Philippines mobile market becomes two-horse race - PLDT takes two-thirds of Filipino mobile market following Digitel acquisition; eyes 2012 LTE launch

The Philippine Long Distance Telephone Company (PLDT) has consolidated its lead in the country’s mobile market following its recent acquisition of Digitel and is now set to deploy LTE alongside rival Globe Telecom.

PLDT paid PHP69.2 billion (US$1.6 billion) for a majority 51.55 percent share in rival operator Digitel in October, enabling it to merge its existing mobile units with Digitel’s Sun Cellular. PLDT subsequently agreed to pay a further PHP600 million to buy-out Digitel’s minority shareholders at the beginning of the year, increasing its ownership to 98 percent and leading to Digitel’s delisting from the Philippine Stock Exchange in March. The deal created an entity that now controls two-thirds of the Filipino mobile market, effectively turning it into a duopoly with SingTel-affiliate Globe Telecom as the only other major player.

The deal was studied by regulators for six months with the main issue being the large amount of the country’s 3G spectrum that the combined firm would control. It was eventually passed on condition that PLDT surrenders the 10MHz 3G licence held by its CURE subsidiary, owner of the Red Mobile brand. Once Red Mobile’s subscriber base is migrated across to PLDT’s main SMART mobile unit, the licence is to be re-auctioned - possibly to Globe or a new entrant such as the San Miguel Group.

Following regulatory approval, PLDT has concentrated on consolidating the two networks and preparing for the upgrade to LTE. According to local press reports in January, PLDT is to install single RAN base stations at all its cell sites offering either HSPA+ or LTE as part of a US$1.5 billion network modernisation project due to be completed this year. Around 3,000 of its 13,000 base stations had reportedly been made ‘4G ready’ by year-end 2011. A limited LTE service has been running since last year.

By the end of Q1 2012, the first full quarter in which Digitel was included in PLDT’s financials, the operator’s total mobile subscriber base stood at 66.1 million. This comprised 27.5 million subscribers via SMART (300,000 net adds for the quarter); 22.2 million on the ‘Talk ‘N Text’ value brand (1.7 million net adds); 900,000 on CURE’s Red Mobile; and 15.6 million on the newly-acquired Sun Cellular.

The addition of the Sun Cellular subscribers also added 1.4 million postpaid subscribers, enabling PLDT to exceed 2 million in total, which it claims now makes it the market leader in this segment (overtaking Globe) - though postpaid connections still only account for 3 percent of its total base.

PLDT’s mobile service revenue for the quarter rose 15 percent to PHP28.9 billion, but it noted that without Digitel’s revenue contribution of PHP4.7 billion, mobile revenue would have fallen 4 percent on the back of an 8 percent decline in voice revenue.

Meanwhile, Globe Telecom reported a 14 percent year-on-year rise in mobile subscribers in Q1 to 31 million, adding just under a million net additions in the quarter for a 32 percent overall market share.

The operator, which is 47 percent owned by Singapore’s SingTel, is concentrating on boosting its postpaid subscriber base with customisable plans aimed at attracting and retaining lucrative customers (it launched the iPhone 4S in December 2011). Postpaid revenue at the operator increased by 17 percent year-on-year in Q1, compared to just a 2 percent rise in prepaid revenue; postpaid ARPU in Q1 was PHP1,162 (US$27), compared to just PHP156 at its main Globe prepaid brand and PHP98 at its 'TM' value brand. However, contract customers still account for only 5 percent of its total base.

Globe also has a fast-growing mobile broadband business based on its Tattoo-branded datasticks, which accounted for about 80 percent of its 1.5 million total broadband customers in Q1.

Globe’s mobile revenue, which accounted for 82 percent of total service revenue, rose 6 percent year-on-year to PHP16.6 billion with mobile data accounting for 49 percent. Like PLDT, Globe is planning to upgrade all of its 7,060 cell sites (12,714 base stations) to LTE as part of a US$790 million network modernisation drive this year.

Matt Ablott, Analyst, GSMA Intelligence:

Although there are several dormant networks in the country – notably the iDEN-based Next Mobile and Express Telecom (launched way back in 1988 as the country’s first ever mobile operator) – PLDT’s acquisition of Digitel has effectively transformed the world’s 12th largest mobile market into a two-horse race. The move comes at a key time with the market entering a mature phase and reaching 100 percent penetration in Q1 (though there is evidence that multiple SIM use is swelling the numbers). While the regulator has risked reducing competition by approving the deal, it has ensured that the two main players are in a position to manage any slowdown in subscriber growth in a market that remains price-sensitive and predominantly prepaid. With a potentially harmful pricing war likely to be avoided, the two operators can concentrate on maximizing subscriber value and migrating users to next-generation networks and services. PLDT noted in Q1 that it has built-out 3G to 90 percent of the population but three-quarters of its connections still relate to 2G devices, suggesting that plenty of work needs to be done before the leap to LTE. Looking forward, it is possible that the duopoly situation may not last long as new players look for a route into the market. It is reported that Chinese vendor Huawei has teamed with a local investor to revive Next Mobile, while San Miguel – the locally-owned food and beverage giant – already owns several telecoms assets in the country and is thought to be interested in CURE’s 3G licence.

PLDT, Globe Telecom, selected financial & operational data, Q1 2012
Source: GSMA Intelligence, company reports