$6B BPO sector builds on early gains

For an industry that prides itself in following processes meticulously, the success of business process outsourcing (BPO) seems to have hinged on seemingly small measures that later turned out to be “game changers.”

One such policy shift that would later come to have massive positive implications on the industry was the government’s decision to allow individual buildings to be accredited by the Philippine Economic Zone Authority (Peza).

According to LiveIT CEO Fred Ayala, the government’s timely action to ease previously restrictive rules about incentives for investors was one factor that helped the BPO industry bloom.

Policy shift

“Before it [government] intervened, export processing zone rules provided incentives to investors only if they located in a specific industrial technopark,” he said.

“One of the key insights pushed by [the Department of Trade and Industry and the Board of Investments] was to suggest and push for changing those rules, so that the Peza framework could now allow building owners to designate and apply their buildings for Peza accreditation,” Ayala added.

The immediate result was the accreditation of the RCBC Plaza in Makati City as as the first Peza-certified building—a site that became a magnet for BPO firms despite the lingering effects back then of the 1997 East Asian financial crisis.

“If that had not taken place, a BPO coming here might have been told by the government, ‘you must locate in Mariveles,’” the Ayala executive said. “In such a situation, there is no doubt that the take off would have been much slower.”

“It’s like drilling for oil,” he said, crediting the BPO sector’s backers at the trade department for pushing for the rule change. “You have to go where the people are. Export processing zones are quite far from urban locations. So this change allowed BPOs to ‘drill for oil’ by looking for the best people where they were.”

After that, selling the Philippines to foreign firms as an outsourcing destination became a lot easier.

Another BPO industry pioneer, ICT Group president Karen Batungbacal recalled how critical it was for a concerted effort between the public and private sectors to jointly push the country as a product to potential investors.

“Back in 2000, I approached DTI to talk to [then] Secretary [Mar] Roxas and he quickly came on the bandwagon,” she said. “He understood that it was a ‘country sell.’”

Selling RP

Batungbacal said that in the BPO industry, foreign locators and their clients first had to be convinced about the viability of a particular country—its political, social and economic potentials—before even taking a look at individual firms offering their services to them.

This is where companies like Gartner—with its broad influence in the information technology industry—were critical to the country’s success.

“It was very important because companies would refer to consultancy firms or research firms if they wanted to locate offshore,” she said. “We needed to sell the country first.”

“Whenever I approach a potential client, the first hour or two would be about the country,” the ICT Group chief said. “Only after they are convinced about the country’s feasibility would I be able to talk about my company.”

With the public and private sectors focused on this goal, the BPO sector grew into a $6.1-billion-yearly industry with close to 400,000 employees today—and aiming for one million in just a few years.

“We are not resting on our laurels,” Business Process Association of the Philippines president Oscar Sañez said. “We are now focused on making sure that this industry is sustainable over the long run.”

Indeed the BPO sector is now widely credited as one of the industries that helped the country weather the worst global economic crisis since the Great Depression.

In the end, the sector’s success is all about having foresight, the cooperation of government agencies and the private sector, dogged determination and—according to former Board of Investments managing director Gregory Domingo—that crucial dinner between top officials of DTI and Gartner in 2001.

“That opened the doors of the world for us,” he said. “It changed everything.”

Purpose-driven competition among telcos needed

WHEN TELECOMS promise to create a limitless world for Filipinos, to what extent should consumers believe?

Recently, the country’s telecom providers have been aggressively competing to win consumers in the “unlimited” market. Indeed, their new unlimited offers are reflections of the new vigor of the Philippine telecommunications industry. But are local telecoms able to help Filipinos break new grounds and embrace truly unlimited opportunities?

High but not perfect

In economics, perfect competition is defined as the scenario wherein firms end up taking the prevailing market price. Although competition in the industry is deemed high and intense, telcos still maintain some degree of power to set their own prices.

In the same breath, however, telcos must always keep in mind that there exist competitors who can take away customers from them and that new players may freely enter the industry at any time. As a result, local telecoms are always wary about the prices they charge and the kind of services and products they are offer. As such, the local telecoms industry is often described as monopolistically competitive—that is, even if the industry is not working within a perfectly competitive setting, it is still considered highly competitive.

In the Philippines, those that are aggressively competing against each other are the Philippine Long Distance Telephone Co. (PLDT), Globe Telecom, Digitel Mobile Philippines (Sun Cellular) and Bayan Telecommunications. While there are a host of smaller players operating throughout the country, these few are considered the telecom industry’s leaders.

Defining telecom’s competitive edge

Through the years, each of these four major telcos has carved its presence in the market. The past five years saw how each company tried to locate its niche in the market.

Faced with a cutthroat competition, telcos introduced new products and services at affordable prices. The industry has experienced new heights in wireless landline services, broadband, and mobile text and call services.

For example, Bayan became one of the pioneers in wireless landline services in the country. By offering its products such as Bayan Span and Bayan Wireless Landline, Bayan experienced a major turnaround in part due to the success of its wireless landline services. This success has prompted rivals PLDT, Globe, and Sun Cellular to offer their own wireless landline services as well.

PLDT launched its Landline PLUS by means of intensive advertising campaigns equipped with big names in the entertainment industry—Marian Rivera and Edu Manzano. Sun Cellular also utilized the same strategy by enlisting superstar Judy Ann Santos to promote its wireless landline, while Globe recently unveiled its mobile-landline unlimited services referred to as Duo.

The market for broadband services has also become a new arena for competition among telcos. After PLDT tested the waters for wireless broadband services (via Smart Bro), Globe and Sun Cellular were also quick to offer the same service. By a strategic re-branding of its wireless broadband product into the brand name, Tattoo, Globe has joined PLDT and Smart as a growing provider of wireless internet services. For its part, Bayan was also quick to position itself as a reliable partner for wired broadband services by its Satisfaction Guaranteed and “Bayan DSL, Ang Dali” campaign.

But if one will have to select the best determinant of heightened competition among telecoms, it would be the industry’s fascination over unlimited offers for texts and calls.

Sun Cellular pioneered the introduction of cheaper packages that include unlimited texting and calling. Sun Cellular offered a package, giving away intra and inter network call and text services, for as low as P10 only. Globe also brought into the market a series of unlimited offers such as Unlitxt, Sulitxt and Unlicalls Night—offers that provided unlimited texting and calling services for as low as P15. For its part, Smart initiated its Smart Talk promo that allows subscribers to host unlimited intra-network calls for only five days.

Some industry players have also issued other pioneering products and services. In 2008, Smart launched the Plug ‘N Talk USB communication device which allows those outside the Philippines to communicate from an Internet-connected computer to any Philippine number. Globe has also launched iPhone 3G and Blackberry. These new products feature 3rd generation wireless technology, GPS mapping and Wi-Fi capability.

The need for a purpose-driven competition

To a certain extent, the description that the telecommunications industry is highly competitive does hold some water. Through the years, cheap telco products and services have flooded the market.

Since the start of the Ramos administration’s deregulation efforts in 1993, the Philippines has slowly become a global leader in the use of short messaging services or SMS. Anecdotal evidence suggests that prior to deregulation, it could take almost one year for a customer to get a telephone line.

Now, some telecoms even promise to connect broadband or landline services within forty hours. While it’s true that consumers are probably better off in terms of quality of service and reasonability of the prices of telecom products today, there remain some missing blocks that, when completed, can pave the way for more purpose-driven competition.

The Philippines is still home to a low broadband penetration rate relative to its Southeast Asian counterparts such as Malaysia and Thailand. Coupled with that is the fact the country is also one of the developing countries with inadequate telecommunication facilities. Most of the reliable facilities are confined in the Metro Manila and the urbanized cities of Luzon.

Still, a lot of areas across the archipelago are not able to experience seamless mobile and broadband connections. These circumstances highlight the need for the industry to invest in and develop facilities that will sufficiently respond to the demand of potential consumers in the countryside.

Indeed, more Filipinos are able to access telecom products and services than the time when the industry was still under a monopoly. However, it must be emphasized that the broadband packages in the Philippines are more expensive than the packages available for our neighbors.

A 3-mbps unlimited plan in Singapore only costs around P800 while our 1-mbps packages are priced not less than P1000. While the industry can be credited for creating a series of packages for consumers, firms must be able to deal with providing faster connections at reasonable prices. For instance, except for Sky Broadband’s 12-mbps offer, most of the firms are only able to offer a maximum of packages with a speed of 2-3 mbps. To expand access and intensify their penetration of the market, telecoms should be more creative in designing cheaper yet reliable packages.

The Asian Development Bank also reported that telecoms are not yet maximizing e-commerce in the country. The support for small and medium entrepreneurs (SMEs) in the country is still not that strong. Sure, PLDT has its SME nation program and Globe has its Globe Business products. But the fact remains that majority of SMEs are still outside the scope of the SME support services provided by local telecoms. Electronic payment system, for instance, is still an unexplored area for many local companies because of the complexity of the process in utilizing the said service.

Connecting the 7,107 islands of the country is really a tremendous challenge for telecom operators. However, with the presence of strong competitors and discerning consumers, telecoms can’t afford to create a room for complacency. Beyond the battle for promotions through million-peso worth of multi-media advertising, telecoms should gear up for a new phase of the competition. After all, millions of those outside Manila and other urban centers are still waiting for improved communication infrastructures to pave the way for a more reliable connectivity.

Not only will industry reforms spell growth for telecoms, these changes will also mean maximization of the industry’s potential to become a pillar of the nation’s development. Having a purpose-driven competition in the industry is a step closer to the industry’s promise of unleashing unlimited opportunities for Filipinos.

Asia-America submarine cable network up by August, says PLDT

PHILIPPINE Long Distance Telephone Co. (PLDT) on Wednesday said the Asia-America Gateway submarine cable network in Northern Luzon would be operational in August this year to serve the rising demand for broadband bandwidth.

PLDT said the consortium has ensured that the quality of engineering and installation work of the 20,000 kilometers AAG submarine cable is not compromised despite challenges like bad weather.

The country’s biggest telecommunications firm said the construction of the Philippine Terminal Station in La Union, as well as the other terminal stations comprising the AAG cable project, has been completed.

The company’s first international submarine cable landing station is located in Nasugbu, Batangas.

The other terminal stations are located in Malaysia, Singapore, Thailand, Brunei, Vietnam, Hong Kong, Guam, Hawaii and US Mainland.

“All land cable installation works have been installed and majority of the submarine cable portion have been laid. [The] remaining submarine cable installation work is expected to be completed this month. Network testing is expected to begin immediately after the completion of the remaining submarine installation works,” PLDT said.

The project costs about $553.63 million, with PLDT committing $50 million for a 9.03-percent share in the venture. Including the Philippine cable landing station, PLDT’s total investment amounted to $62 million, which is financed through internally generated funds,”

The company’s investment in AAG was approved by the National Telecommunications Commission last year.

PLDT will be the new cable network’s landing party in the Philippines and this system will connect Malaysia, Singapore, Thailand, Brunei Darussalam, Vietnam, Hong Kong, the Philippines, Guam, Hawaii and California.

Fernando Sobierra 3rd, PLDT legal counsel, said the project is expected to meet the forecasted explosive growth in the bandwidth requirements of the country for new and revolutionary broadband applications such as Internet protocol, video, data and other multimedia services. It will also provide resiliency and diversity to the existing submarine cable systems.

Eric Alberto, PLDT’s customer sales and marketing group head, said that the AAG project will boost the company’s Internet and business-process outsourcing ventures.

“We expect in two years of at least one million subscribers,” he said.

PLDT posts P20.8 billion profit in 6 months

Telecommunications giant Philippine Long Distance Telephone Company (PLDT) posted a consolidated core net income of P20.8 billion ($433 million), up 11 percent on year, in the first six months 2009, on back of increased revenues, company officials said today.

PLDT's consolidated net income grew 2 percent to P19.7 billion (about $410 million) in the first half of 2009.

PLDT officials reported that consolidated service revenues rose 4 percent on year to P72.9 billion (about $1.5 billion).

Earnings before Interest, Taxes, Depreciation, and Amortization (EBITDA) are stable at P44.1 billion (about $920 million) while consolidated EBITDA margin is at 60 percent of service revenues. Consolidated free cash flow improves to P31.6 billion (about $660 million) for the first half of 2009.

The strong performance of the wireless service unit bolstered PLDT's revenues in the first half. Wireless service revenues increased five percent to P48.1 billion (about $1 billion) thanks to an expanding customer base.

PLDT's cellular subsidiaries, Smart Communications, Inc. (Smart) and Pilipino Telephone Corporation (Piltel) continue to dominate the market, thanks to aggressive marketing, continuous system improvement and offering of more affordable rates to its subscribers. The subscriber base for the first half of 2009 expanded by 16 percent to P38.5 million.

"We are very conscious of the need to adapt our service offerings to the needs of our subscribers and the economic conditions. We offer the best value at the lowest price," Napoleon Nazareno, President and CEO of PLDT and Smart, said in a statement.

SmartBro, the Smart's wireless broadband service -- through its wholly-owned subsidiary Smart Broadband, Inc. -- continued to expand as its wireless broadband subscriber base grew 26 percent to 689,000.

Wireless broadband revenues grew 30 percent to P2.6 billion (about $54 million) in the first half of 2009.

Fixed-line service revenues increased by 3 percent to P25.4 billion (about $530 million) on significant gains in data revenues, both from corporate data and residential services. E-PLDT, the group's information and communications technology arm, reported service revenues of P5.2 billion (about $108 million) in the first half of 2009, up 5 percent on year.

"While our first half performance remained robust, we are slightly concerned about what the second semester may bring the third quarter is traditionally the slowest one in the year and we worry that the adverse effects of the global economic crisis may have a lagged effect on our economy," PLDT Chairman Manuel V. Pangilinan said in a statement.

Despite these concerns, Pangilinan is optimistic that PLDT will continue to perform strongly for the rest of the year. He expects PLDT to post a core profit of P41 billion (about $854 million) for 2009.

"We are seeing some signs that consumers generally may be wary about spending or committing to spend. Nonetheless, I remain confident that we are up to the challenge. We have faced tough times before and come out a stronger and better company," he said.