Telecom investor conference

I attended the Investor Conference on the Telecom Industry recently sponsored by the Philippine Stock Exchange. Three telcos were featured: PLDT, Globe and Bayantel. They also invited the Transportation and Communications Secretary and the Deputy Commissioner of the National Telecommunications Commission to discuss the regulatory direction of the industry.

The NTC commissioner spoke about the Convergence Bill to address the convergence of voice, video and data; and the up-and-coming Department of ICT to address the country’s need to be up-to-date and competitive in the information and communication technology industry. He spoke about the need for laws and regulations to catch up and how our local ownership rules need to adjust to encourage foreign capital in the newly convergent industry.

He also spoke about VoIP (Voice over Internet Protocol) and how companies that want to offer VoIP to the public would be required to secure a congressional franchise and as a public service requirement, install 300,000 landlines. From a fairness standpoint, this makes sense since the other companies are subject to the same rules.

However, the latter point is something that concerns me. In my past columns, you must have observed that I felt that our 40 cents a minute rate (albeit already discounted from the US$2 a minute of yesteryears) for international calls is still not competitive. Rates for similar calls originating from the US to the Philippines range from 17 to 25 cents. There is room to go down. The only way to bring prices down is to bring market pressure to bear; price regulation only causes more trouble.

If the direction of the Philippines is toward IT-enabled services such as call centers and BPO (business process outsourcing), then the cost of overseas calls needs to drop. This means our telecom cost must come down. New companies need to be able to buy VoIP and leased lines comparable to global rates or at least on a par with or better than India. VoIP falling into the franchise arena creates a high barrier to entry. High barriers to entry means less competition, and less competition means prices cannot come down as fast. Our regulators need to lower the barriers to entry, not increase them.

The CEOs of the three telcos were up next with their slick PowerPoint presentations of how good their respective companies were doing. All three spoke about their debt reduction programs and their cost containment programs (mostly from headcount). I also heard about the reduction in capital expenditure. All these programs boded well for investors as these companies are now chasing profitability and cash flow as opposed to market share.

However, they did mention the potential threat of Digitel’s Sun Cellular. Sun has an unconfirmed subscriber base of 200,000 only a few months after its launch less than a year ago. From my other sources, I heard that Sun was better positioned to compete as it bought most of its capital equipment during the telco crisis at mere cents on the dollar compared to the two other dominant mobile players. With a significant war chest of a few billion dollars, I can see Sun in a position to give the incumbents a run for their money. I guess a few more sleepless nights for the three CEOs.

My Two Cents: The Philippines needs to create an investment environment that creates competition at level-playing field and lower the cost of doing business. Only with competition can we lower prices.

Letter from Connecticut

I am writing you from Connecticut where I am visiting my relatives on the East Coast. As usual, I just received my instructions from my editor via my GSM text and sending back this article via the Internet. (Just love that Yahoo!) As always, my eyes are open to what is new or better yet, what we can replicate (nice euphemism for copy) in Manila.

One new and interesting service that I saw was Netflix. It’s a service where a subscriber rents three DVDs at a time through the mail for whatever amount of time; when returned in its postpaid envelope, another three DVDs are sent. The service costs $20 a month. (If you watch three disks a week, or 12 disks a month, the service comes to about $1.70 per disk.)

This service works in the US because premium cable service providers (like HBO and ShowTime) charge an additional $20 to $40 a month on top of the basic service. The rentals for DVDs are in the $5 range, excluding late penalties. For busy working Americans, who enjoy movies, this is a good deal and service.

Clearly, this business model won’t work in Manila as it is. In Manila, basic cable already includes HBO; movies are cheap, both at the theater and at the rental counter. (And we can usually talk our way out of the late fee.)

My Two Cents: There is always a better way to deliver service. Be innovative and do not accept the status quo.

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Dickson Co is CFO (C is for Cheap) for Dfnn, Intelligent Wave Philippines and HatchAsia.com. For comments or suggestions, e-mail [email protected].