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Philippines: Government should be 3rd player in telecom industry – study
MANILA, Philippines (First published May 3 at 10:16 p.m.) — Unless the government steps in and establishes a state-owned telecommunications firm, the prospect of a third player in the industry is low, a study finds.
According to Epictetus Patalinghug who, together with three other professors from the University of the Philippines, wrote the study titled “Assessment of the Structure, Conduct, and Performance of the Philippine Telecommunications Industry,” the only viable third player is the government who has the money to build infrastructure in remote and difficult-to-reach areas and to complement existing networks.
“The only realistic third player is the government, but its social value is its cost-insensitive capacity to pour investments in ‘last-mile’ and high costs areas, and to build ‘last-mile’ network that complements with existing networks,” he said in a recent speech at the Asian Institute of Management, stating some of the conclusions of their study.
Patalinghug however has his apprehensions on a possible government entry, citing the history of government in failing to operate utility services.
“[H]istorical experiences of government failures in direct provision and operation of utility services are rampant,” according to the study.
A third player would face massive financial losses and huge infrastructure problems should it decide to enter the Philippine telecoms market currently dominated by rivals Philippine Long Distance Telephone (PLDT) and Globe, according to Patalinghug.
“A third player may have a difficult time attaining financial viability in the short run due to its late-mover disadvantage and the need to penetrate undeveloped areas whose deployment cost is higher than the almost saturated urban markets dominated by the incumbents,” Patalinghug said.
‘Massive bleeding of profits’
He said that a third player could enter the Philippine market if it would be ready to suffer massive bleeding of profits, something no private firm can afford, he said.
“The question is do we need a new player? Looking at Digitel when they were around, they were not making a lot of money. Our analysis is that a third player can enter the market if it is cost insensitive for the next ten to fifteen years. No private firm can afford that,” he said, adding that an aspiring third player would have to catch up with the existing players which have built their infrastructure over the past decades.
“[A] third player may have difficult time attaining financial viability in the short run due to its late-mover disadvantage and the need to penetrate underdeveloped areas whose deployment cost is higher than the almost saturated urban markets dominated by the incumbents,” the study said.
Aside from costs, other factors also prohibit the entry of a third player are sunk costs and economies of network size, according to the study.
Inviting foreign telecom players is also not an option because domestic laws prohibit major foreign ownership of a company, he said.
Like Myanmar, India
The UP professor said that the Philippines is not alone in having only two telecom firms in the industry, citing the cases of Myanmar and India.
“Look at the market in India, if you look at the last report, India will move from a four player industry, they are merging into a two-player tele-commerce,” said Patalinghug. “The only thing is when we have two (players), there is fierce price competition.”
Patalinghug recalled that during the 1990s, the Philippines had 11 players, but after the deregulation of the industry, the market consolidated, leaving the country with two telecommunications firms.
“In 1992 to 1996, we got 11 telco players in this industry. But deregulation has always been followed by consolidation. So Smart was bought by PLDT, Islacom was bought by Globe, Bayantel was bought by Globe, Sun was bought by PLDT, so from deregulation you have some consolidation,” he said.
Source: http://www.philstar.com/business/2017/05/04/1696374/study-government-should-be-3rd-player-telecom-industry