Study: Only viable third player is government

Tuesday, March 21, 2017

AN ACADEMIC research paper by University of the Philippines (UP) Professor Emeritus Epictetus Patalinghug, et al. entitled Assessment of the Structure, Conduct, and Performance of the Philippine Telecommunications Industry, determined that the only realistic third player in the local telecoms industry is the government – and that the government must build a ‘last-mile’ network that is not financially viable for private operators to build.

Speaking at the Philippines Telecoms Summit held recently by the Department of Information and Communications Technology (DICT), Patalinghug positioned that a third player from the private sector may have a difficult time attaining financial viability in the short run due to its late-mover disadvantage.  They will also need to penetrate undeveloped areas whose deployment costs are higher than the almost saturated urban markets dominated by the incumbents.

The market realities of capital intensity, sunk costs and economies of network size therefore prevent a realistic entry of a private third player, according to Patalinghug.

The paper showed that in 2015 alone, PLDT and Globe’s capital expenditures already amounted to 29 percent of their total service revenues.  This ranked second only to China’s 36 percent globally.  In contrast, telecoms firms in the US spent only 14% of their revenues on network improvements in 2015.

Patalinghug’s findings coincided with the DICT’s position that the recently approved national broadband program of the government will help improve internet speed in the country and provide more Filipinos with access to the internet.  This will be achieved through a nationwide network that will link previously unconnected rural areas.  

DICT Secretary Rodolfo Salalima said in an interview that the national broadband network is needed not only by the public but by the private telecoms firms as well in order to expand the reach of their services towards the countryside.

Salalima added that compelling the telcos to do business in countryside areas that are not viable will entail significant costs that will have to be shouldered by their subscribers.  “We need the national broadband network as a way to lower costs and help out in rendering services to the public,” he said.

In a meeting with President Duterte in October, Salalima recommended that the government build and manage the network, and then allow private companies allowed to lease it.  This would be beneficial to the telcos, who lack the necessary broadband infrastructure in far-flung or ‘missionary’ areas.

“We hope to lay the groundwork — so telcos can come in and begin to offer much-needed internet services to the residents there,” Salalima said./PN