Philippines Telecoms, Mobile, Broadband and Forecasts

A BUDDECOMM REPORT

PHILIPPINES

TELECOMS, MOBILE, BROADBAND AND FORECASTS

18th Edition

Researcher: Peter Evans

Copyright 2012 Published 7 June 2012 Paul Budde Communication Pty Ltd Tel 02 4998 8144 – Int: 61 2 4998 8144 5385 George Downes Drive Fax 02 4998 8247 – Int: 61 2 4998 8247 BUCKETTY NSW 2250 Email: [email protected] AUSTRALIA Website: www.budde.com.au Philippines - Telecoms, Mobile, Broadband and Forecasts

Disclaimer:

The r eader acce pts al l r isks an d r esponsibility for l osses, d amages, co sts a nd o ther co nsequences resulting directly o r indirectly from using t his report or from reliance on any information, opinions, estimates a nd forecasts co ntained h erein. T he i nformation co ntained h erein has b een o btained f rom sources believed to be reliable. Paul Budde Communication Pty Ltd disclaims all warranties as to the accuracy, co mpleteness o r ad equacy o f s uch i nformation an d s hall h ave no l iability for er rors, omissions or inadequacies in the information, opinions, estimates and forecasts contained herein. The materials in this report are for informational purposes only. Prior to making any investment decision, it is recommended that the reader consult directly with a qualified investment advisor.

Forecasts:

The following provides some background to our scenario forecasting methodology: • This r eport in cludes what we t erm s cenario f orecasts. By describing l ong-range s cenarios we identify a band within which we expect market growth to occur. The associated text describes what we see as the most likely growth trend within this band. • The projections shown in the tables in this report are based on our own historical information, as well as on telecommunication sector statistics from official and non-official, national and international sources. We assume a possible deviation of 15-20% around this data. • All statistics for GDP, revenue, etc are shown in US$, in order to maintain consistency within and between markets. At the same time we acknowledge that this can introduce some irregularities.

Free Consultancy Service:

Subscribers to our publications are entitled to use our ‘Free-over-the-Phone’ Consultancy Service. You can use it f or any question in relation to any of the information in this publication or to other related issues. We will advise you over the phone or provide you with the necessary contacts for your further information.

Internet Website:

Continuously updated information on the reports, described in this report, is available on our Website: www.budde.com.au.

Paul B udde C ommunication P ty Ltd r eports a re lim ited p ublications c ontaining v aluable market information provided to a select group of customers in response to orders. Our customers acknowledge when ordering that Paul Budde Communication Pty Ltd reports are for our customers’ internal use and not for general publication or disclosure to third parties.

No pa rt of t his r eport may be g iven, l ent, r esold or di sclosed t o n on-customers w ithout w ritten permission. Furthermore, no part may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying or otherwise without the permission of the publisher. For information regarding permission, please write to: Paul Budde Communication Pty Ltd, 5385 George Downes Drive, BUCKETTY NSW 2250, AUSTRALIA.

EXECUTIVE SUMMARY

Broadband internet surge in the Philippines continues

The mobile segment of the telecom market i n t he P hilippines has slowed significantly after years of solid gr owth. T he s lowing reflected, a mong o ther t hings, a ge neral d ownturn i n t he P hilippine economy. Although the economy certainly picked up in 2010/2011, growth in mobile subscribers has continued at a generally slower pace, with mobile revenue growth also down in what has been a highly competitive market. I nto 2012 the Philippines had almost 95 million mobile subscribers. Penetration had eased past the 100% milestone by that stage and continued modest growth of between 5% and 10% looked likely.

As al ready o bserved t he eco nomy will b e an i mportant factor i n t he co ntinued ex pansion o f t he Philippine telecom sector. The recession in the US, its main trading partner, had hit exports hard in 2009 but the country seemed to have overcome this setback. Following the down year in 2009, the country’s GDP growth bounced up again in 2010 reaching 7.3% (matching the 31-year high of 7.3% in 2007). It then fell back to 4% in 2011. Annual growth in the range 4%-5% looked likely in the short term at least. I n t he meantime, t he t elecom industry shifted t o an o verall p attern o f more modest growth, with the core mobile services business looking more like it was approaching maturity and the fixed-line market stagnating.

Despite mobile expansion easing, the operators were continuing to talk positively about the market’s potential a nd it was t he mobile s egment t hat r emained central to th e wider d evelopment o f t he country’s telecom s ector. A lthough the s ector w as facing ch allenges there w as clearly s ome energy remaining in it a s t he major operators r olled o ut th eir Third G eneration ( 3G) m obile o fferings a nd looked for improved revenue streams.

In the meantime the brightest news has been the growing interest in broadband services, with the major players in the local telecom market starting to invest heavily in the expansion of broadband access and looking at both wired and wireless broadband platforms to provide coverage. The demand for faster internet access was increasing rapidly by 2012. Almost 90% of all internet connections were already broadband. O verall b roadband p enetration r emains relatively l ow, however, with only around s even broadband services for every 100 people in the country by the start of 2012.

The c ountry’s fixed-line subscriber p enetration has r emained e ssentially s tagnant, e ven slightly declining. It has certainly been a long period of difficult times for the fixed-line operators. Despite the concerted effort of both the government and the operators to expand the national fixed network, fixed- line teledensity stood at less than 4% in 2011; only a little more than half of all Philippine towns and cities had a basic telephone service.

Key highlights: • Growth in mobile subscribers in t he P hilippines has slowed considerably by 2012 but had still managed to grow by 16% in 2010 followed by 9% in 2011; • Growth in 2012 was likely to be less than 10%; • Mobile penetration had passed the 100% milestone; • Although t he S MS market has p eaked, F ilipinos were still s ending almost two billion S MS messages every day by early 2012; • The country remained a global leader in SMS volumes and usage levels; • In the meantime, Social networking websites were becoming increasingly popular and changing the shape of the telecoms market; • Broadband Internet access in the Philippines had witnessed a five year surge in subscriber growth; • There were an estimated seven million broadband subscribers by end-2011; however, this still only represented around 7% of the population; • The fixed-line market had lost direction, with no growth expected in the short term; • The P hilippine te lecom s ector c ontinues to b e an i mportant el ement i n t he l ocal eco nomy, contributing over 10% to the country’s GDP.

Philippines: - key telecom parameters – 2011 - 2012 Category 2011 2012 (e) Fixed-line services: • Total No. of subscribers 3.2 million 3.1 million • Annual growth (e) -- -- • Fixed-line penetration (population) 3.4% 3.3% Internet services: • Total No. of fixed internet subscribers 3.4 million 4.5 million • Annual growth 36% 32% • Fixed internet penetration (population) 3.6% 4.6% • Internet household penetration 16% 18% Mobile services: • Total No. of subscribers 93.7 million 98.0 million • Annual growth 9% 5% • Mobile penetration (population) 100% 103% (Source: BuddeComm)

This report provides a comprehensive overview of the trends and developments in telecommunications and digital media markets in Philippines. Subjects covered include: • Key Statistics; • Markets, Industry Overviews and Analysis; • Scenario forecasts (fixed, mobile, internet subscribers); • Regulatory Environment; • Major Telecom Operators (Mobile, Fixed, Broadband); • Infrastructure development – national and international; • Mobile Voice and Data Markets; • Internet, including VoIP and IPTV; • Broadband services (DSL, cable, FttH, wireless); • Digital Media.

Peter Evans June 2012

Data in this report is the latest available at the time of preparation and may not be for the current year.

TABLE OF CONTENTS Chapter number: on page number:

1. KEY STATISTICS AND COUNTRY OVERVIEW ...... 1 1.1 Country overview ...... 2 1.1.1 Background 1.1.2 Economy

2. TELECOMMUNICATIONS MARKET ...... 4 2.1 Overview ...... 4 2.2 PLDT’s acquisition of Digitel ...... 4 2.3 Background to development ...... 5 2.4 Domination of market by mobile telephony ...... 6

3. REGULATORY ENVIRONMENT ...... 7 3.1 Regulatory authorities ...... 7 3.1.1 National Telecommunications Commission (NTC) 3.1.2 Commission on Information and Communications Technology (CICT) 3.2 NTC outlook ...... 8 3.3 Regulatory developments ...... 9 3.3.1 Proposed Department of Information and Communications Technology (DICT) 3.3.2 Interconnection 3.3.3 Release of spectrum 3.3.4 PLDT’s foreign ownership breach 3.3.5 Regulator’s fees 3.3.6 Broadband speed 3.3.7 Interconnection fees 3.3.8 SMS and taxation issues 3.3.9 Voice over Internet Protocol (VoIP) services 3.4 Telecom sector liberalisation ...... 12 3.5 Foreign ownership ...... 13

4. MAJOR FIXED NETWORK OPERATORS ...... 14 4.1 PLDT ...... 14 4.1.1 Overview 4.1.2 Operational statistics 4.1.3 Development 4.1.4 Background 4.2 Globe Telecom (Innove) ...... 16 4.2.1 Overview 4.2.2 Operational statistics 4.2.3 Background 4.2.4 Development 4.3 Bayantel ...... 18 4.3.1 Overview 4.3.2 Financial difficulties 4.3.3 Fixed-mobile services 4.4 Bell Telecom ...... 20

4.5 Digitel ...... 21 4.6 Eastern Telecommunications Philippines Inc (ETPI) ...... 22 4.7 PhilCom ...... 23 4.8 Liberty Telecom ...... 24

5. TELECOMMUNICATIONS INFRASTRUCTURE ...... 26 5.1 Overview ...... 26 5.2 National infrastructure ...... 26 5.2.1 Overview 5.2.2 Fixed-line statistics 5.2.2.1 Globe Telecom’s national fixed-line licence 5.2.3 Background: Service Area Scheme (SAS) 5.2.4 National fibre optic networks 5.2.5 Next Generation Networks (NGNs) 5.2.5.1 PLDT 5.2.5.2 Digitel 5.2.5.3 ETPI

6. BROADBAND MARKET ...... 33 6.1 Broadband market overview ...... 33 6.2 Background ...... 33 6.3 Broadband and Internet statistics ...... 34 6.4 Regulatory issues ...... 36 6.4.1 Broadband quality 6.4.2 Minimum internet speeds 6.4.3 Hackers 6.4.4 IPv6 6.5 National Broadband Network (NBN) ...... 37 6.6 PC market ...... 39 6.7 Broadband platforms ...... 39 6.7.1 Digital Subscriber Line (DSL) 6.7.2 Cable modem 6.7.3 Fibre to the Home (FttH) 6.7.4 Wireless broadband 6.7.4.1 Market overview 6.7.4.2 Rural services 6.7.4.3 WiFi 6.7.4.4 WiMAX 6.7.4.4.1 Globe Telecom 6.7.4.4.2 Smart 6.7.4.4.3 Liberty 6.7.4.4.4 Altimax 6.7.4.5 Fourth Generation (4G) / Long Term Evolution (LTE) mobile services 6.8 Broadband over power lines ...... 43 6.9 Internet market overview ...... 44 6.9.1 Role of Internet in the Philippines 6.9.2 Cloud computing 6.9.3 Social networking 6.9.4 Internet exchanges 6.9.5 Internet regulations 6.9.6 Commission on Information and Communications Technology (CICT) 6.9.7 Gearing Up Internet Literacy and Access for Students (GILAS) 6.9.8 E-commerce 6.10 Major broadband service providers and ISPs ...... 47 6.11 Overview ...... 47

6.11.1 PLDT 6.11.1.1 Smart 6.11.2 Digitel 6.11.3 GlobeNet 6.11.3.1 Globe Telecom (G-Net)

6.11.4 Bayantel 6.11.5 Broadband Philippines 6.11.6 Meridian 6.11.7 Philweb.com 6.11.8 EasyCall 6.12 Internet via satellite ...... 54 6.13 IP networks ...... 55

7. DIGITAL MEDIA / DIGITAL ECONOMY ...... 56 7.1 Overview of broadcasting market in the Philippines ...... 56 7.1.1 Market development 7.1.2 Regulatory developments 7.1.2.1 Digital TV 7.1.2.1.1 Digital Terrestrial Television (DTT) 7.1.2.1.2 Digital cable 7.1.2.1.3 Direct broadcast satellite 7.1.2.1.4 Mobile TV 7.1.2.2 Copyright issues 7.1.3 PLDT 7.2 Digital TV services ...... 58 7.2.1 Broadband TV (IPTV) 7.2.2 Cable and pay TV 7.2.2.1 Background 7.2.2.1.1 Cable TV (CATV) regulatory issues 7.2.2.1.2 Sector restructure 7.2.2.1.3 Interactive TV (iTV) 7.2.2.2 Key cable operators 7.2.2.2.1 Sky Cable 7.2.2.2.2 Home Cable 7.2.2.2.3 Destiny Cable / Global Destiny Cable 7.3 Free-to-Air (FTA) broadcasting ...... 62 7.3.1 ABS-CBN Broadcasting Corporation 7.3.2 GMA Network Inc 7.3.3 Associated Broadcasting Corporation (ABC): TV5 7.3.3.1 Media Prima Berhad (MPB) 7.3.4 Other FTA broadcasters 7.4 Satellite TV ...... 64 7.4.1 Direct-to-Home (DTH) services

8. MOBILE COMMUNICATIONS ...... 66 8.1 Overview of the Philippines’ mobile market ...... 66 8.2 Mobile operators ...... 67 8.3 Mobile statistics ...... 67 8.4 Mobile ARPU ...... 68 8.5 Regulatory issues ...... 69 8.5.1 Compulsory SIM registration 8.5.2 Per-pulse billing dispute 8.5.3 Mobile Number Portability (MNP) 8.5.4 Spectrum User Fees (SUF) 8.5.5 SMS-related issues 8.5.5.1 SMS rates – proposed free texting 8.5.5.2 SMS rates – cut in interconnection charges 8.5.5.3 SMS rates – NTC pushes for lower prices 8.5.5.4 SMS spam 8.5.5.5 Voice and SMS tariff changes 8.5.5.6 SMS promotions

8.5.6 ‘Illegal’ use of frequencies 8.6 Mobile technologies ...... 72 8.6.1 Third Generation (3G) mobile 8.6.1.1 Development of 3G strategy 8.6.1.2 Issuing of 3G licences 8.6.1.3 Dispute over 3G licensing 8.6.1.4 Rollout of 3G networks 8.6.1.5 High-Speed Downlink Packet Access (HSDPA) networks 8.6.1.6 Issuing of fifth 3G licence 8.6.1.7 Smartphones 8.6.1.8 Challenges to spectrum ownership 8.6.2 Long Term Evolution (LTE) /Fourth Generation (4G) networks 8.6.3 AppBridge project 8.7 Mobile voice services ...... 78 8.7.1 Prepaid cards 8.8 Mobile data services ...... 79 8.8.1 Short Message Service (SMS) 8.8.1.1 Overview 8.8.1.2 Background 8.8.1.3 Proposed SMS tax 8.8.1.4 Money remittance via SMS 8.8.2 Multimedia Message Service (MMS) 8.8.3 Mobile TV 8.8.3.1 Overview 8.8.3.2 Smart’s MyTV 8.8.3.3 Globe Telecom 8.9 Mobile content and applications ...... 84 8.9.1 Overview 8.9.2 Content development 8.9.3 M-commerce 8.10 Major mobile operators ...... 86 8.10.1 Overview 8.10.2 PLDT’s acquisition of Digitel 8.11 Philippine Long Distance Telephone Company (PLDT) ...... 89 8.11.1 Smart Communications 8.11.1.1 Overview 8.11.1.2 Background 8.11.1.3 Developments 8.11.1.4 3G/4G services 8.11.2 Talk ‘N Text (TNT) (formerly Piltel) 8.11.2.1 Overview 8.11.2.2 3G services 8.11.3 Red Mobile (CURE) 8.12 Globe Telecom ...... 96 8.12.1 Overview 8.12.2 Developments 8.12.3 Background 8.12.4 3G/4G services 8.13 Digitel/Sun Cellular ...... 99 8.13.1 Overview 8.13.2 Background 8.13.3 Developments 8.14 Other operators ...... 101 8.14.1 Extelcom 8.14.2 Bayantel 8.14.3 BellTel 8.14.4 Next Mobile

9. FORECASTS ...... 105 9.1 Forecasts – fixed-line market – 2015; 2020 ...... 105 9.2 Forecasts – Internet services – 2015; 2020 ...... 105 9.3 Forecasts – mobile services – 2015; 2020 ...... 106 9.3.1 Notes on scenario forecasts

10. GLOSSARY OF ABBREVIATIONS ...... 108

LIST OF TABLES Table number: on page number: Table 1 – Country statistics – 2011 ...... 1 Table 2 – Telephone network statistics – 2011 ...... 1 Table 3 – Internet user statistics – 2011 ...... 1 Table 4 – Broadband statistics – 2011 ...... 1 Table 5 – Mobile statistics – 2011 ...... 1 Table 6 – National telecommunications authorities ...... 2 Table 7 – Philippines’ GDP real growth rate – 2006 - 2013 ...... 3 Table 8 – PLDT fixed-line subscribers – 2001; 2005 - 2011 ...... 15 Table 9 – Globe Telecom fixed-line subscribers – 2002 - 2011 ...... 16 Table 10 – Globe Telecom broadband subscribers – 2007 - 2011 ...... 17 Table 11 – Globe Telecom broadband subscribers - wired v. wireless - 2011 ...... 17 Table 12 – Globe Telecom broadband subscribers – 2011 ...... 17 Table 13 – Bayantel’s fixed-line subscribers – 2000 - 2001; 2006 - 2011 ...... 19 Table 14 – PLDT fixed-line subscribers – 2001; 2007; 2010 - 2011 ...... 21 Table 15 – Fixed lines in service and penetration – 1994 - 2012 ...... 27 Table 16 – Fixed lines – proportion of urban and residential subscribers – 2007 - 2011 ...... 27 Table 17 – Fixed lines installed versus lines in operation – 1995 - 2011 ...... 27 Table 18 – Total SAS lines installed by operators by target date ...... 28 Table 19 – Fixed broadband subscribers – 2001 - 2012 ...... 34 Table 20 – Wireless broadband subscribers – 2009 - 2011 ...... 34 Table 21 – Broadband subscribers and households – June 2011 ...... 34 Table 22 – Broadband subscribers by major service provider – 2008 - 2011 ...... 34 Table 23 – Internet users – 1996 - 2012 ...... 34 Table 24 – Internet subscribers – 1996 - 2012 ...... 35 Table 25 – Overview of Internet market – 2010 ...... 35 Table 26 – International Internet bandwidth – 2000 - 2011 ...... 35 Table 27 – Percentage of households with computer – 2002 - 2011 ...... 36 Table 28 – DSL subscribers – 2001 – 2011 ...... 39 Table 29 – Number of registered ISPs – 2001 - 2011 ...... 47 Table 30 – PLDT broadband subscribers – 2005 - 2012 ...... 48 Table 31 – PLDT’s DSL subscribers – 2001 - 2012 ...... 49 Table 32 – PLDT’s wireless broadband subscribers – 2007 - 2012 ...... 49 Table 33 – Smart’s ‘SmartBro’ subscribers – 2005 - 2012...... 50 Table 34 – Digitel’s broadband subscribers – 2011 - 2012 ...... 50 Table 35 – Globe Telecom’s broadband subscribers – 2007 - 2011 ...... 51 Table 36 – Globe Telecom’s DSL subscribers – 2009 - 2011 ...... 51 Table 37 – Globe Telecom’s wireless subscribers – 2009 - 2011 ...... 51 Table 38 – Key broadcasting statistics - 2011 ...... 56 Table 39 – Mobile subscribers and penetration rate –1994 - 2012 ...... 67 Table 40 – Mobile market share by operator – 2011 ...... 68 Table 41 – Mobile services revenue – 1993 - 2011 ...... 68

Table 42 – Total SMS messages – 2003 - 2011 ...... 79 Table 43 – Mobile market share - major operators – 2011 ...... 86 Table 44 – Mobile operators, subscribers and annual change – 2011 ...... 86 Table 45 – Mobile subscribers by operator – 2009 - 2011 ...... 86 Table 46 –PLDT mobile subscribers – 2006 - 2012 ...... 90 Table 47 – PLDT – monthly ARPU by operator/contract type – March 2012 ...... 90 Table 48 –Smart mobile subscribers – 2010 - 2012 ...... 91 Table 49 – Smart – prepaid and postpaid subscribers – March 2012 ...... 91 Table 50 – Smart – prepaid and postpaid ARPU – March 2012 ...... 91 Table 51 –Talk ‘N Text subscribers – 2002 - 2012...... 94 Table 52 – Red Mobile (CURE) subscribers – 2009 - 2012 ...... 95 Table 53 – Globe Telecom subscribers – 2001 - 2011 ...... 96 Table 54 – Globe Telecom - subscribers prepaid v. postpaid – 2011 ...... 96 Table 55 – Digitel subscribers – 2005 - 2012 ...... 100 Table 56 – Digitel – prepaid and postpaid subscribers – March 2012 ...... 100 Table 57 – Forecast fixed line subscribers – 2015; 2020 ...... 105 Table 58 – Forecast Internet subscribers – 2015; 2020 ...... 106 Table 59 – Forecast mobile subscribers – 2015; 2020 ...... 106

For a f ull o verview o f o ur in formation o n Asia, s ee a t www.budde.com.au, or ot her BuddeComm reports on the Asia market: Afghanistan Armenia Azerbaijan Bangladesh Bhutan Brunei Darussalam Cambodia China East Timor Georgia Hong Kong India Indonesia Japan Kazakhstan Kyrgyzstan Laos Macau Malaysia Maldives Mongolia Myanmar (Burma) Nepal North Korea Pakistan Philippines Singapore South Korea Sri Lanka Taiwan Tajikistan Thailand Turkmenistan Uzbekistan Vietnam

For a full overview of our Market reports on Asia, see: • Asia - Mobile Data, Wireless Broadband Market and Forecasts • Asia - Mobile, Broadband and Digital Economy Overview • Asia - Telecom Forecasts • Asia Fixed Broadband and Internet Market and Forecasts • Asia Mobile Operators

Asia “Statistics only” Report: • Asia – Mobile Communications Statistics (tables only);

© Copyright Paul Budde Communication Pty Ltd, 2012 8 Website: www.budde.com.au Philippines - Telecoms, Mobile, Broadband and Forecasts Major Fixed Network operators awarded a CPCN in 2002. This meant that, having installed the required number of fixed-line services, it had fully qualified for a mobile licence.

In due course the mobile business began to demand the bulk of Digitel’s efforts. Ranked as the second largest fixed-line provider in the Philippines at the time, Digitel said in late 2004 that its losses were still mounting d ue to th e c ost o f its venture i nto its S un C ellular mobile te lephone b usiness. T he outstanding balance of Digitel’s financing debt for its mobile operations stood at PHP billion by 2004. However, t he o perator r emained co mmitted t o t he f ixed-line m arket s egment. In 2006 i t announced that it was to spend PHP billion (US$ million) over a five-year period to expand the capacity and coverage of its fixed-line network and roll out 3G services.

Digitel reported in June 2010 that it had between and fixed broadband subscribers. It noted that roughly half of its 2010 capex was going into improving its broadband business.

Major shareholders in the company as of December 2009 were: • JG Summit Holdings Inc (%); • PCD Nominee Corporation (Filipino) (%); • PCD Nominee Corporation (Non-Filipino) (%); • Telia Sonera AB of Sweden (%); • Express Holdings Inc (%).

In August 2010 TeliaSonera sold about half its stake in Digitel. Its stake dropped from % to %.

By e nd-2010 Digitel still o nly accounted f or around f ixed-line s ubscribers. The n umber o f fixed subscribers had fallen to by end-2011. Losses by Digitel’s fixed line services widened by 99% in the first three quarters of 2011, down from PHP million to PHPbillion.

During 2011 with Digitel continuing to struggle both with its financials and in the market place, PLDT acquired t he troubled ope rator i n a de al t hat t ook s ome t ime t o b e co mpleted. B y e nd-2011 P LDT reported that its new Digitel subsidiary had around fixed line subscribers.

4.6 EASTERN TELECOMMUNICATIONS PHILIPPINES INC (ETPI) ETPI began offering a full range of services from local, long-distance and international for both voice and da ta a nd v arious I nternet br oadband pr oducts a nd s ervices. Originally o wned % b y Cable & Wireless plc (see separate archived research report with information to mid-2004), ETPI was the oldest telephone company in the Philippines; it became the country’s second International.

• Telephone: ⇒ Gateway Direct, an international telephone service for its direct corporate subscribers outside its Local Exchange (LE) service area; ⇒ Eastern Access is an all-digital phone service offering local, as well as direct dial capability, for domestic and international long-distance calls plus cellular phone calls; ⇒ CallCard, a prepaid international and long-distance service. • Internet: ⇒ Gigabit Internet Service serving corporations in selected high rise buildings with a fibre optic connection to the global Internet at broadband speed to Mb/s; ⇒ Leanband ISDN for corporates at speeds Kb/s and Kb/s; ⇒ Manila I X, a n I nternet co mmunication c entre a t which Philippine I SPs a nd t heir c ontent provider customers can exchange traffic and locate equipment. • Data: ⇒ International Private Leased Circuit (IPLC), a dedicated, end-to-end connectivity between two points: one in the Philippines directly linked to Eastern’s network and one in another country linked to the network of an overseas carrier; ⇒ Cable & Wireless Frame Relay (CWFR) Service a global Cable & Wireless (UK) product; ⇒ Integrated Services Digital Network (ISDN) for business applications.

6. BROADBAND MARKET

6.1 BROADBAND MARKET OVERVIEW After many years of sluggish growth in the Philippines broadband market, it has started to flourish. In fact j ust a few years ag o t he co untry b ecame on e of the f astest g rowing markets for br oadband worldwide when the number of subscribers increased by more than % in successive years. By the start of 2012 there were seven million broadband subscribers in the country for a subscriber penetration of a round % . The s ubscriber b ase was al most % b roadband by t hat s tage. B roadband acces s services were mainly supported by either fixed broadband (mainly DSL) or wireless broadband. The more recently launched wireless services were providing a major boost to the expansion.The growth surge obs erved i n 2010/ 2011 i t a ppeared t o be c ontinuing i n 2012, signalling that the c ountry’s broadband sector was finally taking off. The healthy-looking growth rates were helped, of course, by the f act th at b roadband was starting from a relatively low b ase. (Note: U p to d ate s tatistics a re not available for s ome i nternet i ndicators in the P hilippines a nd where up to d ate in ternet s tatistics a re available they at times prove to be inconsistent.)

As already noted, internet users in the Philippines have a number of high-speed internet access options available to them: Digital Subscriber L ine ( DSL), cable m odem, Fixed W ireless Access ( FWA), WiMAX and mobile data services. It is noted, however, that not every platform is available to every potential subscriber.

6.2 BACKGROUND The broadband m arket started moving f orward i n 2005 with the e xpansion o f t he myDSL service offered by the Philippine Long Distance Telephone (PLDT) company. Since then DSL has continued to be a s ignificant broadband t echnology pl atform for the c ountry, providing t he initial f oundation f or growth. B y c ontrast, c able m odem access m akes up onl y a s mall por tion of t he market. In t he meantime, broadband wireless technologies – fixed, nomadic, and mobile - have started to make their presence felt and are collectively and rapidly gaining a significant subscriber base.

Of the operators, PLDT has been playing a key role in the broadband market and was holding onto the status of top ranked player in 2011. By the middle of the year the company was claiming a total of million broadband subscribers; of these, almost om, however, was throwing out a major challenge to PLDT, with strong growth in its subscriber base in 2010/2011.

Barriers that have slowed the ongoing development of broadband Internet in t he Philippines r emain significant. F irst, t he o ffered s ervices h ad b een r elatively e xpensive, at l east f or D SL acces s for businesses. This has not been helped by the fact that there was no regulatory requirement for fixed-line operators to unbundle their local loop to allow other operators or Internet Service Providers (ISPs) to offer DSL services. S econd, t he a vailability o f flat-rate t elephone t ariffs meant t hat no ex tra-usage charges were i ncurred f or d ial-up acces s, r educing t he attractiveness of migrating t o br oadband. Furthermore, t he b roadband s ervices o n o ffer have b een h eavily co ncentrated i n the metropolitan Manila market. Finally, there is no doubt that growth in the broadband sector could be even higher if the regulator allowed more competition, which in turn would lead to cheaper prices.

PLDT said in March 2012 that it was looking to take a % share of the small and medium enterprises (SMEs) segment of the market within a two year period. To that stage it had signed up around SME subscribers to its SME Nation package, equivalent to a market share of between % and %. The company was targeting total of SMEs or %-% of the market by 2014. As part of the drive, PLDT had rolled out upgraded versions of its SME-based packages.

By S eptember 2011 t he i dea of b uilding a n N BN had be en r evived. A pl an pr oposed b y t he n ew Aquino a dministration to move f orward with a n N BN was r eceiving t he s upport o f th e le gislature. However, t here was a s trong de mand f or f ull t ransparency in t he bi dding t o a void t he f ate of t he scandal-tainted project under the previous administration.

6.6 PC MARKET The PC market in the Philippines saw a sharp downturn in the September quarter of 2011, reversing the strong gr owth t rend s een i n the first t hree q uarters o f 2 011 with P C shipments d eclining % to units. The Philippines was hit particularly hard by hard disk drive (HDD) supply shortages as manufacturing plants in Thailand had their operations thrown into disarray by severe flooding. Other macroeconomic factors al so co ntributed t o t he l ocal P C market's d ecline. T he s trength o f the peso against the US dollar meant that the remittances of Filipinos working overseas were worth less than previously. I n a ddition, th e s easonal t yphoons th at h it M etro M anila f urther c onstrained co nsumer spending. In t he c onsumer s egment, mini-notebooks, which ar e u sually a major contributor to th e Philippines PC market, faced the most significant drop in the quarter, down %. Vendors prioritised their limited HDD allocations to larger form factor PCs as they are more profitable.

6.7 BROADBAND PLATFORMS

6.7.1 Digital Subscriber Line (DSL) In the early stages of broadband access development in the Philippines DSL had made its mark as the dominant broadband technology on offer. By early 2002, in what was still a small market, there were an estimated DSL subscribers, accounting for only a small percentage of the estimated Internet subscribers i n the country a t t hat t ime. W ith seven million c opper te lephone li nes installed nationwide, DSL was offering a promising option to increase broadband connectivity. However, in the Philippines, t he basic service o ffered for residential users at the time was relatively slow, providing only a guaranteed Kb/s service, burstable to Kb/s.

The growth rate remained at a low level until around 2006 when competition between PLDT, BayanTel and Globe Telecom for the broadband customer started to hot up. By early 2006 PLDT reported that it had around DSL subscribers. By end-2006, the operator had broadband subscribers or % of the total market. Of these, were DSL-based. In other words, at that stage PLDT was also not surprisingly the dominant DSL-player with % of that market.

Table 28 – DSL subscribers – 2001 – 2011 Year Subscribers 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 (e) 2011 (June) 2011 (Source: BuddeComm estimates based on ITU and industry data)

PLDT said in February 2012 that it was on track to complete a series of service upgrades for its DSL subscribers i n Metro Manila, substantially increasing upload and d ownload speeds for no ad ditional charge. The company noted that residential subscribers had become heavy users of the internet with all

Year Subscribers 2006 2007 2008 2009 2010 2011 2012 (Mar) (Source: BuddeComm based on company and industry data)

PLDT claimed about % of the broadband market in 2009. However, Globe was rapidly closing on the market leader at the time.

Table 31 – PLDT’s DSL subscribers – 2001 - 2012 Year Subscribers 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 (Mar) (Source: BuddeComm based on company data)

Table 32 – PLDT’s wireless broadband subscribers – 2007 - 2012 Year Subscribers 2007 2008 2009 2010 2011 2012 (Mar) (Source: BuddeComm based on company data) Note: Includes PLDT’s SmartBro and WeRoam services

PLDT said at the start of 2011 that it would spend a total of PHP billion over the coming two years to expand its broadband network, in anticipation of a surge in internet use throughout the country.

By mid-2011 the company was outlining plans to add broadband subscribers to its network in 2011 (actual figure achieved was almost ), suggesting that the broadband business would drive the company’s earnings in the future. In the meantime, earnings from its mobile business have begun to slip as revenue per minute on voice calls and revenue per text message were decreasing.

6.11.1.1 Smart PLDT’s mobile s ubsidiary, Smart C ommunications, has also be en a major pr ovider of br oadband services. Smary signed a co ntract in 2005 f or t he s upply of M otorola wireless br oadband pr oducts. Motorola supplied Smart with its Canopy equipment, allowing the operator to offer wireless broadband services in both developed and underdeveloped parts of the country. Earlier Smart spent more than a year tr ialling th e n ew p latform. M eridian T elekoms, a subsidiary of Smart (see c hapter 6.11.6) that handled its Fixed Wireless Access (FWA) broadband operations, said the company believed ‘wireless

7. DIGITAL MEDIA / DIGITAL ECONOMY

7.1 OVERVIEW OF BROADCASTING MARKET IN THE PHILIPPINES It is estimated that eight out of every ten Philippine households have access to a TV set. This is based on I TU f igures o f a few years p revious. T he number o f TV s ets i n the country by e nd-2011 was estimated at around million for a population of million people. The market still has considerable room for expansion.

Table 38 – Key broadcasting statistics - 2011 Service Units TV receivers (e) TV households (e) TV household penetration Cable TV subscribers (e) Terrestrial multi-channel TV subscriptions Home satellite antennas Number of TV stations Number of CATV networks Broadcasting standard ISDB-T (Source: BuddeComm based on NTC and other industry sources)

7.1.1 Market development In March 2011 the Philippine government announced that it was planning to privatise two free-to-air TV stations. It was looking to sell its RPN9 and IBC13 Free-to-Air (FTA) television stations. These were stations sequestered by the government in 1986 as part of the ill-gotten wealth of former President Ferdinand Marcos and his allies.

In r esponse t o t he pr oposed s ale, M ediaQuest H oldings, a u nit of t he P hilippine Long D istance Telephone Co’s wholly-owned PLDT Beneficial Trust Fund, said it was not keen on participating in the government’s plan to privatise the two television stations. PLDT had in the past expressed interest in those channels; in 2009, however, MediaQuest acquired free-to-air network TV 5 and the consensus was that it did not need to acquire Channels 9 and 13 as well.

In March 2012 Manuel Pangilinan, a leading businessman in the Philippines, was manoeuvring to buy a second major television network as part of plans to expand his media empire. His business portfolio already i ncluded a n i nterest i n P LDT, t he c ountry’s largest t elecommunications co mpany. I f t he strategy is successful he will buy the rival GMA Network Inc. PLDT, through a subsidiary, owns TV5, the third major television network in the Philippines after ABS-CBN and GMA. GMA Network Inc is controlled by several Philippine families; it is also a listed company.

7.1.2 Regulatory developments

7.1.2.1 Digital TV Digital television broadcasts can be received in the Philippines via digital cable and direct broadcast satellite. The r egulator h as moved t o i ntroduce d igital te levision for t errestrial services (see ch apter Digital Terrestrial Television (DTT) and the major broadcasting companies in the Philippines having started preparing for this.

The di spute was e ffectively r esolved i n O ctober 2012 when t he N TC gave i ts a pproval t o P LDT’s acquisition of Digitel, subject to conditions, including that PLDT sell MHz of 3G spectrum held by subsidiary CURE.

8.6.2 Long Term Evolution (LTE) /Fourth Generation (4G) networks In April 2011, Globe Telecom and Smart launched 4G mobile broadband networks at the same time.

Globe Telecom launched a commercial Evolved High Speed P acket Access (HSPA+) network. This network was d eployed i n s ites acr oss M etro Man ila. Globe s aid i t pl anned t o s ignificantly e xpand coverage by the end of the year and into 2012. Globe intends to use the network to deliver mobility to subscribers of its fixed WiMAX network, which it launched in 2009 and was covering cities across the Philippines by early 2011. The operator revealed it had raised its 2011 capex allocation by % to US$ million, part of which covered expenditure on its HSPA+ rollout.

PLDT responded to the Globe launch by announcing its own launch of an LTE service in Boracay and adding that it was ‘...launching our LTE, the real 4G, in Boracay’. After Smart went live with its LTE network, the company said that roll-outs of the network to other areas had already commenced.

In June 2011 Smart said that it intended to roll out about LTE base stations across the country over a two-year period, mainly targeting areas where it already operates 2G/3G cell sites.

Smart launched test networks for its LTE services in November 2011. The tests covered sites in Metro Manila with the test phase running until February 2012. Maximum data transfer rates of Mb/s were being offered.

In February 2012 S mart activated its LTE network in Baguio City in Northern Luzon. This followed expansion of its LTE coverage to take in most parts of Metro Manila. It confirmed that the work was part of PLDT’s PHP67 billion (US$billion) ‘network transformation initiative’ to be completed by mid-2012.

Globe Telecom launched a pilot program in March 2012 that was designed to see its legacy 2G mobile infrastructure i n D avao C ity replaced w ith ne w 3 G a nd 4 G t echnology. T he i nitiative, d ubbed t he ‘Davao Pilot Project,’ was part of Globe’s nationwide network modernisation program costing US$ million.

8.6.3 AppBridge project In February 2012 a pilot project based on AppBridge and aimed at improving communications for the rural poor was launched. Under the planned project a farmer in the Philippines will soon receive advice on his mobile phone on how to increase his rice field’s productivity. AppBridge also hopes to expand the concept to help the poor receive education and skills training. It is estimated % of t he world’s poor have access to mobile phones. A project announced at the World Economic Forum (WEF) uses an AppBridge to help alleviate poverty and improve education. Most importantly, the mobile phones used do not need t o b e smartphones. Nevertheless, t hey s till need t o have f eatures t hat p ut t hem a l evel above a standard mobile phone that only can make and receive calls.

8.7 MOBILE VOICE SERVICES

8.7.1 Prepaid cards Prepaid mobile services have been in great demand in the Philippines, substantially contributing to the remarkable gr owth i n t he c ountry’s mobile s ector. I n ex cess o f % o f mobile s ubscribers in th e country were on prepaid arrangements by 2010. The service was particularly suitable for the growing band of youthful subscribers, who were also a major slice of the booming SMS market.