Smartphones usher in new order for telcos—S&P

Telecommunications companies in Southeast Asia need to invest more in spectrum and new services to meet the explosive data and bandwidth demand in the smartphone era, a new study from Standard & Poors (S&P) Global Ratings showed.

The study said the telecommunications industry in Southeast Asia has radically changed in the past decade where intense competition and shrinking margins are the norm.

In the Philippines, S&P noted that Philippine Long Distance Telephone Co. (PLDT) was “arguably the most disrupted” as a result of the new order.

“The company maintains its effective duopoly in the Philippines with Global Telecom Inc., but has lost around 10 percentage points of revenue market share because Globe took the lead in investing in its data network, outspending PLDT in absolute terms since 2011, as well as engaging in aggressive marketing and promotions,” it said.

S&P said the result is that PLDT has recently lost its lead in subscriber market share.

“However, we expect PLDT to maintain its leadership in revenue market share as the company matches competitor pricing and focuses on the higher-value postpaid customers,” it said.

S&P added that in Indonesia, the Philippines, and Thailand recurring delays in spectrum auction timelines and the lack of clarity around the format of the spectrum auction process such as competitive bidding versus open tender, “are likely to keep causing headaches.”

It said the consequential uncertainty in the availability of spectrum has resulted in overbidding and inefficiencies in spectrum utilization.

“While spectrum release and the auction framework and timetable is less of an issue in Singapore, the most mature market in the region, operators too have had to recently contend with rising spectrum costs due to highly competitive bidding,” it said.

The study noted that operators in Singapore face higher operating costs as the regulator has recently introduced

minimum quality of service standards.

“Despite such operator hardships, we view the regulatory developments in the region as encouraging. Overall, regulators are trying to improve consumer connectivity and affordability of access while managing the balance between investment incentives and ensuring competition,” S&P said.

S&P, nonetheless, said it foresees “new challenges in legislating ahead, given an increasingly interdependent and complex digital ecosystem as the media and communication landscapes converge.”

While recognizing that the regulatory goalposts may shift in unwanted ways, S&P said many operators continue to innovate their service and product offerings, mindful that both changing regulations and new customer demands require dexterity and internal overhauls of strategy.

“It remains to be seen whether the telco of the future becomes a ‘dumb pipe’ network–simply providing the infrastructure for transferring data–or evolve to be leading players in information and communications.

A decade since the introduction of the iPhone, the telecommunications industry has changed beyond recognition, with customer needs and competitive landscapes shifting in ways that few could have predicted, it said. “Smartphone usage has surged, driving seismic changes in wireless consumption trends as hand-held devices have become firmly established as the leading computing platform,” S&P said.

“Given that Southeast Asia consumers are relatively young compared with the grayer demographics in more mature economies, they also tend to be very price-sensitive. The smartphone’s relative affordability offers the cheapest gateway to the internet and ultimately the most economical mode communication with the rise of free social messaging apps,” S&P said.

It said the new order in the telecommunications business also led to increased merger and acquisition (M&A) activity (including spectrum) aside from straining revenues and margins.

M&A spending is a key factor in weakening balance sheets and downward credit rating pressure in the region.