Developing new applications such as mobile online gaming or on-demand video services that can drive revenue growth will help companies overcome declines in traditional revenue streams, stiffer competition and maturing markets.
“I think future margins will depend on how quickly companies can roll out their broadband networks. We are seeing a change in the industry. Text messaging and voice usage are declining,” S&P analyst Mehul Sukkawala said.
Robust
Sukkawala said like in other Asia-Pacific markets, competition in the local industry will remain strong, but at the same time, revenue and profit margins to stay robust.
In a report released on Tuesday, S&P noted that local telcos still enjoy healthy balance sheets supported by strong cash flows. This is despite “intensifying competition and stricter regulations,” S&P said.
The rating firm likewise noted that the massive amounts of money companies in the region have invested, or are investing for the development of their broadband services, will ensure their growth prospects at least in the next two to three years.
Sukkawala in a separate interview said applications such as online gaming and video services are just a few of the new services that companies have to explore to find new ways to grow revenue.
Next generation
“The region’s investment in next-generation networks should also allow telcos to capture revenue from the rapid growth in data traffic volumes associated with the growing proliferation of smartphones, Internet Protocol Television (IPTV), and other data-intensive applications,” Sukkawala said.
Local players Philippine Long Distance Telephone Co. (PLDT) and Globe Telecom Inc. have said they are pinning their hopes on the growth of broadband Internet services to bolster growth amid the steady downtrend in traditional call and text messaging revenues.
Globe has said close to half of its $500-million budget will go to its broadband network.
Unlike PLDT, which posted a slight dip in revenue in the first quarter, Globe’s profits rose by 1 percent as it grabbed market share from its bigger rival PLDT.
P67 billion in capex
PLDT, on the other hand, announced that it would spend a total of P67 billion in capital expenditures for 2011 and 2012, with the focus on expanding the reach and hiking the capacity of its high-speed Internet infrastructure.
The company also said its planned acquisition of Digitel Telecommunications Philippines Inc., which would give the group a combined market share of 70 percent of subscribers and revenue, would allow more users to enjoy the benefits of PLDT’s wider network reach.
“We expect the transaction to benefit the general public through improved affordability and higher levels of service quality and coverage,” PLDT chairman Manuel V. Pangilinan said in a previous statement.
Pressure on profit margins
“To put PLDT, and indeed the whole industry, back on the path of continued growth, we cannot move forward by doing more of the same. We simply need the change the game,” Pangilinan said.
Sukkawala said the aggressive expansion plans of both Globe and PLDT are testament to the healthy competition in the local industry.
“Our view is that the Philippine telecom market is kind of stable,” Sukkawala said. “Our expectation is that competition will remain intact, though compared with other markets, the country has fewer players.”
“Pressures on profit margins have not been so high. For instance, PLDT has maintained a margin of 60 to 63 percent,” Sukkawala said. “There will be two major players but it’s still a competitive market.”
