Philippine Telecommunications

The Philippine Telecommunications Industry remains to be one of the most robust and fastest growing industries in the Philippines. This report will touch on the present state of the elecommunications industry, the regulatory environment, the broadband landscape, broadband technologies, and broadband equipment suppliers and investment opportunities. The Philippine telecommunication sector is estimated to have reached USD4. 0 billion in annual service provider revenues by end 2009. Growth in the next five years, however, is projected to experience a slow down due to the increasing saturation in the industry’s two main segments – cellular mobile and fixed line.

This growth is estimated o be at a compounded annual growth rate (CAGR) in revenues of about 8% over the next five years, compared to a CAGR of 11% in the last five. Aside from cellular mobile and fixed line, the other segments of the telecommunication sector are on broadcast and broadband. For purposes of this report, it will touch briefly on cellular mobile, fixed line and broadcast segments but focus will be on the broadband segment which holds the most promise in regard to growth opportunities given that the cellular mobile and fixed line segments have already reached its saturation point and is expected to achieve flat or negative growth for 2009.

The dominant telcos are PLDT, Globe Telecom, Bayantel, and Digitel. Liberty Telecom is a previously inactive player that is expected to play a bigger role in the industry beginning with 2010. Liberty Telecom recently attracted attention when San Miguel Corporation, the Philippines’ largest food and beverage conglomerate, acquired a 32. 7% stake in the previously inactive telecom company. Liberty Telecom had previously been under corporate rehabilitation after trading of its stock was suspended in 2005 due to “excessive volatility”.

San Miguel recently entered the telecommunication industry by establishing its wholly-owned subsidiary Vega Telecom, Inc. The company later partnered with Qatar Telecom (QTel) in drawing up plans for re-establishing the market presence of Liberty Telecom. The Philippine Telecommunications Report 2010 Page 2 Overview of industry landscape and key players Fixed Line Prior to 1993, Philippine Long Distance Telephone Company (PLDT) had been and continues to be the dominant carrier, being the first to establish a fixed line telecommunications infrastructure nationwide.

Following the telecommunications liberalization in 1993, coupled with the introduction of the Service Area Scheme (SAS), the competitive environment drastically changed with the entry of 10 new entrants that resulted in lower tariffs and improved fixed line penetration. However as of 2008, relative to the SAS, only 50%i of the fixed line capacity has been utilized with only 3. 9 million fixed line subscribers, or a low fixed line penetration rate of only 4. 32%. i The low fixed line penetration rate is due mainly to the cellular mobile segment having overtaken the fixed line segment on account of faster roll-out and deployment of cellular mobile infrastructure. There are approximately 7. 45 million installed and 4. 89 million subscribed land lines as of 2008iii.

Filipinos were mobile phone subscribers. The phenomenal growth was attributed to the popularity of SMS or “Text Messaging” with a little over 300 million text messages being sent daily as well as the availability of cheaper handsets brought about by the introduction of pre-paid services and over the air loading (electronic loads). The cellular mobile segment has been dominated by three (3) large telcos, namely Globe Telecom, Smart Communications and Sun Cellular with Globe Telecom pioneering the GSM platform followed by Smart Communications and later Sun Cellular.

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