www.pwc.com/my Making waves: Southeast Asia series Spotlight: The Philippines Stake of the telco industry in Southeast Asia Focus: Philippines August 2012 ACKNOWLEDGEMENT We would like to acknowledge Business Monitor International (BMI), EIU ViewsWire and other organisations for the use of information extracted from their publications and websites. PREAMBLE “Making waves” is a new telco publication series on the Southeast Asia region. This is a PwC SEAPEN Region1 led initiative. It aims to provide overviews of the emerging telco markets in this region as well as insights on the challenges and opportunities faced. We hope readers will find this a valuable read. DISCLAIMER This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of publishing. 1PwC SEAPEN Region comprises Malaysia, Thailand, Vietnam, Cambodia and Laos. Over 3,000 people across these five countries share knowledge, resources and experience to best serve our clients’ needs across the region. Foreword As the global economic axis shifts to Ranked no.1 as the preferred business Asia, highly populated and emerging process outsourcing (BPO) location Asian economies continue to be ahead of India, the Philippines attractive destinations for global and offers attractive long term prospects regional telecommunications (telco) for investors. The Philippines’ low operators seeking new sources of economic base and large pool of growth. young population provide a strong expanding consumer base. The market The Asian telco sector is going through is rapidly evolving, characterised by rapid transformation, making it high competitiveness, user-centric one of the most watched markets in business models, and continuous the world today. A combination of advances in technology. trends such as strong economic and population growth, rising consumer Similar to its neighbouring Asian telco demand and market-responsive markets, the highly price-sensitive regulatory changes, are driving market is expected to shift from voice investments and innovations in the to 3G and mobile broadband, focused Asian emerging markets. on postpaid services driven by the growing demand for social media and In this publication, we take a close multimedia content. look at the Philippines, a highly populated emerging market and We hope ‘Making Waves: The explore the state of its telco industry. Philippines’ provides useful insights for your next strategic investment decision. Irvin Menezes Rossana S. Javier Partner Partner, Advisory Services PwC Malaysia PwC Philippines 3 Contents Foreword .......................................3 Global and regional telco overview ...............................5 Spotlight: The Philippines ............15 Industry drivers ....................... 18 Market overview ......................21 Mobile ................................. 24 Broadband ........................... 25 Fixed line ............................. 25 Game changers ........................27 Regulatory environment ..........28 ICT ..........................................30 PwC telco capabilities ..................32 Glossary of terms .........................36 4 Global and regional telco overview Global telco market Over this decade, global mobile subscription is forecast to increase at a CAGR1 of 5.6%, reaching 9.7 billion subscribers in 2020. Global telco growth to be led by Asia, which accounts for close to two-thirds of the world’s population. With Asia Pacific’s relatively low teledensity rate for mobile phone and mobile broadband, there is significant room for telco market growth. Chart 1: Global telco market - growth led by Asia Europe Population The Americas 11% Share of global population Population Teledensity Asia Pacific 13% Share of global population Mobile penetration Population 60% Share of global population Teledensity 120% Mobile penetration Teledensity Mobile broadband Mobile penetration 103% 54% Mobile broadband 74% 31% Mobile broadband 11% 1Compounded annual growth rate Source: Population Reference Bureau, July 2011; International Telecommunication Union, November 2011, UMTS Forum, January 2011 6 Asia’s telco market Mobile subscriber growth in most Asian countries is expected to slow as the market matures, especially in urban areas. Key growth markets in Asia over the next five years are Indonesia and China. Chart 2: Asia’s mobile market - growth led by China and Indonesia No. of subscribers, 2012 9% > 300 mln 8% 50 mln to 150 mln Indonesia China (309.2 mln) < 50 mln 7% (1.1 bln) 6% 5% Thailand 4% India (77.4 mln) (983.2 mln) Vietnam (122.3 mln) Hong Kong 3% Malaysia (16 mln) (38.9 mln) 2% Subscriber growth (CAGR 2012-16*) Subscriber growth Singapore (8.2 mln) 1% The Philippines (102.3 mln) 0% 60 70 80 90 100 110 120 130 140 150 160 170 180 190 200 210 220 230 Penetration rate, 2012* (%) * Forecast Source: BMI, Q2 2012 and PwC Analysis 7 Asia has a mixture of telco markets, some more advanced and developed than others, with ARPU1 ranging from US$56 to less than US$2. The huge gap in ARPU presents potential opportunities for developing markets to grow their telco services. Chart 3: Comparative position of Asia’s telco market Regional Country Telco risk Country Mobile Country Mobile Country Broadband rank ratings penetration ARPU 20122 penetration 2012 20122 (%) (US$) 20122 (%) 1 Japan 74.6 Hong Kong 222.0 Japan 56.00 Japan 189.5 2 Singapore 73.3 Singapore 154.9 Singapore 34.00 Singapore 106.4 3 Australia 70.1 Vietnam 136.3 South Korea 28.69 South Korea 53.9 5 Hong Kong 67.8 Australia 135.0 Hong Kong 23.33 Hong Kong 38.2 6 South Korea 66.3 Malaysia 132.0 Taiwan 22.28 Taiwan 32.8 7 Taiwan 63.9 Cambodia 130.0 Malaysia 13.20 Malaysia 31.9 8 Malaysia 61.7 Taiwan 128.2 China 10.52 China 22.3 9 Indonesia 57.1 Indonesia 126.3 Thailand 6.66 Thailand 14.1 10 China 56 South Korea 112.9 Vietnam 4.11 Vietnam 7.4 12 India 51.5 Japan 108.4 Philippines 3.25 Philippines 6.3 13 Pakistan 50 Philippines 106.1 Indonesia 3.07 Indonesia 5.0 14 Philippines 49.7 Thailand 105.1 Cambodia 3.00 Cambodia 4.1 16 Bangladesh 48.9 Sri Lanka 90.6 Sri Lanka 2.45 Sri Lanka 1.2 17 Vietnam 42.4 China 80.7 India 1.62 India 0.9 1 Average Revenue Per User 2 Forecast Source: BMI, Q2 2012 8 Southeast Asia’s telco markets Most of emerging Southeast Asian countries have reached maturity stage with over 100% mobile penetration rate. The Philippines, Indonesia and Vietnam each has significant subscriber base of over 100 million. Chart 4: Southeast Asia’s mobile telco market overview Vietnam Legend 122.3 mln Subscriber base 136% Penetration rate Cambodia No. of subscribers, 2012 18.8 mln > 300 mln Laos > 50 mln to 150 mln 130% 7.0 mln > 10 mln to 50 mln 109% Thailand 77.4 mln 120% The Philippines Malaysia 102.3 mln 38.7 mln 106% 132% Indonesia 309.2 mln 129% Source: BMI, Q2 2012 and PwC Analysis 9 Malaysia Rapid broadband growth, triple-play growth Overview Chart 5: Malaysia mobile and broadband subscribers • One of the most matured telco 2011-16 CAGR for mobile: 2.6%; and broadband: 7.5% markets in the region, with mobile Mobile (LHS) Broadband (RHS) penetration rate of about 132% in 2012. 50 10 • Industry revenue to grow by 5.3% in 2012, driven by growth in HSBB1 40 8 subscriptions. • 3G smartphones or tablets with 30 6 bundled data packages expected to surge as telco operators attempt to grow its revenue. 20 4 • 3G subscribers to grow at 3.6% No. of subscribers (mln) No. of subscribers (mln) CAGR to 13 million in five years, 10 2 representing about one-third (31%) of the mobile market. 0 0 • Key players: Maxis, Celcom (owned 2011e 2012f 2013f 2014f 2015f 2016f by Axiata), Digi (controlled by e – Estimate f - Forecast Source: BMI, Q2 2012 Telenor) and Telekom Malaysia. Opportunities Threats • Shift in demand from traditional voice • Rapid broadband growth anticipated, • Intense competition due to market services to data and media rich services led by HSBB and mobile broadband saturation with mobile penetration at 132% • Data hungry customers (smartphones • WiMAX licensing helping rapid and tablets users) to drive industry growth of wireless broadband • Entry of new players and products growth technologies such as YTL Communications Bhd’s YES 4G, new foreign stakeholders in • Growing household broadband • Cost savings from network sharing wireless and mobile operators, Green penetration rate projected to rise to agreements between mobile Packet Bhd and U Mobile Sdn Bhd, 65% in 2012 operators and increased presence of mobile virtual network operators (MVNOs) 1 High speed broadband 10 Thailand Revitalisation of wireless services, strengthening regulations Overview • Mature and competitive telco Chart 6: Thailand mobile and broadband subscribers market, with mobile penetration 2011-16 CAGR for mobile: 3.6%; and broadband: 7.1% rate estimated to be at 119% in 2012. Mobile (LHS) Broadband (RHS) • Operators face price pressures, 98 5 dominated by prepaid sector. 94 • Operators focusing on smartphones 4 and tablets to acquire and retain 90 existing customers; stimulate data 86 3 usage and service quality with launch of mobile number portability. 82 2 • 3G subscribers to grow by 35% CAGR in the next five years to 19 78 No. of subscribers (mln) No.