Philippines Telecommunications Report Q2 2008

The performance of the Philippines' two leading mobile operators Smart Communications and Globe Telecom for the nine months ended September 2007 yielded some impressive results. Smart announced 4.1mn net additions in the nine month period, surpassing its YE06 figure of 3.8mn net additions.

Similarly, Globe reported 3.56mn net additions for the January to September period, against 3.26mn net additions for the whole of 2006. The reasons behind this are clear. The country's economy is performing well, with record remittances reported in November 2007 (money sent home by Filipinos working abroad totalled US$13.05bn). There is also a booming call centre industry, which is fuelling the local economy and leading to a growing wealthy youth section of society. Finally, operators have themselves been raising marketing expenditure over advertisements and a range of promotions to acquire greater subscriber numbers.

BMI believes its YE07 mobile subscriber figure of 55mn to be realistic, rising to 63mn by the end of this year. Growth will increasingly arrive from low-income households based in remote and rural areas of the Philippines, as is being experienced in other high growth mobile markets in Asia. However, our concern relates to a slower than anticipated US economy in 2008. This will likely see a slowdown in remittance and export growth, weighing negatively on the peso and impacting economic development and the telecoms industry. 3G service take-up will continue to be sluggish. Handsets will be expensive and their lack of affordability will only be heightened if the economy does slow this year.

The entrance of new mobile operator Bell Telecommunications (BellTel), licensed by the NTC to build and operate a mobile network, is not expected to carry any real threat to existing mobile operators.

BellTel is to deploy a CDMA2000 1x network in the 1800MHz band, but will require an estimated PHP238.5mn of capital expenditure between 2008 and 2009 to get its service up and running. The operator estimates that in the first year of service, it will have a subscriber base of 85,000. In view of this, the operator is not expected to make any significant impact to the development of the mobile sector in the immediate term.

No changes have been made to our fixed-line and broadband forecasts. The government at the time of writing is said to be mulling over plans to reintroduce its previously failed national broadband network.

Plans had to be scrapped following allegation of corruption practices that allowed Chinese equipment vendor ZTE to win the deal. The Department of Transportation and Communication (DOTC) has renamed the idea as the Government Broadband Network project. However, rather than benefiting the populace, the project is to be used to improve communication among government agencies. In this manner, it is unlikely to contribute to the overall growth of the broadband sector.