul 10)

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