Taking Down Goliath: What DITO’s Entry in the Mature Philippine Telecommunications Industry Can Teach Us

The Philippines’ newly launched Mobile Network Operator (MNO) DITO Telecom is resolute in its ambitions to disrupt the long-entrenched duopoly of current MNO market incumbents GLOBE and the Philippine Long Distance Telephone company (PLDT). DITO Telecom has recently announced that it would be increasing its initially outlined mobile network infrastructure investments budget from US$5 billion to upward of US$6 billion. This investment is part of DITO Telecom’s ambitious intention of securing 30% of the nation’s domestic mobile market in its first three years of operation.

Expected to commence commercial operation in the second quarter of 2020, DITO Telecom confronts a tall task in competing with the long-tenured telecommunications companies of the nation.

The Philippine telecommunications sector has been dominated by the private duopoly of PLDT and Globe since its deregulation in the early 1990s. As of June 2019, Globe has acquired 57% (up from 53% in 2018) of market share while PLDT corners the remaining 43%. The entry of DITO Telecom has upended the rising regional trend of MNO consolidation; i.e., that telecommunication companies resort to addressing their declining Average Revenue per User (ARPU) and the impending large capital expenses from network densification demands and infrastructural overhauls that 5G rollouts necessitate.                                                                                                                                                              .

The Philippines is an exception to this trend. The addition of DITO Telecom will provide competitive pressure to GLOBE and PLDT in terms of network performance and network coverage (especially in rural/underserved areas):                

• Despite improvements of mobile internet speed provided by Globe and PLDT, from 7.4 megabits per second (Mbps) in 2016 to 17.8 Mbps as of October 2019, the Philippines still has below average internet speed compared to the rest of the world (at 30 Mbps). The Speedtest Global Index has ranked the Philippines 103rd amongst the 141 surveyed countries. DITO Telecom is committed to provide a minimum mobile broadband speed of 27 Mbps to 37% of the population in its first year of operation and 55 Mbps within its second and fifth year. This commitment of improved internet speed is reinforced as failure to do so would result in the withdrawal of its Certificate of Public Convenience and Necessity (CPCN), discontinued allocation of its radio frequencies and a forfeit of its performance bond (US$500,000).

Despite having one of the most active social media populations in the world, with over 76 million active users that spend an average of four hours per day on social media platforms, the Philippines still has connectivity gaps within its region. The dearth of Internet connectivity, especially within rural regions, can be attributed to the lack of telecommunication infrastructure. PLDT and Globe only have an estimated total of 17,000 cell sites that serve their combined 113 million subscribers. In comparison, Vietnamese telecommunications companies service their 130 million mobile subscribers through 70,000 cell sites. DITO Telecom will augment this lack of infrastructure to cover 84% of the population (including rural regions) by the end of its fifth year of operation. Having reliable network coverage in rural areas would bring social and economic multipliers to underserved communities in the Philippines, from access to financial and banking services to health services and educational materials.

New MNOs (such as DITO Telecom) looking to establish themselves among players in a mature telecommunications market can glean valuable takeaways from Indian telecommunications provider Reliance Jio. Launched in 2016, Reliance Jio overcame a fiercely competitive market to surpass the major incumbent Indian telcos. According to the Telecom Regulatory Authority of India (TRAI), at the end of June 2019, Reliance Jio surpassed Airtel to become the second largest MNO in India with over 331.2 million subscribers. DITO Telecom can apply the same strategic approach that Jio applied in its successful market share expansion.

The approach was anchored on two fronts:

• Establishing a Strong Foundation of Network Assets: A greenfield telecom penetrating a mature telecommunications market would require an accumulation of network assets through heavy capital investment outlays. The Philippine telecommunications industry very much exemplifies the correlation of committing large Capital Expenditure (CAPEX) budgets and gaining market share. According to Fitch, Globe and PLDT have a cumulative CAPEX of about 40% of their revenue in 2019; a figure that is almost twice as much when compared to other telecommunication companies within the region (averaging only about 20%). PLDT has recently turned the corner from a recent revenue slump by transitioning its legacy services to digitalized service offerings. The steep CAPEX requirements are intensified in the scenarios of greenfield telecommunication companies with no network assets. New operators must prepare to outspend their rivals to gain ground in their market presence.

The ability to outspend rivals was instrumental in Reliance Jio’s rapid meteoric rise. Reliance Jio’s scale of capital investments is strikingly divergent from its competitors. The company spent Rs 14,000 crore (almost US$2 billion) between October and December 2018; a figure that is almost three times the combined capital investments of Bharti Airtel and Vodafone Idea.

As of now, DITO Telecom is following this blueprint; its approximate US$6 billion investment exceeds Globe’s (US$1.2 billion) and PLDT’s (US$1.5 billion) CAPEX for 2019. Since its formal granting of its license, DITO has been acquiring key partnerships with LCS Holdings and Sky Cable to expedite its greenfield deployments within the country and address deficiencies in network infrastructure and fiber assets. LCS Holdings is facilitating the country’s first tower-sharing initiative that will accommodate all three major MNOs and DITO Telecom is LCS’ first official customer in this infrastructure sharing arrangement. Sky Cable, on the other hand, would be providing DITO Telecom its unutilized fiber-optic cables within Metro Manila.

• Willingness to Undercut Competition through Pricing: Reliance Jio’s effective market share expansion was primarily due to its aggressive pricing strategies that went against the grain of the price makers and ultimately benefited the consumers. The major incumbent Indian telecommunication operators have historically demonstrated their unwilling concession of their pricing power. In 2015, Bharti Airtel and Vodafone Idea decided to withdraw discounts on their mobile data packs and increased their data rates to cover the finance costs of spectrum.  In contrast to this, Reliance Jio’s blueprint for capturing market share centered on offering cheaper data tariffs. This move is illustrative of Reliance Jio’s foresight regarding how data-related services would evolve as key revenue generators given the incline of the regular consumer’s data-consumption over the years. Reliance Jio’s plans are around 25% to 30% cheaper than what Bharti Airtel and Vodafone Idea offer. These drastically lower tariffs have helped Jio accumulate over 340 million mobile subscribers (as of August 2019) with an average of 10 million additional subscribers per month.

DITO Telecom has expressed its plans to pair aggressive pricing strategies with its provision of faster network speeds. Notably lower data tariffs would further compel Filipino consumers to switch over to DITO Telecom if the new MNO does manage to provide its promised faster internet speeds. It is, however, worthy to note that the incentive for switching over to DITO Telecom is skewed more toward the promise of improved broadband speeds than cheaper mobile plans given that the country has the one of the cheapest costs of mobile data in the world.