Philippines Mobile Data Services More Expensive than India

Philippines Mobile Data ServicesAlmost 95% of Philippine Telecom’s cellular revenue comes from Voice and SMS. Internet penetration is fairly high at 35% in 2012 (Increased from 29% in 2011) but a large proportion of customers access the internet through internet cafes. Mobile data is growing from a very small base and contributes around 5% of mobile revenue now compared with 2.5-3% two years ago. High smartphone prices as well as high data tariffs have been the key hurdles to a pickup in data in our view. We believe that the key enablers for data growth, including cheap smartphones and network availability, are now in place, but the pricing of data remains high. Data can lead to a trade-off, as despite being the biggest possible growth avenue it also has the potential to cannibalize some of the existing high-margin business, including ILD and SMS.

Data Pricing
Data pricing in the Philippines is higher than elsewhere in the region. The price per GB of data is higher in the Philippines than in Malaysia, which has monthly ARPU more than 3x that of the Philippines, and is 2.8x that of India. We believe there is scope for a reduction in data prices once operators complete their network modernization and capacity enhancements. While the pricing of data seems high, operators have to balance the price of data with the potential cannibalization of SMS and international voice revenue as applications like Whatsapp and Viber pickup. One must also consider the threat of new LTE operators.

We believe the enablers for a data pickup are already in place in the Philippines. This includes the young population (50% aged 15-64 years) that is used to using the internet (35% internet penetration), education levels, widespread availability of EDGE/3G networks, popular content (Facebook, social networking) etc. We find the service price (PHP500/GB) and smartphone price the key obstacles to a pickup in data services.

Smartphone penetration is still low but is growing
Smartphone penetration is still low but is growing Currently, about 17-18% of Globe and 10% of PLDT customers own smartphones. According to PLDT, half the customers with smartphones actually use data. Globe’s smartphone base is higher possibly because of its higher postpaid base. This implies a 12-13m smartphone base in the market, accounting for 12% of all mobile customers.

Telecom operators in the Philippines are offering subsidies on a wide variety of smartphones. We compared the plans being offered on Apple’s iPhone 5 and found both companies offer similar subsidies. However, Globe provides a higher level of flexibility to customers than PLDT, as Globe’s customer gets to choose combinations of different plans that should work out the same.