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 Merging Smart & Sun not good for consumers?

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PostSubject: Merging Smart & Sun not good for consumers?   Wed Mar 30, 2011 11:42 pm

PLDT now has an overwhelming majority of the telco business in the Philippines — it owns Smart, Talk ‘N Text, Red Mobile and now Sun Cellular representing more than 70% of the subscriber base combined {see earlier story here}.


PLDT’s investment in Digitel (and effectively owning Sun Cellular) does
not seem to make sense in terms of positioning. PLDT already has Smart
as the premium network while Talk & Text is positioned at the other
end of the prepaid spectrum (sachet economy). And then there’s Red
Mobile which has only recently found a niche in the “unli” segment —
obviously to counter Sun Cellular encroaching into its low-end
subscriber base.

It is possible that despite PLDT’s heavy investment in Red Mobile, it
still failed to prevent Sun from becoming a strong alternative (either
as a secondary subscription or an “unli” vertical). This was evident
when Sun was the first telco to actually hit the 1 million postpaid
subscriber mark, way ahead of Globe and Smart. Granted, the ARPU with
Sun Postpaid is way lower than Smart Postpaid subscriber, the fact still
remains that on the low-end segment, Sun is growing very fast.

Here’s a rough breakdown of subscribers* by brand in 2010:

Globe Telecom – 14.4 million (up from 13.8 million in 2009)
Touch Mobile – 11.8 million (up from 9.3 million in 2009)
Sun Cellular – 16 million (up from 10 million in 2009)
Smart – 25.7 million (up from 24.2 million in 2009)
Talk ‘N Text – 19 million (up from 17 million in 2009)
Red Mobile – 950,000

The new combined subs of PLDT, if we are to include Sun Cellular, is
now 61.7 million or 70% of the 87.9 million total (active SIMs, not
unique subscribers). That’s not counting the over 400,000 Digitel
broadband subscribers that will be added to PLDT’s 2 million subs.


In my recent discussion with a Sun Cellular executive, I mentioned that
their role in the 3-way contest (Smart, Globe & Sun) is very
crucial to the market and despite some of their shortcomings, consumers
are happy Sun is doing a good job in competing with the big guys.
They’re essentially the equalizer and a disruptor at the same time —
making sure that rivals Smart and Globe are not locked into a perpetual
stalemate.

I must admit that PLDT’s move to buy majority share of Digitel is a
really smart one (no pun intended). First, if Sun continues to woo in
the low-end market away from Smart/TNT/Red/Globe/TM, PLDT still wins.
Second, Smart can learn a lot from the subscriber data that Sun has and
could use it to strengthen its offers to postpaid subscribers. Third,
PLDT can now utilize the additional frequency and the network that
Digitel has rolled out across the country (Sun Cellular’s 3G network has
nationwide roll-out already). Fourth, this will put Globe Telecom at a
very odd position on just so many levels (so who’s gonna be the
undisputed No. 1 on postpaid now?).

The only disadvantage I can see here is that Red Mobile can no longer
throw punches at Sun Cellular with those hard-hitting TV commercials.

However, I don’t think there will be a consolidation of subscribers
(merging Sun & Smart in the process). Sun will remain Sun, just like
how PLDT separated Red Mobile and Talk ‘N Text for segmentation. The
move is more like neutralizing the competition before it becomes more
rabid.

So how does Smart and Sun Cellular becoming sister-companies be
detrimental to the consumers at large? Well, here are some possible
scenarios:

  • Say goodbye to the price wars (though not really entirely gone).
    From being a 3-way contest, it’s now down to 2 — PLDT vs. Globe. Smart,
    TNT, Red Mobile and Sun Cellular will hold an overwhelming 70% share
    while Globe is reduced to the remaining 30%.
  • Switchers no more. Subscribers who switched from Smart to Sun
    Cellular might feel slighted because they’re now technically back to
    the Smart network they left behind.
  • Smart’s weakness is now Sun’s disability. By association, whatever
    reason people didn’t like with the Smart network will infect the
    reputation of Sun’s network.
  • One less choice to make. That’s pretty much self-explanatory.

On the other hand, there are also benefits to this merger in some form or another.

  • Wider network coverage for existing Sun subscribers, especially with 3G mobile internet.
  • Smart can increase its network capacity if it is able to use Sun’s
    assigned frequency (same way Smart expanded with the purchase of CURE’s
    3G frequency). That could translate to a less congested network and
    improved wireless connectivity (I hope).

Here’s a thought though — with the very saturated mobile market in
the Philippines, I noticed that growth in subscriber base for Smart and
Globe have slowed down significantly in the past couple of years except
for Sun Cellular which posted an unprecedented growth of about 60%.

The only other way to get new subs is to poach them from other networks so the saying that “if you can’t beat them, buy them
makes perfect sense here. This move will effectively pad PLDT’s
over-all growth by year’s end and that’s going to do wonders with the
stock prices (and making their shareholders happy).
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