The law lapsed into effect on Aug. 24, setting the stage for a major shake-up in the Philippine telecom sector since it introduces reforms that will lower entry barriers and overhaul decades-old rules.
Its full impact will hinge on the final implementing regulations, but stock brokerage house First Metro Securities said the law already signals challenges for the existing industry giants.
As with any sweeping reform, there’s a winner while others will come under pressure.
In a telco industry report dated Aug. 22, the FMS Research team led by Mark Angeles reflected this outlook in its ratings: Converge was rated a “Buy” with a price target of P20.50.
PLDT Inc. and Globe were both rated “Hold” with price targets of P1,350 and P1,830 per share.
“The bill’s core objective is to reduce entry barriers and foster competition across the telco value chain,” said FMS, which released the report days before the KPA lapsed into law.
“Thus, any outcome is unlikely to favor incumbent integrated carriers that operate within the already saturated mobile segment,” it added.
Why is Converge different?
Converge, founded by internet tycoons Dennis Anthony Uy and Maria Grace Uy, focuses on fixed-line fiber services, while Globe and PLDT rely heavily on mobile revenues.
New entrants are unlikely to significantly hurt Converge, since the fiber segment, while growing, still has excess capacity while the mobile sector is already a mature and saturated business, according to FMS.
Converge’s excess capacity (around 35 percent of its internet ports are being used) can be used to boost utilization, as it can lease its network to new players wanting to provide services without building their own infrastructure.
PLDT can also lease out excess capacity (57 percent of its ports are being used) but these benefits will be blunted by pressures facing mobile segment Smart.
Mobile players to be disrupted
According to FMS, the KPA is a “negative” in a saturated mobile market, which has three major players: Globe, Smart and DITO Telecommunity, which started five years ago and has been gaining market share.
“[W]e expect the impact to be more disruptive. The entry of more mobile network operators will further pressure incumbents to introduce more competitive pricing strategies to defend their market positions,” FMS said.
Cheaper for new mobile firms to roll out services
The removal of franchise requirements and the ability for new players to more easily share existing infrastructure could make competition tougher for incumbent telcos.
“In addition, new operators will benefit from lower rollout costs, especially as they expand coverage,” FMS said.
“They are better off dealing with tower companies than with direct competitors having preferential rights to their own tower assets,” it added, referring to the sale by Globe and Smart of tower assets to third-party independent operators.
Efficiency will be rewarded
According to FMS, the most efficient operator wins by delivering better service to the public.
It said Konektadong Pinoy Act also introduces a spectrum management framework that reviews and reallocates frequencies.
“The KPA introduces a new layer of accountability by imposing transparency requirements, such as mandatory publication of pricing, service quality metrics,” FMS said.
New players will be subject to quarterly performance monitoring, with penalties for non-compliance, it added.
Miguel R. Camus has been a reporter covering various domestic business topics since 2009.
