INCUMBENT telecommunications companies will have to improve their performance with the upcoming entry of a new rival, although PLDT, Inc. and Globe Telecom, Inc. still retain significant advantages, securities brokers said.

While a new entrant will ramp up competition, the incumbents’ advantage lies in existing infrastructure and financial strengths.

Malacañang has said that the Chinese government has chosen China Telecom Corp. Ltd., to be the third entrant in the Philippine telco industry. It has yet to partner with a local company, as required by the Constitution. Philippine Telegraph and Telephone Corp. (PT&T) said it is in preliminary talks with China Telecom, but said that it is confident it can be the third player regardless of the outcome of their deal with the Chinese telco.

Department of Information and Communications Technology (DICT) Officer-in-Charge and Undersecretary Eliseo M. Rio, Jr. said last week that companies from Japan, Australia, China, South Korea, and the United States are also looking at entering the Philippine telco market.

“The entry of a new player will help the economy and will compel the telcos to improve their financials and services,” Harry Liu, president of Summit Securities, Inc. said in a text message.

PLDT Chairman Manuel V. Pangilinan has announced that PLDT will set aside a “historic” amount for capital expenditure next year, above P50 billion, primarily for its network upgrade.

Globe CEO Ernest L. Cu told reporters in October that the company may keep its capital expenditure (capex) for 2018 at the same level as this year. Globe earmarked capex of $850 million this year, mainly for the expansion of its mobile data network. The telco is set to deploy more long-term evolution (LTE) cell sites using the 700-megahertz (MHz) and 2600-MHz frequencies.

“They are already going to start spending, and if they can make customers satisfied with their service, they can prevent from losing them to a third player,” Luis Limlingan, managing director of Regina Capital Development Corp., said in a text message.

With higher spending in the pipeline, the telcos however have financial capacity to meet the challenge.

Mr. Pangilinan last month said PLDT upgraded its recurring core profit guidance to P22 billion from the original P21.5 billion, after the nine-month tally rose 5% year on year to P17.36 billion from P16.55 billion.

Globe’s nine-month attributable profit was at P12.99 billion, up 11% year on year, driven by a 6% increase in revenue to a record P95.14 billion.

The significant advantage of PLDT and Globe however is the infrastructure they currently have.

“The new players will endure a lot before they get to really compete with the two giants (Globe and PLDT) due to lack of infrastructure,” Jervin S. de Celis, equities trader at Timson Securities, Inc. said in a text message.

“But I think small players can target key cities or communities to offer their services and take advantage of the higher take home pay of the working segment in those areas.”

Mr. Rio said last week that the third entrant will have limited spectrum to work with, and may have to compete in areas like cell site construction or fixed-line Internet, where the need for frequency is not as critical.

An official of the Philippine Competition Commission (PCC) said earlier this month that based on the commission’s data, only 12.8% of the spectrum will be available for a potential third player.

S&P Global Ratings has said that a new entry could be “disruptive,” but many barriers lie in its path, particularly with the joint acquisition of PLDT and Globe of the telco assets of San Miguel Corp. (SMC).

Mr. Rio said last week that the authorities are looking at allocating the remaining frequencies to just one telco (or consortium of telcos) in order to make the third player compete with PLDT and Globe.

Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., has a stake in BusinessWorld through the Philippine Star Group, which it controls. — Patrizia Paola C. Marcelo

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