Philippine carriers eye various growth areas

As analysts expect phone sales in the country to fall this year, mobile operators mull revenue sources such as data traffic services, to overcome any handset sale slump.
Written by Melvin G. Calimag, Contributor

MANILA--With the economic malaise poised to slow down the shipment of mobile phones in the Philippines, local carriers are hoping that other growth areas, such as data traffic, will pick up the slack.

Latest figures from IDC paint a bleak picture of the Philippine mobile phone market, with the ICT research firm asserting that the "trying times in 2008…will continue into 2009".

The analyst firm said mobile phone unit shipments in the country are projected to decrease by 0.3 percent from 2007 to 2008, with the trend continuing in 2009 as unit shipments are estimated to plunge further by 5.3 percent.

A number of factors contributed to the decline of mobile unit shipments in the country, IDC said, noting higher inflation and consumer prices have led the way for lesser purchasing capacity for consumers.

Catherine Foronda, communications research analyst at IDC Philippines, said in a statement that mobile phones took a back seat to basic necessities as the country felt the pinch of rising costs of goods and commodities at the start of 2008.

The local subsidiary of South Korean firm LG said the company remains bullish despite the recession.

M.J. Kim, vice president for mobile communication at LG Electronics Philippines, said in an e-mailed statement: "Given the diversity of the mobile phone industry, diversity in customer preference and what technology can make available, as well as the economics that we also have to consider, we take all these factors into account to come up with solutions to offer to different segments of the market."

LG said its recently launched mid-range mobile phone (LG KP500 or what is more commonly known as LG Cookie) is a demonstration of this strategy as this gives consumers the opportunity to experience touch-screen technology that has previously only been available in the more expensive high-end mobile phones in the market.

Nokia, the dominant phone brand in the Philippines, said it could not comment on the projected slowdown of phone shipments as it is about to release its fourth quarter financial results.

IDC said overall mobile subscribers in the Philippines is expected to increase by 21 percent in 2008 over 2007. Although expectations are low that subscriber growth, let alone similar figures, will be posted this year, local operators are hopeful that the expansion won't come to a screeching halt.

Smart Communications, the biggest mobile operator in the country with 35 million subscribers, said it still expects to continue growing its customer base in 2009, "albeit at a more modest rate compared to the past two years".

Ramon Isberto, public affairs head of Smart Communications, said: "The difficult economic situation clearly poses major challenges for all operators. As for Smart, we shall pursue our efforts to win new subscribers by offering affordable text and voice call packages that address specific preferences of different segments of the broad market."

The projected decrease in mobile shipments will not necessarily equate in the slowdown of subscriber uptake, Isberto said in an e-mail interview. "One has take into account not only new phone shipments but also the second-hand phone trade, which tends to be substantial in developing countries," he pointed out.

Smart's main rival, Globe Telecom, said the cost factor could play a major role whether there will be new subscriber gains this year.

Ferdinand dela Cruz, head of consumer wireless business at Globe Telecom, said: "Globe has seen a shift in the market on purchase of devices. The established brands have offered more features at lower price points while there is an openness at the lower end to try new brands which are priced much cheaper than the established brands."

But the executive added in an e-mail interview: "What is interesting to observe is how long people will extend their phone replacement cycle given the current economic crunch."

Eye on data traffic
With the gloomy prognosis on mobile phone growth, both Smart and Globe are directing their efforts on a new area that has seen substantial expansion this year-–data traffic.

Smart's Isberto noted that the growth of wireless broadband devices in 2008 was "phenomenal" and that the company is expecting this trend to "continue moving forward".

This technology trend, he said, is something that the company is treating as a growth area. Isberto cited Smart's introduction in the country of the first post-paid and pre-paid Internet access service via modem Plug It devices (under the brand name of Smart Bro) as a breakthrough.

"There is mobile television, as well," he added.

Dela Cruz, on the other hand, said Globe has provided "affordable data tariffs to drive mobile Internet traffic", referring to its 5-pesos-per-15-minutes rate.

"Together with our partnerships with big Internet brands like Yahoo, Friendster and Facebook, we believe growth of data traffic would be significant moving forward," he said.

Isberto said as for the low 3G usage in the country, Smart chose a positive spin. "At Smart, we think of data or value added services rather than 3G services, per se. The reality is data services--take for example, our Smart Bro Plug It--cut across 2G, 3G and HSPA platforms. In those terms, data usage has been growing rapidly and 3G has indeed helped this along by making high-speed services more widely accessible," he explained.

By end-2008, Smart said it had in excess of 100,000 "Plug It" users. "We expect mobile Internet usage to grow even more as Web applications on mobile handsets improve further in 2009. We have about 1.6 million subscribers using 3G handsets. So there is plenty of headroom for growth," Isberto said.

Mario Naz, research manager of Toronto- and Manila-based research firm XMG, said even as local shipments will inevitably respond to the momentary decline in demand, mobile phone suppliers and telecom service providers are expected to invest in educating the market on the new services and features of mobile communications.

"This, together with the lowering of subscription rates--both pre-paid and post-paid--will provide stimulus for the purchase of mobile handsets carrying added features," Naz said in e-mail.

As with IDC, which predicts that "converged devices" will exceed mobile phones in the next five years, XMG said the demand for devices that can perform multiple tasks aside from voice and text will depend greatly on the technical and lifestyle needs of consumers.

Melvin G. Calimag is a freelance IT writer based in the Philippines.

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