Dinosaurs and Competition
Monday
Feb 7, 2005
According to an article from the February 4, 2005 issue of Inquirer, Pilipino Telephone Corp, or Piltel, a subsidiary of Smart Communications, selling through the Talk and Text brand, wants Sun Celluar, a subsidiary of Digital Telecommunications Philippines Inc. (Digitel) to put a stop to its 24/7 scheme. To the uninitiated, Sun Cellular late last year launched a pricing scheme where a subscriber (whether postpaid or prepaid) can avail of unlimited calls and SMS within the Sun network for a flat rate of PhP 250 (about US$ 4.50) a month or PhP 100 (about US$ 1.80) for ten days (available to prepaid subscribers only).
According to Piltel, Sun’s flat-rate scheme is predatory in nature, but Digitel’s response was that it was not “engaging in predatory pricing since it is not
a dominant player in the cellular industry,” inasmuch as Smart Communications operates one of “the two dominant cellular firms with more than [combined] 95 percent of the market” while Digitel
Mobile had less than five percent.
Any economist worth his or her salt would agree that Digitel’s actions are not predatory in nature, given that it is not the dominant player. Further, to a consumer’s point of view, Piltel is stifling competition. Many mobile users welcomed the concept of a flat-rate calling and texting scheme, which is prevalent in more developed countries, in particular those in West Europe and North America.
To date, most of my family (my wife, my mother, and four of my siblings) had switched to Sun Cellular, or at least acquired an extra mobile using the Sun network. A good number of their friends did likewise. This increase in our network of Sun users would translate to savings for us, since we no longer have to spend PhP 6.50 (about US$ 0.12) per minute for calls or PhP 1.00 (US$ 0.02) per text message sent. I remember I used to rack up more than PhP 2,000 (US$ 36.40) a month in cellular bills with my old Smart postpaid plan before I switched back to prepaid (Globe and Sun) so I could better control my spending. Now, with my Sun line on 24/7, I don’t have to worry about overspending whenever I get in touch with my family at home via mobile (but as for the ease of calling–think “Network busy,”–that’s another story).
Piltel’s reasong reflects the dinosaur-like business model most enterprises in the Philippines have continued to adopt (i.e. big, slow, inefficient, slow to evolve, and perhaps nearing extinction). This provides a very unhealthy climate to entrepreneurship and innovation. One may note that even the Philippine Long Distance Telephone Company (PLDT), the dominant landline provider (and the mother company of Smart and Piltel) also fell victim to a cease-and-desist order barring the company from offering a flat-rate NDD calling rate of PhP 200 (US$ 3.64), along with a similar service by Globelines (the landline subsidiary of Globe). Now stories like this would scare investment away (temporary restraining orders or TROs are, indeed, very powerful weapons here in this country).
The present Administration’s Medium-Term Philippine Development Plan (MTPDP) lauds the private sector as an important partner in achieving economic growth and development. But with how things are going, I may begin to think otherwise.
See inq7.net story below (click for more).
Piltel wants to stop Sun Cellular ‘24/7′ promo
Posted: 6:30 AM | Feb. 04, 2005
(from inq7.net)
Inquirer News Service
PILIPINO Telephone Corp. (Piltel), a unit of Smart Communications
Inc., is asking the National Telecommunications Commission to stop
Digitel Mobile Philippines Inc.’ Sun Cellular service brand from
offering its “24/7″ promotional scheme.
The “24/7″ promotion that provides unlimited intra-network calls and text messaging for a flat fee of P250 per month.
Piltel wrote the NTC that its rehabilitation was
“under grave threat and peril due to the unwarranted action of Digitel
in importing rates arbitrarily.”
Publicly listed Piltel is expected to record a 2004 net
income of more than P7 billion and a 2005 profit of at least P3
billion. Its Talk ‘N Text brand counted 4.2 million subscribers as of
end-September.
Digitel Mobile is a unit of publicly listed Digital
Telecommunications Philippines Inc., which continues to be in the red.
Its Sun Cellular brand had about 1.1 million subscribers as of
end-2004.
Piltel accused Digitel of unilaterally imposing a new
rate scheme without NTC approval. It asked the commission to issue a
cease-and-desist order against Digitel’s “24/7,” which it said
constituted predatory pricing, and to impose sanctions on Digitel for
violating due process.
Digitel Mobile senior vice president William Pamintuan
said his company was not “engaging in predatory pricing since it is not
a dominant player in the cellular industry.” He said Piltel’s parent
Smart and the Ayala group’s Globe Telecom Inc. were “the two dominant
cellular firms with more than 95 percent of the market” while Digitel
Mobile had less than five percent.
Pitel said Digitel Mobile “priced its service at a level
where no new market entrants in the cellular market can still compete,
and that any losses Digitel may incur at the moment may be recovered
later on when it has severely weakened its competitors and successfully
driven them out of the market.”
It said Digitel was charging a wholesale rate of P4.50
per minute, while its own subscribers have unlimited access for P250 a
month or P100 for 10 days.
“Piltel by itself is charging its subscribers an average
retail [rate of] P5.50 per minute and has not embarked on an atrocious
wholesale pricing scheme,” the company said.
The NTC said it would study all telecom wireless and
fixed-line pricing schemes, given the issue of whether major players
were engaged in predatory landline pricing at the expense of smaller
operators.
NTC Chairman Ronald Solis also said the commission
supported the lowering of telecom rates to benefit the public but it
should also guard against ruinous competition that would prevent
smaller players from operating.
With INQ7.net
Related Story:
Sun lashes out at Smart, Globe
Posted 06:12pm (Mla time) Feb 06, 2005
By Clarissa Batino
Inquirer News Service
(from inq7.net)
SUN
CELLULAR has accused Smart Communications Inc. and Globe Telecom Inc.
of using their smaller wireless units to prevent the Gokongwei-owned
Digitel Mobile Philippines Inc. from attracting more subscribers using
its 24/7 unlimited, within-network plan.
“These two giants that are
raking in billions in profits yearly are trying to prevent us from
offering good value and better alternative to consumers instead of
reviewing their own pricing mechanism and giving back some of their
gains to their subscribers,” said William Pamintuan, Digitel senior
vice president, who was referring to the rival telcos.
Pamintuan
pointed out that in other countries like the United States, calls
within network are unlimited for a certain fee, just like Sun Cellular.
Globe’s
Innove Communications Inc. that operates Touch Mobile and Smart’s
Pilipino Telephone Corp. that runs Talk N’ Text have asked the National
Telecommunications Commission in separate petitions to stop Digitel’s
Sun Cellular fromoffering the 24/7 plan.
Innove and Piltel
have accused Sun Cellular of predatory and discriminatory pricing.
Globe ended 2004 with 12.5 million subscribers while Smart is expected
to announce a customer base of more than 19 million for the same year.
Sun Cellular said it ended 2004 with more than 1.1 million clients.
The
NTC is scheduled to dialog with the executives of the three wireless
players Monday to see how these issues could be resolved.
According
to the Digitel official, the regulator could not protect the duopoly of
Globe and Smart that are already making huge profits at the expense of
consumers, who stand to gain from Sun Cellular’s 24/7 plan.
Pamintuan
said predatory pricing could only be applied to dominant players. Sun
Cellular, which has less than 5 percent of the market, cannot be
considered as such, he said.
Despite the challenges, Sun Cellular
is expanding its network daily to meet the growing demand, Pamintuan
said. The company now has more than 1,300 cellular sites as it
approached its second year of operations in March.
Pamintuan
explained that the 24/7 plan is on top of the monthly service fee
required of every subscriber. For instance, subscribers to Sun
Cellular’s lowest postpaid plan of P350 could avail themselves of the
plan by buying the P250 or P100 card.
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