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DIVERSIFICATION PAYS DIVIDENDS FOR PLDT |
 The advent of competition in the Philippines' telephony market has shaken
up the whole sector and brought about a dramatic transformation in the fortunes of the country's dominant carrier, the Philippines Long Distance
Telephone Company (PLDT). As recently as the mid-nineties the PLDT remained
a sleeping giant largely dependent on its international revenues. However,
starting with the acquisition of mobile operator Smart Communications last
year, the company has pursued a strategy designed to diversify its sources
of revenue and this is now paying off handsomely: Smart has just overtaken
its nearest rival to become the biggest mobile operator in the Philippines, and is developing impressive revenue streams from value-added
services. Revenues from data services, under the new ePLDT subsidiary, are
also showing rapid growth, and the company will soon be making substantial
additions to its customer base through the Home Cable/SKYCable merger and
its acquisition of a controlling stake in a television station.
Manuel Pangilinan, President and CEO of the PLDT, recently talked to Telecommunications Development, Asia-Pacific. |
| Q. We understand that Smart Communications had over 2.3 million GSM subscribers at the end of 2000. Can you confirm this figure? |
| A. It would be 2.35 million GSM subscribers at the end of 2000, so your figure
is about right. Combined with Piltel (Pilipino Telephone Corporation), the number of GSM subscribers was 2.7 million at the end of 2000.
Smart started 2000 with 193,000 GSM subscribers, having launched GSM service in April 1999. |
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Q. To expand your GSM subscriber base from under 200,000 to 2.35 million in one year is quite an achievement. |
| A. Put together, Smart and Piltel on average signed up over 200,000 new GSM subscribers a month during the course of 2000, with very little churn. The churn rate is below 1 per cent. |
| Q. What is the breakdown of prepaid and post-paid GSM subscribers? |
| A. The vast majority, about 97 per cent, of our GSM subscribers are prepaid Smart Buddy subscribers. If we include our analogue subscriber base, the percentage of our prepaid subscribers would account for 92 per cent. |
| Q. Do you have any plans to decommission the analogue networks? |
| A. No. The costs related to those networks are relatively insignificant. Of course, as more and more subscribers switch to the digital GSM service, there will come a time when the economic case for maintaining the analogue networks is no longer tenable. We will make a decision at that time. |
| Q. We understand that Smart acquired another 400,000 GSM subscribers during the first two months of 2001. Given that handset subsidies have now largely been abolished, do you expect this rate of subscriber growth to continue this year? |
| A. The rate of subscriber acquisition accelerated in the second half of 2000,
and this is continuing into 2001. Smart and Piltel acquired more than 821,000 new GSM subscribers during the first three months of 2001, lifting
the combined GSM subscriber base to 3.52 million. Smart alone had 3.02 million GSM subscribers on March 31, 2001. As the penetration rate of GSM mobile telephones in the Philippines is about 10 percent, which is still quite low, I do expect that we shall see the momentum of subscriber growth maintained throughout 2001, although we may see a slight slowdown in 2002. On current ARPU (Average Revenue Per User) the Philippine mobile telephone market should be able to sustain at a penetration rate of 20 to 25 per cent. There is still ample room for growth. |
| Q. How many subscribers do you expect Smart to have by the end of 2001? |
| A. We do not have any particular target. Having said that, based on the current rate of subscriber acquisition, my guess is we'll have well over 4.5 million GSM subscribers by the end of 2001. |
| Q. What are the corresponding subscriber numbers for Piltel? |
| A. Piltel launched its GSM service under the Talk 'n Text brand in April 2000. By the end of the year it had signed up 368,000 subscribers. By the end of March 2001, the subscriber number had surpassed 500,000. Piltel's GSM service actually operates on Smart's GSM platform. |
| Q. Are there any major differences in the service offerings of Smart and Piltel? |
| A. The charges for calls and text messaging are very similiar. The main difference lies in the target market segment: the Smart brand concentrates
on the more expensive handsets, while Talk 'n Text offers lower cost alternatives. This means that a new prepaid subscriber can get started with Talk 'n Text for about 3,000 pesos (US$60), complete with an account credit worth 100 pesos. By comparison, the most popular handset in the Smart offerings is one that retails for about 7,000 pesos. Another difference is that the Piltel service is prepaid only, and, as you can gather from the brand name of Talk 'n Text, it primarily targets the teenage and youth market. |
| Q. Does Smart offer enhanced services that are not available on Piltel? |
A. Yes. For example:
In time, some of these services may be extended to Piltel's GSM subscribers. |
| Q. Can you elaborate a little on your 'award-winning' Smart Money service? |
| A. Launched in December 2000, Smart Money is the world's first reloadable electronic debit card linked to a cellular phone. Developed in partnership with 1st eBank, an affiliate of Metro Pacific Corporation, and MasterCard, Smart Money functions like an 'electronic wallet' that can be used to pay for everyday purchases at MasterCard establishments. |
| Q. You mean the subscriber can point the handset at the till and pay for the purchase? |
| A. Not yet, but eventually we hope that will be possible. Smart Money is designed to handle small purchases and has both consumer and business applications. Companies with extensive dealer networks can use Smart Money as a convenient, as well as secure, payment mechanism. It can also be used to transfer cash from one Smart Money card to another, and to pay for 'remote purchases' such as ordering and paying for pizzas using a Smart mobile phone. |
| Q. I believe that you operate Smart zed in partnership with Sonera? |
| A. That's correct. Sonera has their regional headquarters in Singapore. Although they have been in the Philippines for only a few months, Smart zed
has been such a hit that the Philippines has become one of their biggest markets in Asia. It's also a higher margin business for us.
Smart zed offers:
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| Q. Does PLDT plan to continue to operate Smart and Piltel as separate entities? |
| A. Yes, and there are good legal reasons for that. Smart is a wholly-owned subsidiary of PLDT, and Piltel is 57 per cent owned by PLDT. As you are probably aware, Piltel is still losing money even though it is more or less a hollow company now, having outsourced fixed-line maintenance and operations to PLDT in June 2000, and wireless operations to Smart in September 2000. Piltel has about 100 employees. |
| Q. In 2000, Smart reportedly spent 5.3 billion pesos (US$106 million) to attract GSM subscribers, which works out at about 2,500 pesos per subscriber. What do you expect the corresponding figure for 2001 to be? |
| A. Our subscriber acquisition costs have been running at around 1,000 pesos per subscriber on average this year. There was a month or two when the cost
went up to 1,200 pesos due to the promotion of Smart Money and Smart zed.
That is actually well below our marketing budget for the year overall. At the moment our advertising and promotional spending are down, the commissions paid to dealers are down, and the handsets are not subsidised, so our total costs are down substantially. In terms of GSM subscriber numbers we have moved ahead of our principal competitor, Globe, but our outlook for the year will, to a certain extent, depend on what their competitive response might be. |
| Q. When were handset subsidies abolished? |
| A. There is still some subsidy on some models, but, overall, they ceased in the last quarter of 2000. |
| Q. It would seem that the ending of handset subsidies has had no effect on the take-up of mobile telephones. |
| A. No, none at all. |
| Q. Will Piltel spend more on promotional costs this year to boost subscriber numbers? |
| A. The overall objective is to gradually reduce subscriber acquisition costs. Piltel launched GSM service a year later than Smart. Its current subscriber acquisition cost is still in excess of 2,000 pesos, although it is declining. |
| Q. It has been estimated that last year 33% of Smart's pre-paid revenues came from text messaging, and that in total Smart generated about 8 million pesos per day from text messaging. Does the daily figure of 8 million pesos continue to show signs of increasing? |
| A. Smart is currently generating 17 million pesos per day of revenues from text messaging. On Valentine's Day 2001, Smart handled 107 million text
messages. The total volume of outbound SMS messages during the first quarter of 2001 surged to 2.65 billion.
Smart and Piltel's revenues were significantly boosted by the contribution from text messaging, which generated revenues of 1.825 billion pesos (US$ 36.5 million) in the first quarter of 2001. |
| Q. Presumably the launch of Smart zed has had a significant impact on your SMS traffic? |
| A. It has certainly stimulated overall SMS usage, but it is not just a volume
story. If I send out a personal text message, I will be charged only one peso, but there is a whole range of services including stock quotes,
foreign exchange rates and even virtual pets available over Smart zed with per-message charges ranging from 2.5 to 20 pesos. |
| Q. Smart zed has obviously become a major contributor to your revenues? |
| A. Absolutely. Perhaps more importantly, though, it has become a focal point of differentiation for Smart GSM. Both Smart and Globe rely on independent dealerships for their sales. When a potential subscriber visits a dealer, he will be presented with offerings from Smart and Globe side by side. With similar service plans, call charges and handsets, the potential subscriber will look for some extra benefit and will probably find it in Smart zed. In this context, whether he subsequently uses Smart zed is irrelevant. |
| Q. Can you put a figure on the number of subscribers using the Smart zed services? |
| A. We only launched Smart zed in December 2000, but the take-up is very encouraging so far. The initial figures show that about 400,000 Smart zed SIM cards have been activated. |
| Q. In February 2001, PLDT announced that it would introduce text messaging (TXT 135) on its fixed lines. Has this now been introduced? |
| A. The service was launched on the day of announcement. We have now just over 100,000 registered users. This was actually our target for the whole year, so we have revised the target up to 200,000. |
| Q. Does PLDT charge for TXT 135? |
| A. The registration is free - the subscriber only needs to call up and the service will be activated the next day. Each message costs 2 pesos, to be
shared between the fixed line operator and the mobile counterpart.
The fixed line subscriber dials 135 on the phone and gets an automatic voice prompt, he can then either select one of the ten pre-prepared text messages or use the alpha-numeric keypad on his phone to input a message. We are now averaging 20,000 text messages per day from fixed lines, and this figure has been growing consistently since the introduction of the service in February 2001. |
| Q. Is it only possible to send text messages from a fixed line phone to a mobile phone? |
| A. On the PLDT system, yes. But we will introduce two-way text messaging in May or June 2001. |
| Q. How will mobile-to-fixed messaging work? |
| A. It will be similar to voice messaging. When a user picks up the phone, he will hear prompts in the dial tone indicating there is a message waiting for pickup. He then dials into the system and listens to a text-to-voice readout of the message. |
| Q. I see. So you are moving towards unified messaging across fixed and mobile networks? |
| A. That's right. |
| Q. The number of your fixed line telephone subscribers has remained pretty static for a while, hasn't it? |
| A. The number is slowly creeping up. We had a net gain of 120,000 in 2000, making a total of around 2 million subscribers. |
| Q. But mobile service will be more important in terms of revenue generation? |
| A. Yes. With a total cellular subscriber base of 4.24 million, PLDT's cellular subscribers outnumber fixed line subscribers by more than two to one. |
| Q. We understand that in addition to its GSM network, Piltel also operates a CDMA network. Is this still in operation? |
| A. Yes, although the number of subscribers is very small. |
| Q. In June 2000, PLDT signed an MoU with Visa, Compaq and NETS to form a joint venture to market and service electronic cash cards in the Philippines. What is happening with this joint venture? |
| A. The project is under way. We are conducting trials in a couple of shopping malls in Manila. |
| Q. In January 2001, PLDT announced that it would split its fixed line business into five units in order to improve customer service, increase revenues and introduce new services. Can you please explain how these objectives will be achieved, and, in particular, what new services will be introduced? |
| A. Over the last couple of years, PLDT has undergone a fundamental change in
its business approach, from an engineering-led to a marketing-led approach. So, instead of purchasing the latest telecoms equipment and then wondering
how we are going to sell its facilities to the customers, we now go out to identify what customers want and then come back to the engineers, and ask
them to source the equipment we need.
The idea behind splitting fixed line business into five units, namely Metro Manila, Corporate, Regional, International and Inter-Carrier, is to streamline operations. The head of each unit has sweeping responsibilities over its teams, including marketing, sales, engineering, maintenance and so on, so that he can co-ordinate these teams and ensure that they do not run ahead of each other. |
| Q. In December 2000, PLDT announced that it would embark on a major expansion of its network in 2001 to provide enhanced hi-tech services and cut costs. What parts of the network will this expansion apply to? |
| A. This is about lighting up more 'dark fibres' in the PLDT's DFON (Digital Fibre Optic Network), which is already deployed. |
| Q. In August 2000, PLDT announced the formation of a wholly-owned subsidiary called ePLDT. What is the overall strategy for ePLDT? |
A. As the principal corporate vehicle for PLDT's Internet, e-commerce and multi-media businesses, ePLDT will:
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| Q. What are Infocom's plans for offering broadband Internet access? |
| A. We are already providing broadband Internet access with Infocom. In fact we have been doing that for 18 months. |
| Q. I presume that's broadband delivered over cable. Are you adopting DSL as well? |
| A. Yes. The plan is to roll out 10,000 DSL lines in Metro Manila and another 10,000 lines across two or three other major cities by the end of 2001. |
| Q. How has the take-up been? |
| A. Subscriber numbers are still relatively small, although we have the capabilities to roll out a large number of lines, the actual deployment
will be demand led.
In terms of pricing, DSL will be very competitive compared with dial-up modem. However, ultimately the demand for Internet access is a function of computer ownership. Currently we are principally targeting the business market for our broadband Internet access services. |
| Q. What is the total number of Internet access subscribers for Infocom? |
| A. The total subscriber number is about 30,000, including approximately 2,000 subscribers to Internet access via cable modem.
ePLDT has also been busy with Contact World, a teleservice and call centre joint venture with Salmat, Australia's largest customer communications company. Contact World went into operation in January 2001. |
| Q. Your target market for Contact World will, presumably, be overseas corporations? |
| A. Of course. In fact it will be a particularly attractive proposition for US
companies located on the east coast. The time difference being exactly 12 hours, at the end of their working day they can simply flip a switch and
transfer the call centre operations to the Philippines, instead of paying someone triple time to work through the night in New York. At the moment, Contact World is primarily used by companies within the PLDT group, as it needs to establish itself first. |
| Q. What about the Internet Data Centre? |
| A. At the moment, it is mainly used to meet data requirements from companies
within the PLDT group, and may also be used by companies within First Pacific, a Hong Kong-based conglomerate.
Internet Data Centre (IDC) is set to become an important business for ePLDT. In fact we are already surveying sites for a second IDC. |
| Q. We understand that PLDT plans to launch cable telephony once the Cable Bill has been passed. What enhancements will PLDT need to make to Home Cable's infrastructure to deliver cable telephony and high-speed Internet access? |
| A. We have been providing cable telephony for some time, albeit only in a small area.
Home Cable built out a relatively advanced infrastructure in the first place, so there is no problem at all with broadband Internet access via cable modem. With cable telephony, the only constraint is that we need to install hardware in each and every customer's premises. The Cable Bill is designed to ease restriction on overseas ownership in cable companies, which are currently viewed as being media companies, and consequently have to be 100 per cent Philippine owned. PLDT, of course, has a complex ownership structure, with equity participation from Japan's NTT and Hong Kong's First Pacific. In another development, two of the Philippines' leading cable TV operators,
SKYCable and Home Cable, have announced a preliminary agreement to merge their respective cable operations. Home Cable has a subscriber base of over
180,000, and SKYCable has approximately 360,000 subscribers. The merger is expected to spur the development of cable TV in the Philippines, by |
| Q. What is the status of PLDT's plans to purchase a controlling stake in the television station GMA-7? |
| A. It took a while for GMA to get its books ready for the due diligence, which is now under way. After due diligence the transaction will probably need to get some form of congressional approval. |
| Q. How will GMA-7's content be integrated into PLDT's fixed and mobile service offerings? |
| A. We are already working with GMA. On the technical side, PLDT can provide immediate help with regard to GMA-7's broadcasting needs as well as
news-gathering requirements.
In terms of content, GMA has licensed the image of its soap opera stars to be used as downloadable cartoons for Smart zed. Things are progressing so far on a simple yet practical level. |
| Q. We understand that the B2B e-commerce site Bayantrade.com, in which PLDT has a stake, has been operational since last November. How does this fit in with PLDT's overall plans for e-commerce? |
| A. It was an important vote of confidence that all the major players participated in this national project. Having invested in it, we would like
to see it become successful and profitable, and of course, our purchasing department can use it for some of their requirements, but I wouldn't say it's the centrepiece of our e-commerce strategy. |
| Q. Finally, PLDT has just announced the formation of PLDT Global. What can you tell us about that? |
| A. To position itself as a global telecommunications player, PLDT has formed
PLDT Global. Through this wholly owned subsidiary, PLDT is establishing its presence in key cities worldwide, with a view to delivering inter-regional
and international services at highly competitive prices.
This global point of presence (GPoP) strategy will help to achieve the following objectives:
PLDT Global plans to establish wholly-owned companies and secure telecommunications licences in eight countries and regions across three continents - North America, Europe and Asia. As of March 31, 2001, PLDT-US and PLDT-UK have already been established and are currently generating traffic to the Philippines. PLDT Global is also set to establish PLDT-owned companies in Singapore, Hong Kong SAR and Australia by mid-2001, and in Japan, Chinese Taiwan and Korea by the end of the year. Services and products to be offered initially by each PLDT Global subsidiary will include:
The traffic from these services will be both Philippine terminating and inter-country. |
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