I.

Marketing Background

A. Overview of the Industry

Market Size

The telecommunications industry has a notably large market size within the Philippines with

approximately P317 billion in value by 2015 as estimated by The Economist Intelligence Unit. They

have also forecasted that by 2016, the market size in value of the industry would have reached P344

billion.[1] A study conducted by BMI Research forecasts that the number of subscriptions will continue

to grow, reaching 121 subscription per 100 people by 2019.

Number of cellular subscribers will also be expected to rise from 27% on 2013 to 47%.[2] The

Economist Intelligence Unit forecasts that the number of mobile-phone subscribers in the Philippines

will grow by 5.3% a year on average in 2015-19, which is short of the 8.4% growth recorded in 2010-

14. [3]

Graph 1. Cellular Mobile Subscriber Growth taken from Euromonitor International 2015[4]

Revenues from mobile subscriptions are projected to grow, averaging 12.3% a year in from 2015 to

2019, compared with 2.4% annual revenue from 2010 to 2014. By 2019, mobile revenue is forecasted

to reach almost P340 billion.[5]

Industry-wide, postpaid subscribers make up roughly 7.32% of total subscriptions versus the prepaid

subscribers occupying 92.68% of the pie. These percentages are calculated from the total number of

subscribers for postpaid and prepaid [6] in 2013 found in the Buddecomm Report.

Chart 1. Breakdown of total subscriptions into postpaid and prepaid[7]

There are three telecommunications companies offering postpaid plans: Smart Communications, Sun

Cellular, and Globe Telecom. Of the three, Globe Telecom holds the biggest portion of total postpaid

subscribers at 45.43%, followed by Sun Cellular at 34.15%, and lastly, Smart Communications at

20.42%. These percentages were calculated based on 2013 data taken from the Buddecomm Report

[8]and Globe Telecom’s financial statements.[9]

 Chart 2. Breakdown of total postpaid subscriptions into percentage held by Globe, by Sun, and by Smart

In addition, according to Globe Telecom’s financial statements, the firm experienced a 9% increase in

postpaid subscriptions between 2013 and 2014. Postpaid subscribers constitute only 4% of Globe’s

total subscriptions. However, 84% of revenue from mobile subscriptions are from these subscriptions.

Globe Telecom expects these postpaid subscriptions to continue to rise. [10]

Consequently, the improvement of technology has become evident in the increase of smartphone

sales in volume, as well as overall mobile phone sales within the Philippines. This is shown in the data

below.

Graph 2. Mobile Phone Sales taken from Euromonitor International 2015[11]

Graph 3. Smart Phone Sales taken from Euromonitor International 2015[12]

Euromonitor forecasts that smartphone sales, and mobile phone sales in general, will continue to rise

well into 2018. Note that the increase in smartphones and mobile phones are not directly proportional

due to the steady decline of feature phones. Filipinos are now opting for smartphones due to the

wealth of features such as the ability to listen to music, watch videos, surf the net and use mobile

apps. [13]

The youths, aged 13-19, are seen as a lucrative market to tap into by the telecommunications industry

as they make up 14% of the total population. According to a Buddecomm report, this is the reason

why many mobile operators are creating local content targeting this sector.[14]

As of 2015, Smart holds around 50% of total mobile subscribers, Globe holds 32% while Digital

Mobile Philippines (Sun Cellular) holds 16%, according to the National Telecommunications

Commission (NTC).[15]

Market Trends (Past 3-5 years)

1. Increase in Internet Usage

In recent years, awareness of internet and subsequent internet usage has increased in the

Philippines. The Economist Intelligence Unit expects the number of internet users in the Philippines to

continue to grow rapidly as Internet-enabled devices become more affordable and commonplace. Its

projection for the number of internet users by 2019 is expected to exceed 78 million (or over 72% of

the population).[16]

Telecommunications companies are recognizing this trend and responding accordingly. Due to

slowing growth in traditional areas of the telecommunications market and rising growth in new areas
of demand such as broadband internet, major players in the local market have started to invest

heavily in the expansion of broadband access and looking at both wired and wireless broadband

platforms to provide coverage, as well as looking forward to next generation offerings to deliver value

added service to customers. However, the service was still not generally affordable for the majority.

The broadband penetration rate of just 7% of the total population in early 2014 recognized this.[17]

PLDT reported that its 3G network covered 71% of the Philippines' population by the end of 2012, and

that it had 1,000 LTE sites operational. By December 2013 PLDT unit Smart had deployed 4G Long

Term Evolution (LTE) mobile cell sites at a total of 1,000 locations across the country. This meant that

Smart’s 4G network coverage was serving approximately 78.4 million Filipinos (85% of the

population). Smart said that it ‘aims to capitalize on this lead in 4G footprint and invest more on its

wireless network as it anticipates an explosive growth in data traffic’.[18]

2. Postpaid Plan Customizability

In the arena of postpaid plans, a majority of the main players are offering ways of customizing

postpaid plans according to the needs of the user’s lifestyle. Smart Communications, for instance, has

Surf-Plus Plans, which allow users to choose based on the data allowance that “suits their style”[19];

All-In Plans, which are “fully customizable, consumable plans” which allow users to mix and match

call, text and data services every month to suit their whims[20]; and the sim-only Freedom Plan with a

built-in P600 limit, which lets users build their plans starting from P0 with a variety call, text and data

add-ons[21]. Globe Telecom, on the other hand, has rolled out its myLifestyle Plan, which comes with

built-in unli calls and texts to Globe/TM, and which offers a wide array of digital content from which

users can pick packs that suit their needs and add on top of the base features[22]. This trend in

customizability also reflects the trend of increased internet usage, with people using their phones for

data and other applications rather than just the traditional texts and calls.

3. Phone-and-Plan Bundles

Another trend in postpaid plans is that now they are often cross-sold along with phones.

Postpaid plans have also become a way for users to get new phones without having to pay out the full

amount on the outset. In addition, Smart Communications and Globe Telecom often have publicized

launches for hotly-anticipated phones such as the iPhone 6 and the Samsung S6. Smart

Communications has iPhone Plans for a wide range of prices, with a varying amount of cash-out or

installment per plan[23], and Android One powered devices for the same scheme. Globe Telecom has
a similar offering for the new versions of the iPhone and the Samsung S series, with the addition of an

iPhone Forever Plan which allows users who already own an iPhone to swap it for the newest version

whenever it is released, as long as they are on the 13th to 24th month of their iPhone Forever Plan.

[24]

4. Rewards Systems

Postpaid and prepaid subscribers can now avail of a rewards system with Smart

Communications. By using Smart services such as calling or texting, they can earn points which they

can accumulate and later redeem for items such as bill rebates, internet bundles, load, Spinnr music

credits, and more. [25] Globe Telecom has also been following the trend, though it offers rewards

mostly to its postpaid plan subscribers. They can redeem items such as prepaid game cards, unli

Facebook, bill rebates, and even use their points to pay their bills. [26] They also have membership

cards in place, such as Globe Platinum and Globe Blue, that allow users to “treat [themselves] to a

cup of coffee [and] buy dinner for [their] friends”, even share their points or give redeemed items as

gifts to loved ones.[27] Postpaid and prepaid subscriptions are no longer just about call, text and data

services, but also serve as loyalty programs.

B. Market Profile

According to the NTC, the pricing for monthly subscriptions ranged from a low of 300 pesos to

as much as 4,000 pesos for Globe and Smart. Because of the premium prices of the postpaid plans,

most of the subscribers are from the upper A and B classes and some from middle to upper C class.

The base plan of 300 pesos consisted of a fixed number of calls and texts while the premium plans

offered LTE and 4G service as well as unlimited calls and texts to other networks.[28] From the

group’s preliminary research and focus groups, 65% of those interviewed were committed to a

postpaid plan, while 35% still use prepaid. All fifty participants of the group’s study belong to the A, B

and upper C classes.

Although growth in SMS market has already reached maturity with over 106% mobile

penetration as of 2014, Filipinos were reported to still be sending close to two billion SMS messages

every day. Hence, the country has remained at the top spot as compared to other Southeast Asian

countries in terms of SMS volumes and usage levels. [29]The group’s preliminary research data and
 focus group supported this research with an average of 75 texts per day from 67% of the consumers.

People who send an average of 100 to 300 texts a day make up the other 33%.

Voice calls have remained to be a small percentage of usage in mobile plans here in the

country. The average person spends less than 100 minutes per month in calling.[30] In fact, the

revenue from Globe’s fixed voice services amounts to 4% only of its total revenues in 2011 and 2012.

[31]In fact, from the group’s preliminary research data, 42% of consumers only make 1 to 10 calls a

month, and 85% of the consumers average from less than 1 minute to 5 minutes of call.

The LTE and 4G wireless broadband connectivity plans for postpaid subscribers have been very

popular to the consumers ever since Smart and Globe launched their projects in 2011 to 2013. Local

telecoms firms have only recently begun to offer high-speed Internet connections at affordable prices.

In 2014 there were an estimated 10.3 million mobile internet subscribers in the Philippines, more than

twice the number in 2011. The consumers take advantage of the mobile data to surf the internet, visit

social media sites like Facebook, Twitter, and Instagram, blog online, communicate with friends or

relatives through video calls, and check their emails. [32]The group’s research data showed that 97%

of the consumers all use internet on a daily basis and 63% spend an estimated 4-7 hours in internet

surfing, chatting, social media and movie streaming every day.

Based on market trends, the number of mobile Internet users in the Philippines is expected to

continue to grow rapidly as Internet-enabled devices or smart-phones become more affordable. This

is because of the production of alternative brands and substitutes. The NTC considers the mobile

Internet to be a value added service with no licensing requirement.[33]

Graph 4. 3G & LTE Subscribers taken from Philippines Telecommunications Report[34]

In the recent years, the use of GCash or digital wallets has been growing in the middle C to D class.

The more than 100 million mobile phone subscribers in the Philippines have made the country the

world’s foremost text messaging market. However, the nation’s traditionally low credit card penetration

(less than 5%) hampers full participation in online commercial activities. The people who use GCash

do not have access to banks since their credit limits do not meet the standards of most banking

institutions. The popularity of GCash allows the user to send money remittances, buy load, or pay bills

with just one text. Users have utilized this for doing e-commerce businesses and online transactions.
[35]From the group’s conducted surveys, users are familiar with GCash but do not use it because of

access to credit cards or cash allotted by their parents.

With the growing popularity of mobile apps such as Viber, Wechat, Whatsapp, Skype, and

others, the use of MMS or multimedia messaging has been declining. A recent study by the Philippine

Management Review shows that the average consumer sends only zero to one MMS per month. This

low figure is caused by the various developing apps which enable the user to send photos and videos

over by using the mobile internet or wireless connections.[36]

Based on the group’s preliminary research and sample focus groups, most consumers who

use postpaid plans prefer the monthly payment because they do not want to undergo the nuisance of

having to load up several times every month. A majority send about 75 texts a day or more than 2000

texts a month, hence the need for a postpaid plan.

The consumers who prefer prepaid subscriptions on the other hand, prefer the load-basis

payment because of constraints in their monthly budgets. In general, these people also send out

fewer texts to their acquaintances and find no use in paying for texts or calls that will not be used

anyway.

Targeting Teens

From the group’s research data and focus groups, 63% of the teens surveyed make use of

their phones for 4-8 hours a day. This includes activities such as going online, texting or chatting with

friends, surfing the net, checking social media and email, and listening to music. From the group’s

surveys, less than 5% responded that their plans provide the best service, and 60% of the

respondents chose their networks because the parents selected it for them or because their friends

were using the same network. Therefore, giving users more features in a plan will give them

satisfaction in using their plans and will increase their mobile usage in surfing, streaming, and texting,

hence increasing usage and revenues. Satisfaction with the postpaid plan will also be in effect a free

marketing strategy because the consumers will be the one to share their experiences with their friends

and they will encourage their peers to “convert” to a selected network by conformity.

C. Environmental Analysis

Opportunities

1. Strong economic growth

 Gross domestic product (GDP) growth rate in the Philippines is forecasted to be 6.4% by

Asian Development Bank (ADB) in the Asian Outlook 2015. This is primarily driven by recovery in

government expenditure, robust private consumption, investment, and exports. In particular, private

consumption generated more than 60% of the GDP growth in 2014, with consumer spending

increasing by 5.4%. Factors powering private consumption, such as more job opportunities and

moderate inflation, are expected to continue throughout the forecasted period of 2015-2016. [37]

A report by the Philippine Statistics Authority (PSA) has also noted that per capita income in

the first half of 2014 was up by an average of 6.4% year-on-year.[38] This, along with economic

growth being fueled by increased consumer spending, indicates that Filipinos’ willingness to spend on

goods and services has gone up in recent years and bodes well for the telecommunications industry.

2. Continued growth of mobile phone and internet usage

As has been mentioned in previous sections of this paper, The Economist Intelligence Unit

forecasts the continued growth of mobile phone and internet usage. [39]This opens up potential

markets for the current players in the telecommunications industry, and affords them other ways of

capturing new subscribers.

3. Growing popularity of mobile money and online shopping

Since the introduction of SMART Money by SMART Communications in partnership with

Banco de Oro (BDO) in 2002, mobile money penetration rate has increased from an initial 3% to 68%

in 2012. [40]This means that Filipinos can now conduct financial transactions using their mobile

phones, encouraging the growth of e-commerce in the Philippines. In conjunction with this, the

Department of Trade and Industry (DTI) expects the country’s e-commerce market revenues to grow

to $2 billion in 2015, which is double the 2014 sales of $1 billion. [41]With nine out of 10 Filipino

consumers doing their shopping online according to a study commissioned by Visa International

[42]and Filipinos turning to mobile money to settle payments and remittances, the e-commerce market

provides room for innovations and revenue generation.

4. Technological developments

Given the above market trends in the telecommunications industry, companies have worked

to develop various devices and infrastructure in order to meet the consumers’ demands. In particular,

telecom giants in the country are shifting their focus to improving Internet connectivity. In September

2014 Globe and Alcatel-Lucent of France signed an agreement to upgrade wireless network
infrastructure in the Visayas and on the southern island of Mindanao. [43]PLDT has increased its

capital expenditure budget for 2015 by 12% to P39 billion (US$880 million) in order to roll out more

3G base stations and also expand its 4G Time Division Long-Term Evolution (TD-LTE) and

Frequency Division LTE (FD-LTE) infrastructure.[44] These technological developments predicate

new services and offerings that not only cater to the needs of current subscribers, but may also be

capitalized on to acquire new subscribers.

Threats

1. Increased regulation

With the presidential elections coming up in 2016, the uncertainty of the political climate and

the accession of successors to prominent positions will have a significant impact on economic and

business climates. During this period, the new government will be establishing its position in terms of

government investment and regulation of various sectors, including the telecommunications industry.

Increased regulation may hamper operations for a while.

2. Natural disasters

The Philippines’ vulnerability to typhoons and the West Valley fault being ripe for a strong

quake[45] are potential obstacles to the growth of the telecommunications industry. The occurrence of

natural disasters can severely damage properties and infrastructure, possibly bringing down private

consumption due to decreased disposable income, and disrupting telecommunications firms’

operations.

Key Success Factors

1. Large subscriber base

As of 2014, Globe has about 46.8 million subscribers [46]to their mobile services, 2.1 million

of which are postpaid subscribers and achieving 59% of the market share for postpaid services, with

gross additions from the previous year reaching 200,000 with offers for exclusive devices and

innovative postpaid deals that boosted subscriber gains[47]. Teenagers constitute a significant

percentage of these subscribers. A successful postpaid plan brand will be able to penetrate the

teenage demographic by having a large subscriber base, either directly, through awareness from their

peers, or through their parents who are the ones primarily providing them with the plan.

2. Superior infrastructure
Behind every high quality postpaid plan is high quality infrastructure to support the various services

the plan offers. Globe is undergoing several projects to provide nationwide Globelines wireline

infrastructure in its aim for nationwide wireless modernization. [48]These lines create improved

service for calls, texts, voice messages, and internet. With their technology and along with the rise in

demand for internet services, Globe hopes the additional infrastructure can create affordable,

accessible internet to the whole country.

In 2013, Globe became one of the leading telecommunications and technology companies in the

consortium that operates the Southeast Asia-Japan Cable (SJC) submarine cable System, boosting

signal connectivity with the region and with the rest of the world. "The additional capacity generated

by the SJC system is highly cost effective, allowing greater route flexibility, and enabling Globe

Telecom to provide businesses and consumers future support for bandwidth- hungry applications,

consistent with the explosion of mobile Internet and IT enabled services," said Globe President and

CEO Ernest Cu. [49]

Thus, a successful telco is one that has superior infrastructure in order to meet its clients’ growing

demands for data and offer them more features.

3. Partnerships with brands that cater to target market’s needs/demands

A good postpaid plan brand is one that ensures that the features, services and privileges that

it offers are tailored for its clients’ needs, wants, and financial capabilities. Particularly, a postpaid plan

for teens that is in partnership with various lifestyle sectors—such as clothing stores and

entertainment centers—that are chosen based on the teens’ preferences will be in demand.

[1] The Economist Intelligence Unit. Telecommunications Reports. 2015. Web.

[2] BMI Research. Philippines Telecommunications Report – Mobile – Q3 2015. 2015. Web.
[3] The Economist Intelligence Unit. Industry Report – Telecommunications. 2015. Web.
[4] Euromonitor International. Mobile Phones in the Philippines. 2015. Web.
[5] Ibid.
[6] Buddecomm Report. Philippines: Telecoms, Mobile, Broadband and Forecasts. 2014.
Web.
[7] Ibid.
[8] Globe Telecom, Inc. Quarterly Report. 2014. Web.
[9] Ibid
[10] Ibid.
[11] Ibid.
[12] Ibid.
[13] Ibid.
[14] Buddecomm Report. Telecommunications Market. 2014. Web.
[15] The Economist Intelligence Unit. Industry Report – Telecommunications. 2015. Web.
[16] Ibid.
[17] Ibid.
[18] The Economist Intelligence Unit. Industry Report – Telecommunications. 2015. Web.
[19] Smart Communications. Surf Plus Plans. 2015. Web.
[20] Smart Communications. All-In Plans. 2015. Web.
[21] Smart Communications. Freedom Plan. 2015. Web
[22] Globe Telecom. myLifestyle Plan. 2015. Web.
[23] Smart Communications. iPhone Plan. 2015. Web.
[24] Globe Telecom. iPhone Forever Plan. 2015. Web.
[25] Smart Communications. Rewards. 2015. Web.
[26] Globe Telecom. Rewards. 2015. Web.
[27] Ibid.
[28] The Economist Intelligence Unit. Industry Report – Telecommunications. 2015. Web.
[29] Buddecomm Report. Telecommunications Key Highlights. 2014. Web.
[30] Ibid.
[31] Buddecomm Report. Philippines – Telecombs, Mobile, Broadband and Forecasts. 2014.
Web.
[32] The Economist Intelligence Unit. Industry Report – Telecommunications. 2015. Web.
[33] Ibid.
[34] Euromoney Institutional Investor Company. Philippines Telecommunications Report.
2015. Web.
[35] Buddecomm Report. Telecommunications Key Highlights. 2014. Web.
[36] Philippine Management Review. Pricing in Regulated Industries: The
Telecommunications Sector 2014. 2014. Web.
[37] Asian Development Bank. Asian Outlook 2015. 2015. Web.
[38] Taruc, Paolo. “Income increases but so does poverty.” CNN Philippines. Nine Media
Corp., 16 March 2015. Web.
[39] The Economist Intelligence Unit. Industry Report – Telecommunications. 2015. Web.
[40] GSMA: Mobile Money for the Unbanked. Mobile Money in the Philippines – The Market,
the Models and Regulation. 2015. Web.
[41] Dela Paz, Chrisee Jalyssa. “DTI sees doubling of e-commerce market in 2015; pushes
industry road map.” BusinessWorld Online. BusinessWorld Publishing Corporation, 29
January 2015. Web.
[42] Torres, Ted. “9 of 10 Pinoys prefer online shopping.” The Philippine Star. Philstar, 10
March 2015. Web.
[43] The Economist Intelligence Unit. Industry Report – Telecommunications. 2015. Web.
[44] Ibid.
[45] “Phivolcs: West Valley Fault ripe for strong quake.” ABS-CBN Interactive. N.p., 16 May
2015. Web.
[46] Globe Telecom. Globe 2014 Annual and Sustainability Report. 2014. Web.
[47] Globe Press Room. “Globe dominates postpaid market with double-digit growth in
revenues, subscriber base.” 2014. Web.
[48] Globe Press Room. “Globe modernizes Globelines infrastructure in Central, South PH.”
2013. Web.
[49] Globe Press Room. “Southeast Asia-Japan Cable System strengthens Globe’s regional
connectivity. 2013. Web.