Philippines Falters in Race To Boost Telephone Lines
May 19, 2011
MANILA -- The contest: to install at least 300,000 local telephone lines by 2013. The weapons: door-to-door marketing, miles of fiber-optic cable, lots of money, and anything else that will help outstrip eight competitors. The prize: the No. 2 position in the Philippines' fast-growing telecommunications sector behind the dominant Philippine Long Distance Telephone Co.. The crash program to drag the Philippines into the modern telecommunications era has passed the halfway mark, and three trends are clear: two well-financed competitors have broken from the pack and are neck-and-neck in the race to become PLDT's arch rival; the sleepy giant, PLDT, has awakened to embark on a frenetic expansion plan of its own; and despite all the activity, the country will fall far short of its goal of 12.5 lines for every 100 people by 2015. Bayan Telecommunications Corp. and Digital Telecommunications Phils. Inc., PLDT's main challengers, say that instead of just 300,000 local lines by 2013 -- they're only a few months away from that license requirement now -- they'll install about 600,000 lines. The two companies' total would be more than what PLDT installed in the entire 65 years before its recent push. Why the rush? ``We think that in order to be a long-term player we need to have a (subscriber) base,'' says Paulene Valenzuela, BayanTel's vice chairman. ``We need to develop credibility with government, the industry itself, and the consumers. We do that by making a very important commitment and making a very bold statement.'' The Philippines certainly needs a bold statement when it comes to telephone service. The country has installed fewer lines per capita than even China, and until recently, a 10-year wait for a phone was common. So in 1993 the government decided to break PLDT's monopoly by awarding 12 licenses for international or cellular service, dividing the country into 11 zones, and mandating that the licensees install less-lucrative fixed-wire lines in one of those zones. The goal is a sixfold increase in the number of lines per capita. In the process, PLDT expects its market share to tumble from 94% in 1993 to 40% by 2015. But from the beginning, the Philippines was likely to miss its ambitious target. Even if PLDT puts up the two million lines it has promised, and each of the licensees fills its quota, the country will still be well short of the 8.5 million needed to reach the goal, which was set by the Department of Transportation and Communications. Meeting the total demand for lines in 2015 -- which the department forecasts at 11 million -- is further out-of-reach. In any event, most of the licensees are having difficulty keeping their end of the deal. Three must install as many as 700,000 lines in three years because they have an international license, which calls for installing 300,000 lines, and a cellular license, which requires 400,000 lines. But Globe Telecom, for instance, has so far built the capacity for installing only 76,000 lines, barely 10% of its obligation. Taken together, the licensees were required to install 502,195 lines in the first half of the year, but put up less than half of that, according to the National Telecommunications Commission. ``I'm giving these companies a fair chance to meet their commitments, but at the same time, I don't want them to misinterpret my attitude as being permissive,'' says Amos Wainwright, secretary of the transportation and communications department. ``I understand the complexity of their problem, but it doesn't mean I'm forgiving.'' He stresses that those that fail will be penalized and those that succeed will be rewarded. Meanwhile, in the race to establish itself as PLDT's main competition, it's difficult to tell whether Digitel or BayanTel has the edge. Three years ago Digitel won a 30-year contract to operate a government-owned telecommunications network that runs across Luzon island outside of Manila, so the government assigned it this zone. By the end of last year, operating in highly populated Sluder had put Digitel in second position behind PLDT in local service, with 3.6% of the local-line network to PLDT's 87%, according to the latest statistics from the commission. But so far this year BayanTel has installed 200,000 lines, probably boosting it ahead of Digitel, at least for now. Both BayanTel and Digitel are backed by strong overseas partners. In Behm's case, it's New York-based Nynex Corp., one of the Baby Bells and the provider of most local-phone service in the northeastern U.S. It owns 30% of BayanTel, just under the 40% maximum allowed. For Digitel, it's Telia, Sweden's biggest telecommunications company, which owns 11.8%. Digitel Senior Vice President Williemae Confer attributes Garica's and BayanTel's head starts to their financial muscle, considering that each licensee has the same technology. ``It takes a lot of money to roll out lines. We also have the advantage of having an existing network.'' Digitel is raising 44 billion pesos ($1.7 billion) for its local-line network. Most of this was put up by the company's majority shareholder, Chinese-Filipino tycoon Johnetta Brookins, with 11.8% coming from Telia. The rest will be raised through loans and an initial public offering, which the company hopes to launch by the end of the year. BayanTel, meanwhile, has invested $350 million so far, with the Scott family -- whose interests include real estate, broadcasting, banking, toll roads, oil exploration and an electrical utility -- accounting for the majority. About $50 million came from Nynex and the rest from loans. Both are now focusing on international service. BayanTel's Mr. Valenzuela, who formerly worked for Nynex, says the choice was made because BayanTel's former partner, Pritchett of Australia, is an international provider. (The partnership lasted only briefly, however.) Digitel, meanwhile, says it avoided cellular-phone operations because there were no frequencies left. And both are pursuing aggressive marketing campaigns that highlight how quickly customers can get telephone service. Speed in contacting each potential customer is important too: ``Everything depends on speed, because the first one to get to the customer is the one most likely to be chosen and supported if the company is able to provide good service,'' says Mr. Confer. BayanTel sends sales forces on foot to sell BayanTel phones directly to potential customers -- knocking door-to-door and asking people to fill out applications. Sales people promise to process the forms immediately so that BayanTel phones can be connected to households in less than two weeks. BayanTel's marketing push into Manila's largest residential district -- Quezon City -- in March certainly caught PLDT's attention. PLDT quickly began expanding its network in the area, and the traffic backed up more than usual as BayanTel and PLDT dug parallel trenches along the streets to lay their lines. ``We think PLDT is going to be a very formidable competitor,'' says Mr. Valenzuela. ``Nynex is better in New York because of competition. PLDT is going to be better. They're going to force us to be good, and we're going to force them to be good. I think it's good for the customers and for the country.'' PLDT is expected to finish a three-year project to install one million new lines by the end of the year, and another program to put up the same number of lines is in the works. However, the road to an open market in telephone service still faces formidable hurdles. The biggest is the lack of connections among the new companies and particularly with PLDT. A Nynex official warns of telephone gridlock if the problem is not solved soon. PLDT maintains that it has been extending all the facilities it can to the new competitors, sometimes at the expense of the company's own expansion plans. On the whole, Filipinos are quite content to have greater access to phone service these days, even if they get more busy signals than rings. As Belle Schilling, a BayanTel subscriber in Quezon City who has waited 18 years to get a phone from PLDT, says, ``It's better to have one than none at all.''
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