Strama Smart Ormita 03092020

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A Strategic Management Paper on Smart Communications, Inc
Thesis · March 2020

DOI: 10.13140/RG.2.2.36322.86727
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A Strategic Management Paper on Smart Communications, Inc.
Miguel Jerone M. Ormita
S140239
SPSTRAMA
Ateneo Graduate School of Business
Hans Clifford O. Yao, Instructor
10 March 2020
STRATEGIC MANAGEMENT ON SMART 2
Table of Contents
1. COMPANY BACKGROUND 11
2. RESEARCH DESIGN AND METHODOLOGY 13
2.1. Internal Data (Primary Data) 13
2.2. External Data (Secondary Data) 13
2.3. Methodology 13
3. Limitations of the Study 14
VISION, MISSION, AND VALUES 15
3.1. Vision Statement Evaluation 15
3.2. Mission Statement Evaluation 16
3.3. Proposed Vision Statement 17
3.4. Proposed Mission Statement 18
4. EXTERNAL ANALYSIS 19
4.1. General Environment 19
4.1.1. Political, Legal, and Regulatory Factors 19
4.1.2. Social and Economic Factors 27
4.1.3. Technological Factors 39
4.1.4. Competitive Forces 50
4.2. Industry Analysis 53
4.3. Industry Structure, Conduct and Performance 53
4.3.1.1. Industry Structure 53
4.3.1.1.1. Industry concentration 53
4.3.1.1.2. Supply concentration 54
4.3.1.1.3. Demand concentration 58
4.3.1.1.4. Nature of product 59
4.3.1.1.5. Entry barrier 59
4.3.1.1.6. Technology 60
4.3.1.2. Industry Conduct 62
4.3.1.2.1. Mobile subscription 62
4.3.1.2.2. Product and service offerings and prices 64
4.3.1.2.3. Network quality and performance 70
4.3.1.2.4. Marketing, advertising and loyalty programs 72
4.3.1.2.5. Distribution 76
4.3.1.2.6. Innovation and strategic partnership 77
4.3.1.3. Industry Performance 77
4.3.1.3.1. Mobile service revenues 77
4.3.1.4. Financial performance 79

4.4. Porter’s Five Forces Analysis 82
4.4.1. Threats of New Entrants: High 82
4.4.2. Bargaining Powers of Suppliers: Moderate 84
4.4.3. Bargaining Powers of Buyers: Moderate 84
4.4.4. Threat of Substitution: Low 85
4.4.5. Competitive Rivalry: High 86
4.4.6. Conclusion 87
4.5. Competitor Analysis 89
4.5.1. Competitor Profile 89
4.6. Mobile Subscriber Market Share 96
4.7. Service Revenue Market Share 98
5. Competitive Profile Matrix 101
5.1. CSF 1: Network Speed and Availability 101
5.2. CSF 2: Product and Service Offerings and Pricing 106
5.3. CSF 3: Financial Flexibility 108
5.4. CSF 4: Subscriber base 111
5.5. CSF 5: Market Adaptability 113
5.6. CSF 6: Strategic Partnership 116
5.7. CSF 7: Customer Service 121
5.8. CSF 8: IT and Systems 126
5.9. CSF 9: Advertising, Promotion, and Distribution 130
5.10. CSF 10: Brand Equity 134
5.11. Conclusion 136
6. External Factor Evaluation Matrix (EFE) 137
6.1. External Opportunities 137
6.1.1. Opportunity 1: Growing demand in mobile internet services 137
6.1.2. Opportunity 2: Increased demand for OTT services 137
6.1.3. Opportunity 3: Advances in digital technology 138
6.1.4. Opportunity 4: Decreasing prices of mobile telecommunications equipment 139
6.1.5. Opportunity 5: Increased spending in communications. 140
6.2. External Threats 140
6.2.1. Threat 1: Participation of third telco 140
6.2.2. Threat 2: Continuous erosion of revenues from classic mobile services 141
6.2.3. Threat 3: Pressure to adopt 5G 142
6.2.4. Threat 4: Tower sharing 143
6.2.5. Threat 5: Law on Mobile Number Portability (MNP) 144
6.3. Conclusion 145

7. INTERNAL ANALYSIS 146
7.1. McKinsey’s 7s Model 146
7.1.1. Strategy 146
7.1.2. Structure 147
7.1.3. Systems 148
7.1.4. Style 150
7.1.5. Staff 152
7.1.6. Skills 154
7.1.7. Shared Values 155
7.1.8. Conclusion 156
7.2. Organizational Diagnosis 159
7.2.1. Internal Management Audit 159
7.2.2. Marketing Audit 160
7.2.3. Finance Audit 162
7.2.4. Operations Audit 165
7.2.5. Research and Development Audit 166
7.2.6. Management Information Systems Audit 167
7.3. Porter’s Generic Strategy 168
7.4. Value Chain Analysis 169
7.4.1. Primary Activities 169
7.4.1.1. Supply Chain Management 169
7.4.1.2. Inbound Logistics 170
7.4.1.3. Operations 170
7.4.1.4. Outbound Logistics 171
7.4.1.5. Marketing and Sales 172
7.4.1.6. Product Use 173
7.4.1.7. Service 174
7.4.2. Supporting Activities 174
7.4.2.1. Firm Infrastructure 174
7.4.2.2. External Networks 175
7.4.2.3. Human Resource Management 175
7.4.3. Technology Development 176
7.4.4. Procurement 176
8. Internal Factor Evaluation 177
8.1. Internal Strengths 177
8.1.1. Strength 1: Strong network infrastructure 177
8.1.2. Strength 2: Competitive product and service offerings and pricing 177
8.1.3. Strength 3: Financial flexibility 178
8.1.4. Strength 4: Strong subscriber base 178
8.1.5. Strength 5: Strategic Partnership 179
8.1.6. Strength 6: Brand Equity 179
8.2. Internal Weaknesses 180
8.2.1. Weakness 1: Fragmented brand portfolio and weakening Sun brands 180
8.2.2. Weakness 2: Slow market adaptability. 181
8.2.3. Weakness 3: Poor customer service 182
8.2.4. Weakness 4: Inferior IT and systems, and digital platforms 183
8.3. Conclusion 184
8.3.1. STRATEGY FORMULATION 185
8.4. Strengths, Weaknesses, Opportunities, Threats (SWOT) Matrix 185
8.5. Strategic Positioning and Action Evaluation (SPACE) Matrix 188
8.6. Boston Consulting Group (BCG) Matrix 190
8.7. Internal-External (IE) Matrix 191
8.8. Grand Strategy Matrix 192
8.9. GE-McKinsey 193
8.10. Summary of Strategies 193
8.11. Quantitative Strategic Planning Matrix (QSPM) 195
8.12. Conclusion 197
9. OBJECTIVES, STRATEGY RECOMMENDATION, AND ACTION PLANS 199
9.1. Strategic and Financial Objectives 199
9.2. Strategic Positioning / Perceptual Mapping 199
9.3. Recommended Business Strategies 201
10. STRATEGY IMPLEMENTATION 206
10.1. Strategy Map 206
10.2. Action Plans and Programs 207
10.3. Financial Projections and Overall Evaluation of Strategies 207
10.3.1. Action Plans and Programs 207
10.3.2. List of Assumptions 210
10.3.3. Projected Income Statement 212
10.3.4. Projected Statement of Financial Position 214
10.4. STRATEGY EVALUATION, MONITORING, AND CONTROL 218
10.4.1. Balanced Scorecard 218
10.4.2. Business Continuity and Contingency Plan 219
APPENDICES 231
Appendix A. Glossary of Terms and Abbreviations 231
Appendix B. Global Comparison of Mobile Service Experience 232
Appendix C. Financial Analysis of Historical and Projected Financials of Smart 234
Appendix D. Scanned Copy of Actual Financial Statements of Smart, 2016-2018 234245
List of Figures
Figure 1. Global Mobile Broadband Coverage (3G or 4G Networks) 22

Figure 2. Combined Service Revenues of Smart and Globe, 2013-2018 26
Figure 3. Revenue Contribution of Mobile Services, 2018 26
Figure 4. Global Consumer Expenditure Growth by Category, 2019 29
Figure 5. Global Mobile Data Traffic and Year-on-year Growth 30
Figure 6. Growth in Internet Users: 2014-2019 31
Figure 7. Time per Day Spent Using Mobile Internet 32
Figure 8. Examples of OTT Services 33
Figure 9. Device Usage in the Philippines 34
Figure 10. Global Smartphone Usage in 2018 and 2025 35
Figure 11. Most Popular Daily Mobile Phone Activities 36
Figure 12. Activities using Smartphones from Consumer Survey, 2018 37
Figure 13. Mobile Traffic Application Category per Month, 2016 and 2022 38
Figure 14. Mobile Traffic Growth by Application Category from 2016-2022 38
Figure 15. Latency Performance for LTE and 5G 40
Figure 16. Bandwidth and Latency Requirement of Potential Use Cases 41
Figure 17. Total Cost of Ownership for Mobile Access Network 42
Figure 18. Percentage of Connection 43
Figure 19. Use Cases for Machine Learning in Telecom 46
Figure 20. The Main Driver of using AI according to Telco Executives 48
Figure 21. Projected Impact of Digital Transformation in Cash-flow Margin 49
Figure 22. Selected Countries Mobile-Cellular Sub-Market HHI, 2014 54
Figure 23. Mobile Infrastructure Vendors Global Revenue Share, 1Q13 55
Figure 24. Philippine Mobile Phone Market Share by Retail Volume, 2019 57
Figure 25. Dominant Mobile Technologies in the Philippines 60
Figure 26. 5G plans in Asia Pacific 61
Figure 27. Philippine Mobile Subscribers 1998-2018 63
Figure 28. Subscriber breakdown in Asia Pacific, 2017 64
Figure 29. Monthly ARPU in Prepaid Services for the Years 2014-2018 67
Figure 30. Monthly ARPU in Postpaid Services for the Years 2014-2018 68
Figure 31. Global Trend in Wireless Services ARPU, 2006-2017 69
Figure 32. Video Experience in East Asia 71
Figure 33. Phl Mobile Network Video Experience and 4G Availability, 2019 72
Figure 34. Phl Mobile Subscription Market Segment Distribution in 2018 74
Figure 35. Mobile Service Revenue CAGR, 2015-2018 78
Figure 36. Fixed and Wireless Telecommunications Revenue Growth, 2019 79
Figure 37. Globe Telecom Transformation House 91
Figure 38. Total Mobile Subscribers, 2018 97
Figure 39. Total Subscribers by Service Type, 2018 97
Figure 40. Total Subscribers by Mobile Brand, 2018 98
Figure 41. Mobile Service Revenues, 2016-2018 99

Figure 42. Mobile Service Revenue Market Share Distribution, 2018 99
Figure 43. OpenSignal Mobile Experience Awards, Philippines, 2019 101
Figure 44. 4G Availability Report, September 2019 102
Figure 45. Video Experience Report, September 2019 102
Figure 46. Download and Upload Speed Experience Report, 2019 103
Figure 47. Latency Experience Report, September 2019 104
Figure 48. Asia-Pacific Rating for Telecom Infrastructure and Performance 105
Figure 49. Rating Headroom by Leverage 110
Figure 50. Customer Support Metrics of Smart and PLDT, 2017-2018 123
Figure 51. PLDT and Smart Organizational Chart 147
Figure 52. Attrition Rate of Smart, 2018 152
Figure 53. McKinsey 7s Model of Smart with Aligned Elements 158
Figure 54. The Extended Value Chain Model 169
Figure 55. SPACE Matrix 189
Figure 56. BCG Matrix 190
Figure 57. IE Matrix 191
Figure 58. Grand Strategy Matrix 192
Figure 59. GE McKinsey 193
Figure 60. Perceptual Map (Network Reliability vs Price) 200
Figure 61. Perceptual Map (Branding vs Product Offering Inclusions) 200
Figure 62. Strategy Map 206
Figure 63. Gantt chart of Action Plans 207
Figure 64. OpenSignal Global Comparison of Overall Video Experience, 2018 232
Figure 65. OpenSignal Global Comparison of Download Speed, 2018 233
List of Tables
Table 1. Select Company Business Information about Smart 12

Table 2. Summary of Strategic Management Frameworks Used 13
Table 3. Evaluation of Smart’s Current Vision Statement 16
Table 4. Evaluation of Smart’s Current Mission Statement 16
Table 5. Evaluation of Proposed Vision Statement of Smart 17
Table 6. Evaluation of Proposed Mission Statement of Smart 18
Table 7. Household Consumption Expenditure in Comms, 2017-2019 27
Table 8. Determinants of Income Class in the Philippines 28
Table 9. Comms Equipment Investment Price Index and Components 56
Table 10. Smart and Globe Telecom Prepaid Products 65
Table 11. ARPU as a Percentage of GNI per Capita 70
Table 12. Product Categories in Philippine Mobile Telecom 73
Table 13. Phl Telecom Selling, Adv, and Promotions Expenditure 75
Table 14. Profitability and Efficiency Ratios in the Industry, 2018 80
Table 15. Leverage and Investment Ratios in the Industry, 2018 81
Table 16. Summary of Porter’s Five Forces 87
Table 17. Globe Telecom Select Company Business Info 89
Table 18. Network Speed and Availability Importance and Rating 101
Table 19. Product and Service Offerings and Pricing Weight and Rating 106
Table 20. Financial Flexibility Weight of Importance and Rating 108
Table 21. Telecommunications Capital Expenditure, 2018 108
Table 22. Financial Performance Indicators for the Year 2018 109
Table 23. Subscriber Base Weight of Importance and Rating 111

Table 24. Subscriber Base, 2018 112
Table 25. Market Adaptability Weight of Importance and Rating 113
Table 26. Strategic Partnership Weight of Importance and Rating 116
Table 27. Customer Service Weight of Importance and Rating 121
Table 28. Average Monthly Churn Rate, 2016-2108 122
Table 29. Company Facebook Page Indicators, January 1, 2020 124
Table 30. IT and Systems Weight of Importance and Rating 126
Table 31. Advertising, Promotion and Distribution Weight and Rating 130
Table 32. Selling, Advertisement, and Promotions Expense, 2016-2018 131
Table 33. Facebook Engagement, January 1, 2020 132
Table 34. Number of Stores Nationwide, 2018 133
Table 35. Brand Equity Weight of Importance and Rating 134
Table 36. Competitive Profile Matrix 136
Table 37. External Factor Evaluation Matrix 145
Table 38. Elements in McKinsey 7s 157
Table 39. Internal Management Audit of Smart 159
Table 40. Marketing Audit of Smart 160
Table 41. Smart Nationwide Distribution Network, 2018 161
Table 42. Finance Audit of Smart 162
Table 43. Financial Ratio Analysis, 2016-20181 163
Table 44. Operations Audit of Smart 165
Table 45. Research and Development Audit of Smart 166
Table 46. Management Information Systems Audit of Smart 167
Table 47. Internal Factor Evaluation Matrix 184
Table 48. SWOT Matrix 185
Table 49. SPACE Matrix 188
Table 50. Summary of Strategies 194
Table 51. QSPM Matrix 195
Table 52. Impact of Strategies on Subscription, ARPU, and Revenue 203
Table 53. Summary of Action Plans and Programs 208
Table 54. Assumptions in the Projected Income Statement 210
Table 55. Assumptions in the Balance Sheet 211
Table 56. 3-year Projection of Income Statement of Smart 212
Table 57. 3-year Projection of Statement of Financial Position of Smart 214
Table 58. 3-year Projection of Statement of Cash Flows of Smart 216
Table 59. Balanced Scorecard 218
Table 60. Business Continuity and Contingency Plan 219
Table 61. Horizontal and Vertical Analysis of Balance Sheet, 2016-2022 234
Table 62. Horizontal and Vertical Analysis of the Income Statement, 2016-2022 237
Table 63. Horizontal and Vertical Analysis of Cash-flows, 2016-2022 240
Executive Summary
This is a strategic management paper on Smart Communications, Inc. (Smart).
Smart is the mobile telecommunications subsidiary of PLDT, it is one of the three players
in the sector. It has been the market leader in terms of mobile subscriber and service revenue. In
a continuous decline of market share since 2013, its rival, Globe, took over as the market leader
in 2017. The market share of Smart continues to decline and is now 10% less than its rival both
in mobile subscriber and service revenue.
In this study, we used several strategic management frameworks to craft a strategy for
Smart in its vision to regain market leadership. Main resources in this study are internal and
external documents about Smart, about the mobile telecommunications industry, and about
competitors.
We began by creating a strong vision and mission statement. We then analyzed external
factors by looking into the general environment, the factors concerning the industry and
competitors, the Porter’s five forces, and critical success factors. Here, we accomplished the
Competitive Profile Matrix (CPM) and the External Factor Evaluation (EFE) matrix. We
proceeded to the internal analysis where we used McKinsey 7s model, organizational diagnosis,
and value chain analysis to identify the strengths and weaknesses of Smart. We also identified
the Porter’s generic strategy being pursued by Smart. The output from this analysis is the
Internal Factor Evaluation (IFE) matrix. The output of the external and internal analysis is a short
list of the major strengths and weaknesses, as well as opportunities and threats for Smart.
The major strengths of Smart are its superior network infrastructure and competitive
product and service offerings and pricing. The major weaknesses are fragmented brand portfolio
including the weakening Sun Cellular brand, and slow market adaptability. The major
opportunities include rising demand for mobile data and rising demand for over-the-top (OTT)
services. The major threats are the entry of the third telco and the continuous erosion of
revenues from classic mobile services.
We used several models in evaluating strategies. With SWOT, we paired the identified
factors in creating strategies. With the Quantitative Strategic Planning Matrix (QSPM) model,
we evaluated three strategies against identified external and internal factors. Here ,we concluded
the best strategies are those supporting Smart's cost leadership. The strategies capitalize on the
company's superior network infrastructure to capture the growing demand for mobile data. It
addresses weaknesses of having a fragmented brand portfolio and poor market adaptability. The
divestiture of the Sun brand and digital transformation are the proposed ways to achieve superior
operational efficiency using advanced digital technologies.
Finally, we created a strategic map, listed action plans, accomplished three-year financial
projections, formulated a balanced scorecard, and identified a contingency plan in implementing
the crafted strategy for Smart.
Given the factors affecting the mobile telecommunications industry today, cost leadership
is the key for Smart to regain market leadership both in mobile subscriber and mobile service
revenue by 2022.
1. COMPANY BACKGROUND
Smart Communications, Inc. (Smart) is a wholly owned wireless communications and
digital services subsidiary of PLDT, Inc, the Philippines’ leading telecommunications company.
Services of Smart include mobile services, contributing to 98% of wireless service revenue in
2018, and home broadband and other services, contributing to 2%.
Smart was incorporated by Filipino investors in 1991 during the deregulation of the
Philippines’ telecommunications industry. In February 1997, with a subscriber base of 360,000,
it became the country’s largest mobile operator. It then became a wholly owned subsidiary of
PLDT in March 2000.
In 2005, Smart demonstrated its readiness in 3G. In 2012, Smart launched 4G. In 2019, it
introduced 5G in some cities in the Philippines.
Smart and PLDT had been aggressive in eliminating competition through acquisition. In
2010, PLDT acquired Red Mobile. In 2011, PLDT acquired majority interest in Digital
Telecommunications Philippines, Inc. (Digitel), consequently acquiring 14.6 million of Sun
Cellular subscribers. To buy Digitel, PLDT had to divest Red Mobile and auction off its
frequencies. In 2011, Smart had a total of over 63.7 million subscribers. Smart and Globe had
now formed the formidable duopoly cornering 96% of the market (Balea, 2011).
Technically, Smart carries three brands, Smart, Sun Cellular postpaid and TNT. In this
study, we also considered the Sun prepaid brand as part of the Smart brands. Details about the
relationship of Smart and Sun brands are discussed in more detail in the Competitor Analysis -
Mobile Subscriber Market Share section. Smart postpaid branding is being strengthened through
the promotion of the Smart Signature brand. TNT, introduced in 2000, remained as the “people’s
brand” while Smart Infinity, introduced in 2004, remained as the brand for premium postpaid
service. Sun Cellular, popular for being the first to provide unlimited calls and texts, is now
similar to the Smart brand, offering both postpaid and prepaid services.
Smart held the highest market share in mobile service for a long time. With the changing
distribution of revenue streams, Smart’s share began to decline towards the year 2016, losing it
to its rival Globe Telecom, Inc. (Globe) as it failed to capture the market shifting towards mobile
data.
In 2018, the government selected the third telco that is expected to be operational in the
second half of 2020. The consolidation of the mobile telecommunications industry to a duopoly
has prompted the government to act in increasing competition.
The mobile telecommunications market is facing various challenges today: the shift
towards mobile data leading to reduced revenue in voice and SMS, the saturation of mobile
subscription market, the development of mobile technology entailing high capital expenditure,
and the intensifying competition, among others. With a total mobile service revenue of Php
81,096 million, a total of 60,499,017 subscribers, and 6,299 employees, Smart aims to reinforce
its leading position in mobile telecommunications in the coming years.
Table 1
Select Company Business Information about Smart, 2018

Information Value
Services Wireless communication
Mobile Service Revenues, Market Share Php 81,096 million, 44.9%
Total Mobile Subscribers, Market Share 60.5 million, 44.9%
Coverage 90% of towns and municipalities in the country
EBITDA, EBITDA margin 29,205 million Php, 34%
Brands Smart (Infinity, Signature, prepaid), Sun

(postpaid and prepaid), TNT
Number of employees 6,299 employees

Source: PLDT and Smart, 2018
2. RESEARCH DESIGN AND METHODOLOGY
2.1. Internal Data (Primary Data)
Primary data includes corporate websites, company reports including annual and
quarterly financial statements with management discussion and analysis (MD&A), sustainability
reports, annual stakeholder presentations, and interviews.
2.2. External Data (Secondary Data)
Secondary data includes industry analysis reports, market research studies, journal
entries, academic studies, government websites, government press releases, government
statistical reports, industry organizations reports, online dictionaries, books, and news reports.
2.3. Methodology
In this study, several frameworks were used in formulating strategies and creating
implementation plans for the strategic management of Smart. Table 2 shows the summary of
frameworks and tools used.
Table 2
Summary of Strategic Management Frameworks Used
Framework Tools Activities Output

10 Essential
Mission Statement Mission and Vision
Components of a
Evaluation/Formulation statements
Mission Statement
External Factor
General Environment
Evaluation Matrix
Analysis Opportunities and
(EFE)
Threats
Porter’s Five Forces Competitive Profile
Industry Analysis
Model Matrix (CPM)
Structure, Conduct, and Performance (SCP)

Framework Tools Activities Output

Internal Factor
David’s Functional
Evaluation (IFE)
Analysis Strengths and
Matrix Company Analysis
Weaknesses
GE McKinsey 7S
GE McKinsey Matrix
Model
IE Matrix
TOWS Matrix
Objectives and
BCG Matrix Strategy Formulation
Strategies
David’s Matching SPACE Matrix
Tools Grand Strategy Matrix
Quantitative Strategic
Recommended
Planning Matrix Strategy Prioritization
Strategies
(QSPM)
Implementing Technological and Action Plans Pro forma
Strategies Product Development Financial Statements
Norton and Kaplan’s Strategy Evaluation and
Performance Measures
Balanced Scorecard Control
3. Limitations of the Study
This study is limited to the mobile telecommunications industry including mobile services
such as mobile voice, SMS and mobile data. It does not include similar wireless services such as
fixed broadband.
VISION, MISSION, AND VALUES
As of 2019, Smart’s current vision statement is “Lead and Inspire Filipinos to Create a
Better Tomorrow”.
Smart current mission statement is “Empower Filipinos everywhere with customer-
focused digital innovations that unlock and share their infinite potential”.
Smart adheres to the following values:
● “Deliver awesome customer experiences”
● “Take care of our people”
● “Collaborate to win”
● “Fast is better than perfect”
● “Malasakit”
● “Humility to listen and learn”
3.1. Vision Statement Evaluation
Smart’s vision in 2018 is “Lead and Inspire Filipinos to Create a Better Tomorrow.”
(Smart, n.d.). As shown in Table 3, the vision is inspiring but it is lacking in clarity. This may
lead to confusion or lack of focus when trying to realize the vision. The vision needs to be more
specific to provide a clear answer to what the company wants to become in the given period.
Table 3
Evaluation of Smart’s Current Vision Statement
Criteria Evident? Remarks

Does it clearly answer the question
No "better tomorrow” is broad and vague
what do we want to become?
a “better tomorrow” for Filipinos is
Is it inspirational? Yes
inspirational
the statement seems concise, but the
Is it concise enough, and inspirational? No message is broad and all-
encompassing
Does it give clear indication as to
No No stated period to realize the vision
when it can be attained
3.2. Mission Statement Evaluation
The current mission statement of Smart is “Empower Filipinos everywhere with customer-
focused digital innovations that unlock and share their infinite potential” (Smart, n.d.). As shown
in Table 4, evaluation shows some components were not mentioned such as markets, concern for
survival, growth and profitability, and concern for employees. Also, some other components were
roughly defined such as products or services, technology, philosophy, and self-concept. Smart
needs to provide a clearer definition of the 10 essential components in mission statement.
Table 4
Evaluation of Smart’s Current Mission Statement

Customer Yes “Filipinos”
“customer-focused digital innovations”
Products or Services Yes statement is a broad description of Smart's
mobile services
Markets No
Technology Yes “customer-focused digital innovations”

Concern for Survival, Growth, and
No
Profitability
“innovation that unlocks potential” roughly
Philosophy Yes
states a philosophy
Self-Concept Yes “customer-focused”
“empower Filipinos, unlock and share their
Concern for Public Image Yes
infinite potential”
Concern for Employees No
Nation Building Yes “empower Filipinos”
3.3. Proposed Vision Statement
The proposed vision statement is “To be the leader in wireless communication in
subscription and revenue by 2022”. As shown in Table 5, the proposed vision meets the criteria
of being clear, concise, inspirational and time bound.
Table 5
Evaluation of Proposed Vision Statement of Smart

Does it clearly answer the question "leader in wireless communication in
Yes
what do we want to become? subscription and revenue"
Is it inspirational? Yes
Is it concise enough, and inspirational? Yes
Does it give clear indication as to

Yes "2022"
when it can be attained
3.4. Proposed Mission Statement
The following is the proposed mission statement:
“We are a company committed to bringing innovative technology in wireless
communication, to empower Filipinos everywhere, and to unlock and share their infinite
potential. We thrive in the dynamic market of wireless communication by focusing on
our customers and equipping our people with the latest technology.”
Table 6
Evaluation of Proposed Mission Statement of Smart

Customer Yes “Filipinos everywhere”
Products or Services Yes "wireless communication"
"wireless communication for Filipinos
Markets No
everywhere"
“innovative technology in wireless
Technology Yes
communications"
Concern for Survival,
No "thrive in the dynamic market"
Growth, and Profitability
"thrive through customer-focus, and
Philosophy Yes equipping our people with the latest
technology"
Self-Concept Yes "customer-focused"
“empower Filipinos, unlock and share their
Concern for Public Image Yes
infinite potential”
Concern for Employees No "equipping our people"
“empower Filipinos, and unlock and share
Nation Building Yes
their infinite potential”
4. EXTERNAL ANALYSIS
4.1. General Environment
4.1.1. Political, Legal, and Regulatory Factors
4.1.1.1. Threat: Regulatory bodies are actively promoting competition in the
industry
The Department of Information and Communications Technology (DICT) is the primary
policy, planning, coordinating, implementing, and administrative entity of the Executive Branch
of the government (DICT, n.d.) while the NTC is responsible for the supervision, adjudication,
and control of the country’s radio communications, telecommunications, and broadcast,
including cable television (CATV) facilities and services. (NTC, n.d).
In the past, regardless of their regulatory powers, the DICT and the NTC failed to
promote competition in the country’s telecom industry as evidenced by the following:
● No remit to annul licenses of unutilized spectrum of existing players
● No redistribution of frequencies to equalize the imbalanced distribution of spectrum
portfolio due to consolidation in the past
● Allowed anti-competition practices.
Recently, however, with the strong influence of the government, the DICT and NTC have
become proactive in ensuring competition in the telecommunications industry as evidenced by
the following:
● Selection of the country’s third telco
● Implementation of the common tower policy (DICT, 2019)
● Finalization of the Mobile Number Portability Act (DICT, 2019)

4.1.1.2. Threat: Common tower policy will accelerate third telco’s network
infrastructure build
"Towers" are the structures used for telecommunications, power, and transmission
service. Tower sharing is the joint use of telecommunications towers and facilities.
In May 2018, the DICT issued rules on common tower sharing. The objective of the
policy is to build or convert at least 2,500 common towers in DICT-owned properties, in hard-to-
access areas identified by the mobile operators, and in the properties of other government
agencies. This policy is a pilot initiative to acquaint Independent Tower Company (ITC) in the
Philippine telecommunications market, and to be the basis of a more comprehensive rules and
guidelines governing passive telecommunications infrastructure sharing. DICT hopes this policy
will optimize the use of capital expenditure of mobile network operators. According to DICT,
there are already 16,000 towers in the country with each mobile operator putting up their own
towers, and 50,000 more are needed.
According to GSMA (2012), the strategic rationale of infrastructure sharing is the shift of
mature networks from deployment to service innovation where network operators will now focus
on cost reduction and optimization of profits and revenues rather than coverage. GSMA
identifies key strategic and commercial drivers as (1) network expansion into underserved areas,
(2) cost reduction, (3) incremental revenue sources, (4) capital and operational expenditure
optimization, and (4) facilitation of market entry.
ITU (2017) cited the impact of infrastructure sharing in countries such as Africa, India,
Kuwait, and other countries. In India for example, passive infrastructure sharing proved to enable
speedy growth and rollout of telecommunications services and brought down capital and
operating costs of network. Another interesting example is in Denmark where one main driver of
promoting infrastructure sharing is to minimize environmental impact to address growing
concern in the health risks from electromagnetic radiation emitted by telecommunications

antennas. Overall, sharing allowed Denmark to have increased coverage, reduced prices, while
competition seems not to have been affected negatively. Some of the trends identified in the
report are (1) expansion into rural or underdeveloped areas, (2) emerging countries are leading
by example, and (3) reduction of emissions.
In September 2019, the joint venture of Malaysia's edotco and Philippines' ISOC
Infrastructure, Inc. announced the setting of combined initial investment of $10 million to build
common towers in the Philippines (Fenol, 2019). The edotco Group is a leading
telecommunications infrastructure services company in Asia headquartered in Kuala Lumpur,
Malaysia with a regional portfolio of over 29,500 towers serving Bangladesh, Cambodia, Sri
Lanka, Myanmar and Pakistan, and now the Philippines (edotco, n.d.). ISOC Infrastructures,
Inc. is ISOC Holdings’ infrastructure unit, the latter being chaired by Megawide Construction
Corp. co-founder MichaeL C. Cosiquien (Arra, 2018). The joint venture aims to build 400 to 500
shared cell sites in its first year. In October 2019, the first common tower broke ground in
Caoayan, Ilocos Sur. Globe and Smart signed an agreement with ISOC-edotco tandem to
construct 150 common towers in the Calabarzon (Cavite, Laguna, Batangas, Rizal and Quezon)
area and in other unidentified areas. The DICT plans to roll out 50,000 additional towers in 10
years (Mercurio, 2019). Twenty-four other tower companies indicated their interest in
participating in the initiative.
The Philippines already has a high mobile broadband coverage for either 3G or 4G,
around as much as 90% of the population as shown in Figure 1. The common tower policy will
be disadvantageous to companies who consider coverage as a competitive advantage. Though
coverage in the country is still mildly insufficient, each of the incumbent already built strong
network infrastructure to provide services to its consumers. The use of common towers will be a
big advantage to the new entrant to speed up its network infrastructure rollout. Nonetheless,
when the initiative was introduced in 2018, Globe has been open and was looking at divesting to
an independent tower company all or part of its tower assets totaling more than 8,000 sites.
PLDT later signed agreements as well on tower sharing. According to Globe, the tower sharing
will help in simplifying the complex process of acquiring permits and right-of-way to site
locations, numbering as many as 26 (Waring, 2018). The operator considers red tape as the cause
of the country's low tower density.
Figure 1
Global Mobile Broadband Coverage (3G or 4G Networks)
Source: GSMA Intelligence, 2014

Note. Coverage is of population.
Tower sharing is also an advantage in the adoption of 5G technology as 5G network is
built on small cell site technology with antennas placed as close as 500ft apart
(VerticalConsultants, n.d.). In a simulation, sharing 5G small-cell deployment and using a
common, nationwide 5G IoT macro layer reduced 5G-related investments by more than 40
percent (Grijpink et al, n.d.).
With the support of the government, of the incumbent and the new entrant, and of
common tower and infrastructure companies, the industry might see itself shifting to tower
sharing in the next 5 to 10 years. This factor is a threat to incumbents in the short-term as it will
expedite the operations rollout of the new entrant. Tower sharing will prompt
telecommunications companies to focus on service delivery and innovation while maximizing
the benefits of expeditious increase in coverage and reduced costs.
4.1.1.3. Threat: Mobile Number Portability (MNP) Law will challenge customer
retention.
The implementing rules and regulations (IRR) for Republic Act 11202 on the Mobile
Number Portability (MNP) law took effect on July 9, 2019. The law allows subscribers to
transfer from one service provider to another without changing mobile number (Marasigan,
2019).
Under the IRR, the original carrier will have a day to verify the request and the whole
transfer must be completed within two days if qualifications are met. Among the qualifications
include not having financial obligations to the provider, no ongoing contract with the carrier, and
number is not blacklisted for fraudulent activities. Moreover, the subscriber should be able to
transfer in between prepaid and postpaid mode of services without being charged with fees.
Finally, no interconnection fee or charge shall be imposed by any mobile service provider for
domestic calls and text made by a subscriber (Marasigan, 2019).
With the MNP law, the DICT (2019) hopes for a more vibrant competition between
mobile telecommunications operators. According to DICT, the law will cultivate a sense of
urgency for telecom companies to deliver only the best service since subscribers now won’t
hesitate to switch networks to get the best value.
In a study conducted in Ghana (Baofo, Kokuma and Arthur, 2015) on the impact of
mobile number portability, among the effects observed were (1) the service charges of one key
player, Airtel, were reduced, (2) the management’s attitude in Airtel, from vigilant to quality of
service, became very vigilant after the introduction of MNP, and (3) most respondents believed
service quality improved after MNP although 15% of respondents believed quality did not
change.
In the Philippines, the Mobile Number Experience Report by Opensignal (2019) shows
the incumbent is at par in terms of quality of service. The product offerings and prices are also
similar. The use of more than one Subscriber Identification Model (SIM) card is common in the
country and subscribers use products and services offered by the two mobile operators to get the
most value. Porting is likely among disgruntled customers in bringing their primary numbers
over to another network without the risk of losing connections. Over recent years, Smart is losing
subscribers over to its rival Globe. If the trend continues, the churn rate of Smart might increase,
and the company will lose more of its customers. This factor is a threat to mobile operators
perceived as inferior among the few options. The MNP law lowers further switching cost,
increases the bargaining power of buyers, and ultimately increases competition.
4.1.1.4. Threat: Global political instability undermines partnerships with mobile
technology developers
This is of importance to Smart as PLDT partnered with Huawei in 2018 in a massive
capital expenditure to overhaul its wireless infrastructure. It sealed a deal amounting to USD28.5
million. (PLDT, 2018).
On the global stage, country governments grew concerns over security with Huawei.
Huawei is a leading telecommunications equipment and smartphone manufacturer. The main
concern is the vague ownership of Huawei (Zhong, 2019), and its close ties with the government
of China. Many fears equipment can be used to spy on companies and individuals, leading to low
penetration of Huawei in the US, and lawmakers urging companies to look for other vendors
(Green & Tibken, 2012). However, it is known that by mid-2018, Huawei overtook Apple as the
second leading phone seller (Keane, 2019).

There are countries who banned Huawei and ZTE from official contracts such as Japan.
Many countries are considering banning Huawei in the future; however, there are also countries
who do not plan to ban Huawei, and even opened way for Huawei to be involved in the rollout
of 5G network (Panettieri, 2019).
In the Philippines, the DICT announced the ban on Huawei in other countries has little
impact on the telecommunications industry and has urged local telecommunications companies to
diversify sources of their telecommunications equipment. (ABS-CBN News, 2019).
4.1.1.5. Threat: Continuous erosion of revenue from classic mobile services
Three factors contributing to the continuous erosion of revenues from voice calls and
SMS include: 1) the implementation of regulation decreasing interconnection costs, 2) the
replacement of classic services by OTT services ,and 3) the inclusion of unlimited voice calls
and SMS in mobile data packages.
The NTC mandates mobile providers to reduce interconnection rate of voice call service
by 80%, from Php 2.50 to Php 0.50. It also requires the reduction of interconnection rates for
SMS by 60%, from Php 0.15 to Php 0.05. The rate should be implemented starting September 1,
2018 (PLDT, 2018).
This directive would be disadvantageous to Smart as the company operates the largest
network infrastructure in the country and derives revenues from interconnection charges.
Revenues from interconnection charges are not divulged by the mobile operators. The new
entrant will significantly benefit from this because it will allow it to put up minimal
infrastructure to provide basic services in voice and SMS. It will ride on the expansive
infrastructure of the existing networks at minimal cost.

Figure 2 shows both voice and SMS revenues follow a downward trend with SMS
showing steeper decline than voice calls. On the other hand, mobile data follows a steep upward
trend.
Figure 2
Combined Service Revenues of Smart and Globe, 2013-2018
Source: PLDT and Globe, 2013-2018
In 2018, mobile data contributes half of total mobile service revenues, while voice
contributes around 30% and SMS contribute around 20% as shown in Figure 3.
Figure 3
Revenue Contribution of Mobile Services, 2018
Source: PLDT and Globe, 2018

The demands for SMS and voice will continue to decline aggravated by minimal pricing
of these services when bundled with data packages, as well as reduction in interconnection
charges. Voice calls are seen to contribute around 15-20% after three years following a steep
decline in 2019 and a steady decline towards 2022 A steeper decline is expected in SMS
resulting in a contribution of around 5-10% of mobile service revenues by 2022.
4.1.2. Social and Economic Factors
4.1.2.1. Opportunity: Increase in communication spending.
The Philippine economy is projected by the Worldbank (2019) to continue to grow in the
succeeding years. The GDP growth rate is projected to be 6.10% in 2020 and 6.20% in
2021while poverty incidence is to be reduced to 20.8% and 19.70% by the year 2019 and 2020,
respectively.
As shown in Table 7, the Philippine Statistics Authority (PSA) reported an increase in
communication consumption expenditure in the last three years along with total household
consumption expenditure. It increased by 5.78% from 2017 to 2018, and by 7.64% from 2018 to
2019.
Table 7
Household Final Consumption Expenditure in Communication 2017-2019

Growth Rate
Year 2017 2018 2019
2017-2018 2018-2019
Household Final
Consumption Expenditure 8,337,181 9,221,849 9,998,947 10.61% 8.43%
(in millions)
Communication Expenditure
231,068 244,420 263,082 5.78% 7.64%
(in millions)
Percentage Distribution in
2.80% 2.70% 2.60% -3.57% -3.70%
Household Expenditure
Source: Philippines Statistics Authority, 2019
According to Albert, Santos, and Vizmanos (2018), higher income class, on top of having
higher monthly family incomes, will spend more on durables in terms of percentage of their total
expenditures. Durables include goods not wearing out quickly, and this includes consumer
electronics such as mobile phones. Table 8 shows recreation spending increases for higher
income class with constant percentage expenditure but with higher total expenditure. Lower
middle income, low income, and poor classes have 90%, 83% and 70% of individuals with
mobile phones. The results of the study show higher income classes have more ability to own
mobile phones and spend on communications.
Table 8
Determinants of Income Class in the Philippines
Indicative Range of % Expenditure on % of

% Dist.
Income Cluster Monthly Family Incomes With
(2015)
(of 5 members, 2017 prices) Recreation Durables Cellphone
1. Poor < Php 9,520 22 1% 1% 70%
2. Low income
Php 9,520 <= Php 19,040 37 1% 2% 83%
(but not poor)
3. Lower middle income Php 19,040 < = Php 38,080 26 1% 2% 90%
4. Middle middle income Php 38,080 <= Php 66,640 10 1% 3% 93%
5. Upper middle income Php 66,640 <= Php 114,240 4 1% 4% 95%
6. Upper income
Php 114,240 <= Php 190,400 1% 5% 95%
(but not rich) 1
7. Rich > Php 190,400 1% 4% 95%
Source: Albert, J.R., Santos, A.G. and Vizmanos, J.F., 2018
Euromonitor (2019) forecasted an annual real growth in communications of greater than
2.5%. As shown in Figure 4, among household expenditures, communications have the third
highest growth (Euromonitor, 2019) .

Figure 4
Global Consumer Expenditure Growth by Category, 2019
Source: Euromonitor International, 2019
Given the forecasted continued reduction of poverty, and sustained GDP growth, more
Filipinos families will shift to higher income class in the future, and in addition to the growth
trend in communication spending in the last three years, and forecasted trend, communication
spending is projected a single digit growth in the succeeding years.

4.1.2.2. Opportunity: Increased demand for mobile internet.
GSMA (2015) forecasted data traffic will continue to soar for the next 10 years as
billions more people and machines will use mobile networks to connect with each other and
access online services.
Figure 5
Global Mobile Data Traffic and Year-on-year Growth, 2014-2019
Source: Ericsson, 2019

Note. Measurement is EB per month.
In Figure 5, data traffic is shown a growth of 68% in total uplink and downlink between
the third quarter of 2018 and the same quarter of 2019 (Ericsson, 2019). The study also forecasts
global mobile data traffic to grow by 30% annually from 2019 to 2025. Internet users grew by
around 8-10% year-on-year from 2014 to 2019 (Euromonitor, 2019) as shown in Figure 6.
Figure 6
Growth in Internet Users: 2014-2019
In summary, mobile data traffic is forecasted to grow as much as 30% year-on-year on
the succeeding years.
On top of the global and regional forecasts, the Philippines is particularly more inclined
to using more mobile internet than most other countries. According to a global study by We are
Social (2019), the Philippines spent the longest time per day on the internet using any device and
spent the second longest time using mobile internet. Figure 7 shows the Philippines being at the
second spot in the duration of mobile internet usage with an average of 4:58 hours. According to
Smart and Globe, data traffic in their networks exploded in recent years, the latter claiming an
increase of six folds in four years or CAGR of around 60% of data transmitted (Globe, 2018).
Figure 7
Time per Day Spent Using Mobile Internet,
Source: We Are Social, 2019

Note. Average amount of time per day spent using mobile internet.
A young and literate population with a large proportion of English speakers may have
helped in having a high usage of mobile internet among Filipinos. The Philippines has a median
age of 24.4 years (Worldometer, 2019), and a literacy rate of 97.95% (United Nations as cited in
PhilStar, 2019). According to Meffert and Mohr (2017), people belonging to less than 25 years
of age are characterized by being “always on”, they desire to be always connected via the
internet. GSMA (2019) also described Filipinos as “hyper engaged” with mobile phones.
Smart and Globe both recognize mobile data is the key to success in mobile
telecommunications. The increased demand for mobile data is a big opportunity as mobile
network becomes the preferred channel in the newfound digital lifestyle of consumers.
4.1.2.3. Opportunity: Increased use of over-the-top (OTT) services
OTTs are applications and services accessible over the internet and ride on operators’
networks offering internet access services (ITU, 2015). Different examples of OTTs include
social networking applications, search engines, amateur video aggregation sites among others, as
shown in Figure 8.
Figure 8
Examples of OTT Services
Source: ITU, 2015
Although OTTs have been considered as one of the biggest threats in mobile
telecommunications as it diminished revenues from voice and SMS, they merely shifted the
demands towards mobile data. Mobile operators in the Philippines have taken an accepting and
cooperative stance towards OTTs. According to Globe’s president, Ernest Cu, “the company
cannot go against what the customer wants or where they want to go, it is better to allow what
the customer wants to do and find the company’s place in the ecosystem, a place where they can
operate”(Go, 2017) . Smart had been promoting OTTs such as YouTube by adding them
generously as inclusions to its data packages.
Telecommunications companies generally benefit from OTTs from the increased use of
their mobile data services (ITU, 2015). OTTs have gained staggering acceptance because of cost
and convenience (Carritech Telecommunications, 2019). OTTs offer the same services as
“classic” mobile telecommunications services at low cost or no cost while enabling various
features catering to customers’ needs. Network operators and OTT service providers can create a
“virtuous” cycle where network operators can benefit from increased mobile data usage while
they encourage use of OTTs (ITU, 2015).
One driver in the popularity of OTTs is the increased use of smartphones. Over the years
there’s a growing acceptance of smartphones as the primary device in connecting to the
internet. Figure 9 shows 89% of the adult population in the Philippines own mobile phones of
any type, 65% own smartphones, higher than the 38% and 29% who own a laptop or desktop and
tablet, respectively.
Figure 9
Device Usage in the Philippines
Source: We Are Social, 2019

Note. Data shows the percentage of the adult population using each kind of device (survey-
based).
Smartphone usage will continue to grow. GSMA(2019) forecasted internet connection
through smartphones will increase by 20% in South-East Asia from 2018 to 2025 as shown in
Figure 10. This is almost equal to the projections by Budde Comme (2018), forecasting a CAGR
of 28.1% from 2018 to 2025.

Figure 10
Global Smartphone Usage in 2018 and 2025
The 2019 Lifestyle Survey displayed in Figure 11 shows most mobile phone activities
use data services. The three most popular activities are (1) browsing the internet, (2) using a
messaging app, and (3) using social media. The use of SMS and voice calls are still popular. The
survey shows a variety of mobile phone activities uses the mobile network such as watching
videos, listening to music, voice calls over the internet, banking service, GPS navigation and
fitness tracking, mobile shopping, remote control of home appliance, ride-sharing, and online
food service, most of which are gaining acceptance and popularity in the Philippines. Mobile
services are becoming an integral part of daily activities.

Figure 11
Most Popular Daily Mobile Phone Activities, 2019
Figure 12 shows the activities consumers engage with using their smartphones for both
developed and developing markets. In 2018, most consumers from the developing markets use
their smartphones for communication, followed by information and entertainment (GSMA
Intelligence, 2018). For communication, they use the device for making voice calls, SMS/MMS,
and IP messaging. For information, they use it for reading the news and browsing. For
entertainment, they use smartphones for downloading media, for playing games, watching free to
access online video. Few people use the device for financial or digital commerce.
Figure 12
Activities using Smartphones according to Consumer Survey, 2018

Note. Data shows the percentage of smartphone users engaging at least once per month.
Video will continue to dominate mobile traffic, from 50% of global data traffic share in
2016, to around 75% in 2022 (Ericsson, 2018) as shown in Figure 13.

Figure 13
Mobile Traffic Application Category per Month, 2016 and 2022
Source: Ericsson, n.d.

Note. Data measured in Exabytes.
According to Ericsson (n.d.), OTT usage will continue to grow at different rates as shown
in Figure 14. Video will have a CAGR of 50% from 2016-2022, followed by social networking
and audio at 39% and 34% respectively. Web browsing will increase by 23%.
Figure 14
Mobile Traffic Growth by Application Category from 2016-2022
Source: Ericsson, n.d.
OTTs had effectively replaced a big portion of voice and SMS, but Philippine mobile
operators are promoting OTTs to hike its network usage through increased data traffic.
Smartphone usage will continue to grow and is now the primary device used by Filipinos
in connecting to the internet. Consumers benefit from OTTs through reduced costs and added
convenience with the various features OTT applications. Usage will continue to grow with video
as the primary component. OTTs provide the opportunity for mobile telecommunications
companies to deliver mobile services in the current times.
4.1.3. Technological Factors
4.1.3.1. Threat: Pressure to adopt 5G without potential commercial application
Most mobile providers are pressured to adopt 5G. Historically, mobile technology lasts a
decade then new technologies emerge along with changes in how consumers use mobile services.
The 4G technology was introduced a decade ago, and now the industry sees itself finding ways
to utilize the capabilities of 5G. According to GSMA (2014), 5G promises service of high social
and economic value, particularly in leading to a hyper connected society. Mobile operators
expressed vocal claims in their active development of 5G services. Undoubtedly, the ability to
adopt advanced mobile technology marks a telecommunications company’s innovation quotient.
Moreover, new technologies are proven disruptive and the ability to adopt them has a significant
impact on the success of the business. Smart for one was late in the adoption of 4G technology
and has resulted in the loss of market share making the company relinquish its leading position to
its rival Globe.
The adoption of 5G is a threat because there is no certain commercial use for the
technology. The main feature of 5G is high speed of connection and low latency. Latency is the
time it takes for a receiver to make use of the data transmitted to it. 5G requires less time to
receive data compared to LTE as shown in Figure 15.

Figure 15
Latency Performance for LTE compared to Latency Requirement for 5G
Figure 16 shows the different services possible under a certain level of bandwidth and
latency. Services inside the white area can be delivered by 4G and other legacy networks while
service inside the gray area can be delivered by 5G. Services exclusively delivered through 5G
are not currently showing market acceptability in the Philippines. Autonomous driving,
augmented reality, and tactile internet are not necessarily practical services, and may not even be
viable in the Philippines given the country's infrastructure and the population’s purchasing
capability. Globe’s use of 5G as a fixed wireless service may be at a disadvantage to the more
cost-effective physical internet connection (CCS Insight, 2018).
Globally, there is some degree of reluctance in adopting 5G as few countries are just beginning
to introduce 5G services in 2020.

Figure 16
Bandwidth and Latency Requirement of Potential Use Cases
McKinsey(Grijpink, A., Ménard, H. S., and Nemanja, V., 2018) estimates the total cost
of ownership to increase by around 60% to 300% to add a 5G macro layer on top of legacy
systems, depending on the percentage of data growth to be addressed. Total cost of ownership is
the purchase price plus the cost of operation. Figure 17 shows the total cost of ownership will
increase by 110 % for a 35% data growth, . In the study, McKinsey groups infrastructure
activities to adopt 5G into four phases: (1) upgrades to traditional network, (2) addition of new
micro sites, (3) creation of new 5G layer, and (4) addition of small cells. McKinsey estimates
one-third of infrastructure spending will go to new domains (5G).

Figure 17
Total Cost of Ownership for Mobile Access Network
Source: McKinsey & Company, 2018
Regardless of the lack of clear commercial application of 5G and the increased cost in
infrastructure, there is a sustained pressure in the adoption of 5G. This is quite similar to the
case of 4G during its emergence as the technology had not been fully utilized until smartphones
with bigger screens and enhanced features were made available in the market. In 2019, various
smartphone brands released 5G smartphones including Samsung, LG, Xiaomi, Huawei, and
Oppo (Yugatech, 2019). According to CCS Insight (2018), 5G is an important area among
high-end smartphone manufacturers and will rush to introduce 5G-enable models in their
flagship lineup. CSS Insight added 5G will probably be used in the mobile broadband category
for video streaming.

Figure 18
Percentage of Connection
CSS Insight (2018) made a bold forecast of 5G making up 25% of total mobile cellular
connections worldwide by 2025 while other market research studies show more conservative
forecasts citing most mobile operators would prefer continued monetization of investments in
previous technologies. As shown in Figure 18, GSMA (2019) forecasts 5G to make up 15% of
total mobile connections by 2025. 4G is expected to be the main technology to be used in
mobile networks for the next decade.
Different regions will adopt 5G at different rates. As cited by CSS Insight (2018), China
will adopt it fast because of strong support from 5G technology developer Huawei. Singapore
will have a natural advantage because of the country’s small surface area. Philippines, on the
other hand, is expected to be slow to adopt because of its geographical features. It is expected to
be a laggard and will experience a “lose-lose” situation where 5G is selectively rolled out and
enterprises are unwilling to pay a premium for the network (Loh, 2019). Under such a scenario,
according to Loh, consumers and businesses would be reluctant to pay extra for perceived
limited benefits over existing 3G and 4G networks while operators would focus on recouping
investments in existing networks. This view is consistent with studies forecasting minimal
adoption of 5G in the next five years. On the other hand, connected devices using 5G might
overwhelm networks with low capacity.
In summary, the pressure to adopt 5G while there is no potential commercial application
at an increased capital and operational cost is a threat. As suggested by McKinsey (2018),
mobile operators should understand how infrastructure and associated costs will evolve in the
succeeding years and should develop an infrastructure investment strategy accordingly. To catch
the wave when the market doesn’t exist yet, businesses should transform into adaptive digital
enterprises with the ability to respond to unforeseen market opportunities (Cudahy, 2019).
4.1.3.2. Opportunity: Advances in digital technology
Digital transformation is the integration of digital technology into all areas of the
business resulting in fundamental changes to how businesses operate and how they deliver value
to customers (Red Hat, n.d.). There is an immense potential benefit of digital transformation to
telecommunications companies as most part of the core business make use of digital information
in serving millions of subscribers nationwide. Many factors calls for such a move: (a) the shift
towards IP-based services (OTTs) provides mobile operators with the influx of data on customer
usage of multimedia applications, (b) competition in industry drives prices down prompting
operators to reduce costs while maintaining proper investments, and (c) as mentioned by
Crawshaw (2018), the growing complexity in networking and networking application due to
virtualization and cloud computing requiring network automation and agility.
This study focused on the following primary technologies used in digital transformation
in mobile telecommunications:
1. Machine learning and artificial intelligence (AI). Machine learning is a branch of AI
having more specific definition than the broad concept of performing tasks “intelligently”
(Mills, 2018). According to Mills, the application of machine learning lies in (1) the
ability of neural networks to classify information the way human brains do, and (2) the
ability to “learn” to recalibrate and improve responses based on previous responses by
creating a feedback loop.
2. Advanced analytics. This is the use of tools to project future trends, events, and
behaviors, giving the ability to perform statistical models (Sisense, Inc, n.d.). Network
analytics is the use of network data and statistics to identify trends and patterns (Ciena,
2018)
3. Software-defined network (SDN). This is a networking architecture separating the
physical layer (telecommunications equipment) from network control (software) so
network provisioning and allocation can be done centrally and remotely using software.
The application of the technologies can be grouped into two categories : (a) automation
of processes, and (b) harnessing the power of information.
4.1.3.2.1. Automation using machine learning and AI.
The main uses cases for machine learning includes interrelated applications such
as predictive maintenance, self-organizing networks, and network management shown in

Figure 19
Use Cases for Machine Learning in Telecom
Network analytics is used to monitor the network and identify potential failure or
need for capacity in certain areas. SDN is used to control, allocate, and manage network
resources quickly and efficiently. Machine learning is used in creating algorithms to
deploy responses through SDN, based on issues identified through network analytics.
This configuration enables the top use cases of machine learning: (1) predictive
maintenance, (2) self-organizing networks, and (3) network management. This will
maximize the utilization of the network, improve its capacity, elevate network
performance, and minimize capital and operational costs.
Another benefit of machine learning and AI is in the automation of customer
service. The technology can be used for natural language processing (NLP) and text
analytics to turn unstructured text into usable data. Mobile operators can deploy
customer service chat bots to provide immediate response to some customer queries. The
system could offload a significant percentage of queries from customers and free up
resources to be used in addressing more difficult problems needing human intervention.

Algorithms can be used to automate responses to queries and route customers accurately
to specific services (Ciszewski, 2018). Moreover, providing customer service through
digital channels improves customer satisfaction (Frisiani et al, 2017). Chat bots or
conversational commerce can be used to bring brands to customers offering personalized,
two-way relationships (Cudahy, 2019).
Finally, through ML, back office processes can be simplified. Around 20 to 30
processes in mobile telecommunications operations generate 45% of average operating
costs, one-third of which can be eliminated through digitization, automation, and
simplification using machine learning (Frisiani et al, 2017).
4.1.3.2.2. Advanced analytics reduces capital costs, increases customer
satisfaction, and sales
Smart capital spending can result from the use of advanced analytics. Mobile
operators can accurately identify specific areas in the network at risk of traffic overload.
Operators then can deploy the necessary equipment to address foreseen issues thereby
effectively using investments to target areas where it is needed (Frisiani et al, 2017).
Advanced analytics can also be used in marketing to benefit from the vast amount
of data mobile operators generate in their system. With the market acceptance of OTT
services, mobile operators are provided with even more user data to work with. Postpaid
subscribers and e-wallet users use their real names, age, gender, email address and even
provide information on their monthly income and occupation. They connect their mobile
numbers to email, social media, and bank accounts. They are now being used in many
online transactions. Mobile phones even use a global positioning system (GPS) to
identify location of users. Such information can be used in marketing in creating
consumer profiles to identify segments. Advanced analytics can be used to create the
right offerings for consumers, thereby increasing sales and revenues. It can be used to
identify behavioral patterns in using mobile services. The technology can be used to
identify users prone to switching to other networks, giving the ability to mobile operators
to proactively address issues and effectively reduce churn rate.
The power of advanced analytics is not without its limits as consumers are now
starting to become wary of how much of their personal information is being used by
enterprises. Data privacy is now becoming an important social concern. Mobile operators
should always be ethical in harnessing the benefits of information.
The benefits and impact of digital transformation would be different for enterprises. For
example, as shown in Figure 20, telecommunications executives are driven by different motives
in the use of AI. According to Crawshaw(2018), the main driver is improving customer
experience, followed by reducing operational expense and finally, upselling new products to
existing customers
Figure 20
The Main Driver of using AI according to Telecommunications Company Executives, 2018
Source: Heavy Reading, September 2018

With the many benefits of digital transformation, most executives are yet to implement
digital transformation. Some challenges to digital transformation include the following (Jabil,
n.d.) :
1. Lack of expertise to lead strategic initiatives
2. Unaligned organizational structure
3. Lack of overarching strategy for digitization
4. Limited access to required technical expertise
5. Employee pushback
Figure 21.
Projected Impact of Digital Transformation in a Mobile Operator’s Cash-flow Margin
Source: McKinsey & Company, 2017

Note. EBITDA = earnings before interest, taxes, depreciation, and amortization.
In summary, as shown in Figure 21, digital transformation increases revenues and
reduces both capital and operational costs thereby improving cash-flow margin to as much as
double the existing amount.

4.1.3.3. Threat: Cybersecurity and data privacy threats
The Department of Information and Communication Technology (DICT) recognizes the
importance of cybersecurity with the growing interdependence of technologies involving critical
functions and control systems of industries (DICT, 2017). The National Cybersecurity Plan
2022 was formulated to ensure continuous operation of the nation’s critical infrastructure by
implementing resilience measures against threats and promoting effective coordination with law
enforcement agencies while educating the society about cybersecurity (DICT, 2017).
Cybersecurity is a necessary competency as telecommunications companies operate the network
the nation uses to communicate inside and outside the country.
According to a Frost and Sullivan study commissioned by Microsoft (2018), the potential
economic loss due to cybersecurity may hit around USD 3.5 B, or 1.1% of the Philippines’ total
GDP. In the study, 18% of the organizations surveyed in the country have experienced a
cybersecurity incident, and 34% are not sure if they have one as they have not performed proper
assessment. The study identified key gaps in cybersecurity include treating security as an
afterthought and having a lack of cybersecurity strategy.
Telecommunications companies hold personal identifiable information of most of the
country’s population, and they operate the nation’s communications network. Consumers are
protected by law against data privacy and cybersecurity threats. Cybersecurity threats could
cause financial and reputational damage to mobile operators, businesses, and individuals could
disrupt business activities and lead to economic sabotage. Moreover, damage from cyber
security attacks are hard to mitigate and restore once done.
4.1.4. Competitive Forces
4.1.4.1. Threat: Entry of Third Mobile Telecommunications Player
After a decade of near duopoly, a third player finally joins the mobile
telecommunications industry in the Philippines. The third player, now named Dito
Telecommunity (Dito), was selected on November 7, 2018 (Pateña, A.J., 2018) and is expected
to be operational in 2020 (Corrales, 2019). It is owned by the Mislatel Consortium, a joint
venture between Udenna Corporation and China Telecommunications Corporation (China
Telecom).
NTC implemented a strict criteria to ensure the third telco has the financial and technical
capability to operate a telecommunications company on a national scale. The company must
have at least a Php 10 billion net worth. Dito Telecom met all criteria. China Telecom will
provide the needed financial support and technical expertise.
While it may be difficult to build a mobile telecommunications company, the current
government is providing the necessary support to effectively lower the entry barrier. With the
government’s support, Dito Telecom overcame regulatory hurdles and was able to secure the
necessary congressional franchise, and Certificate of Public Convenience and Necessity (CPCN).
The government initiated the common tower sharing policy in the first half of 2018 (DICT,
2018) and passed the law on Mobile Number Portability (MNP) on July 9, 2019 (Marasigan,
2019).
The common tower policy will allow Dito to expedite the start of its operations by
partnering with tower infrastructure builders and tower operators, overcoming financial and
technical challenges in this area. The MNP law will lower further switching costs in the
predominantly prepaid subscriber market.
Dito Telecom signed a performance bond of Php 25.7 Billion for its commitments of 27
Mbps speed of data connection to 37% of the population on its first year of operations. Currently,
the country has an average of 7 Mbps and 2.2 Mbps average download and upload speeds
(Lopez, 2019). Over a five-year period, the total investment of Dito Telecom will be Php 257
billion (Mercurio, 2019).

S&P Global Ratings estimates as much as 40% of PLDT’s revenue will be exposed to the
competition (Lopez, 2019) while PLDT stated the third telco would not cause a significant
impact on its revenues as the company earns mostly from fixed telecommunications services
(Manabat, 2018). Around 53% of the total revenues of PLDT is from its wireless business
segment. Already, other players have kept an elevated capital expenditure in recent years. They
have increased OTT freebies, and free Wi-Fi in their product offerings increasing total data
inclusions by as much as 300%. The entry of the third player will drive lower prices and higher
quality in mobile telecommunications in the county.

4.2. Industry Analysis
4.3. Industry Structure, Conduct and Performance
The Structure Conduct Performance (SCP) model is an analytical tool depicting the
influence of the structure of the industry on the conduct of players, and the performance of both
the industry and producers (McKinsey & Company, 2008). The SCP model is used in this study
to put together the different factors defining and describing the mobile telecommunications
industry. It also used to identify the relationship and impact of these factors to each other and to
the industry to help craft an effective strategy.
Lizares (2018) used the SCP model to analyze the telecommunications industry in the
Philippines in the years 2011 to 2016. In her study she described (a) structure in terms of market
structure, concentration, and level of entry barrier, (b) conduct in terms of pricing, product
offerings, and service quality, and (c) performance in terms of financial performance and market
performance. The study concluded industry structure is duopolistic, has among the highest
concentration in the world, and has high entry barrier; conduct includes players mimicking each
other’s products, prices and quality, has shown decreasing ARPU in the period covered; and
performance shows players are enjoying a modest growth and a healthy ROE. Only around three
years after the study, the dynamics of the mobile telecommunications industry has significantly
changed mainly due to the active intervention of the government, effectively lowering the barrier
of entry and introducing a new player in the competition. In the SCP model, structure changes
slowly, while conduct and performance changes more rapidly.
4.3.1.1. Industry Structure
4.3.1.1.1. Industry concentration
In this study, the Herfindahl-Hirschman Index (HHI) is used to determine industry
concentration. HHI is a commonly accepted measure of competition calculated by squaring the

market share of each firm competing in a market and then summing the resulting numbers. It can
range from close to zero to 10,000 translating to the following:
● 1,500 is a competitive marketplace
● 1,500 to 2,500 to be a moderately concentrated marketplace
● 2,500 or greater to be a highly concentrated marketplace
Figure 22
Selected Countries Mobile-Cellular Sub-Market HHI, Subscriber-based, 2014
Source: EY, 2014 as cited in Lizares, 2018
The Philippine mobile telecommunications is highly concentrated with an HHI of more
than 5,000 as shown in Figure 22. Two players currently account for around 100% of mobile
subscriber market share. The industry had been duopolistic; the entry of the new player will
significantly alter the dynamics of the industry.
4.3.1.1.2. Supply concentration
Among the major suppliers of mobile providers in the country include (1) mobile
technology developers and mobile equipment manufacturers, (2) leading smartphone brands, and
(3) IT providers.
Telecommunications equipment is a fixed cost making up most of the total cost in
telecommunications services. For wireless communications, it includes cellular networking and

satellites among others, and for wireline it includes fiber optic long haul transmission equipment,
data networking, and terminal (Byrnes and Corrado, 2015). This market is globalized and had
undergone consolidation over the past 10 years caused partly by reduction of carriers purchasing
equipment, the tendency for vertical integration, and the tendency of carriers to stick with known
suppliers. (Cohen et al, 2014). Figure 23 shows the market share of telecommunications
equipment providers. Few companies have the necessary technology, financial capability, brand
equity, and market reach to participate in the industry.
Figure 23
Mobile Infrastructure Vendors Global Revenue Share, 1Q13
Source: IDA, 2014

Table 9
Communications Equipment Investment Price Index and Components
(Average Annual Percent Change)
Source: Corrado, C. and Byrne D., July 2016
According to Byrnes and Corrado (2015) there is a rapid and consistent decline in the
prices of communications equipment due to technological advancement, resulting in as much as
8% annual reduction of prices in the years 2010-2015. The change in communications
equipment price index displayed in Table 9 shows telecom/data networking equipment in line 3
experienced an average annual decrease of 14.4% which is lower than the Byrne-Corrado price
index decrease of 16.1% shown in line 10 as the latter does not include changes in terminal
equipment which changes at a faster rate . The study shows the average annual change for
telecommunications is at -14.4%.
Figure 24
Philippine Mobile Phone Market Share by Retail Volume, 2019
Using HHI computed from the market share, smartphone suppliers were determined as
having low concentration signifying market is competitive. Figure 24 shows the mobile market
share by retail volume in the Philippines. Mobile manufacturers incur costs in smartphones only
for postpaid services with device inclusions. Postpaid subscribers corner only 5% of total
subscriber market share. The devices are offered to consumers using a device amortization model
but ultimately, the total costs are passed on to consumers.

From 2014 to 2017, from the average of 500,000 graduates every year from various
fields, there are around 75,040 engineering and technology graduates and 77,795 IT-related
graduates added to the labor pool of the telecommunications sector(BOI, 2018). Despite the high
number of resources added to the labor pool, Globe Telecom(2018) identifies “skills gap” as one
of the key points to address, citing a study accounting 60% of companies as having a hard time
finding qualified candidates to fill vacant positions. Many IT companies can provide various IT
services. Some even organize workforce according to industry and can provide specialized IT
skills for telecommunications companies. Suppliers of Information Technology have moderate
concentration.
High supply concentration allows suppliers an elevated bargaining power; however, this
is offset by the similarly high bargaining power of buyers as mobile operators, too, have high
concentration. The result is a niche market in mobile telecommunications services. The high
barrier of entry in mobile technology development makes it nonviable for mobile operators to
backward integrate. Regional mobile operators concentrate themselves further through strategic
partnership to, among many other benefits, increase their bargaining power over their suppliers.
The country’s mobile operators are partnered with offshore mobile companies in developed
countries.
4.3.1.1.3. Demand concentration
Mobile telecommunications buyers are individual consumers; therefore, concentration is
extremely low. This reduces the bargaining power of mobile subscribers. Subscribers, most of
whom are limited by spending capacity, make do of the few options they have in the market.
Subscribing to two network providers is common in the country. This allows users to switch
networks to maximize unlimited text and call services for subscribers within the same network,
to readily avail products and services with the most value, and to ensure connectivity in areas
with poor signal quality of either of the networks. Cost-effective IP-based applications also
effectively replaced voice calls and SMS in recent years. The subscribers, though having low
bargaining power, found ways to leverage on the low switching cost to keep mobile operators
watchful of their product offerings, prices and network quality and availability.
4.3.1.1.4. Nature of product
Mobile telecommunications services include the following:
● Voice calls
● Short message service (SMS)
● Mobile data
Mobile services are offered only by few enterprises as it requires technical and financial
capability to operate on a national scale. The technology used by operators is influenced, if not
dictated by the predominant technology in the mobile telecommunications ecosystem such as
those supported by mobile phones and those technologies having gained market acceptability.
Mobile telecommunications services have become an important part of most individual’s
daily lives providing access to a variety of services. It has become a necessity by offering
indisputable efficiency. Smartphones have become a fundamental tool to the average mobile
subscriber.
4.3.1.1.5. Entry barrier
The entry barrier in mobile telecommunications is high because operations are on a
national scale and entails high initial fixed costs and sustained high yearly capital investment in
telecommunications infrastructure. Mobile frequencies are limited, and license fees are high,
and mobile operators need to secure a congressional franchise and CPCN among other business
permits before it could start its operations. High entry barrier has kept the industry’s high
concentration.
4.3.1.1.6. Technology
4.3.1.1.6.1. Mobile technology
The 2G technology was the first to be used for data and SMS text messages. 3G provides
faster data transfer rate allowing video calls and 4G provides ultra-broadband internet access
(GSMArena.com, n.d.). The emerging 5G technology is not fully adopted yet but is available in
the country as a fixed wireless service. Figure 25 shows that list of dominant mobile technologies
in the Philippines, with their corresponding frequency bands.
Figure 25
Dominant Mobile Technologies in the Philippines
Source: GSMArena, n.d.
The evolution of mobile technology from 1G to 3G is more about developing the
capability of mobile devices to communicate at higher speeds while the 4G Long Term
Evolution (LTE) technology is more of standards setting the path to achieve 4G speeds (Sound,
2018). According to Sound(2017), it took a long time to adopt LTE because the standard is
complicated being a redesign and simplification of the 3G technology. In the Philippines,
towards the end of the decade, the 4G LTE technology has been fully embraced as it caters to the
current demand for high-speed mobile data. 4G is forecasted as the dominant technology in the
succeeding 5-10 years. 5G on the other hand offers higher capabilities but most commercial uses
for these capabilities are either possible using 4G LTE or are not demanded by the current
market.
Mobile technology is advancing along with the way consumers use mobile services. The
technology needed to cater to market demands is available. It has been used to build
infrastructure and capacity to handle increasing data traffic. Advanced mobile technologies such
as 4G and 5G are revolutionary as they use architecture eliminating unnecessary complexities
and inefficiencies in the network. Figure 26 shows the Philippines as one of the few countries
offering 5G service as a fixed wireless service.
Figure 26
5G plans in Asia Pacific, 2019
Mobile technology historically evolves every 6-10 years. Old technology has become
obsolete because the way mobile services are used changes over time. Advancement in
technology is swift and potentially disruptive, but telecommunications operators tend to adopt
slowly as they are motivated in prolonging monetization of investment in old technologies and to
mitigate risks of investing in new technology where market doesn’t seem to exist yet.
Advances in technology help build mobile network capacity. More capacity intensifies
competition as mobile operators would choose to utilize and monetize infrastructure. The result
is increased uptake of mobile services and decline in ARPU.
4.3.1.1.6.2. Digital technology
The digital nature of mobile telecommunications makes it suitable for the use of digital
technologies.
One example of digitized transaction is the over-the-air reloading and airtime transfer
services called “Pasaload” introduced in 2003 (Philstar, 2003). Distribution of mobile credits has
been a challenge because of the country’s geography and the expected reach of mobile operators.
It would be costly for mobile operators to distribute phone cards manually to all retail stores and
neighborhood sundry “sari-sari” stores. Digitizing the distribution process is an innovative
approach in ensuring wide reach and coverage while maintaining low cost.
Innovation in implementing advanced digital technology allows mobile operators to
achieve high efficiency and low operating costs, enabling them to offer mobile services at low
price. Advanced digital technologies such as automation could be a competitive advantage,
4.3.1.2. Industry Conduct
4.3.1.2.1. Mobile subscription
The mobile subscription penetration rate as of 2018 is 124.3% composing of more than
134.59 million subscribers. Most mobile subscribers maximize value from the few options in the
market by subscribing to two networks. In Figure 27, mobile subscription penetration rate has
shown signs of saturation as it marked negative growth in 2017.

Figure 27
Philippine Mobile Subscribers 1998-2018
Source: Globe, 2018
The use of two networks may have been encouraged by the similarity of offerings and
pricing of mobile providers, the low concentration of buyers and their consequent low bargaining
power, the low switching barrier for mobile subscribers, and the below par network quality and
availability.
According to GSMA Intelligence (2017), more than 35% of the Philippine population
remains non-mobile as shown in Figure 28. Some areas remain unserved and underserved
signifying some room for market expansion.

Figure 28
Subscriber breakdown in Asia Pacific, 2017
The entry of the third telco and the government’s telecommunications tower sharing
initiative may increase penetration rate further. Increased competition may lead to reduction of
prices and encourage mobile services uptake. Tower sharing will reduce capital and operational
costs, and reduce time to market, making it more viable for mobile operators to cater to
unserved and underserved areas. The result is improvement of the overall network signal quality
and coverage of mobile telecommunications in the country, and increase in mobile subscription.
4.3.1.2.2. Product and service offerings and prices
Two main considerations in mobile products and services are (1) the spending capacity of
the Filipino mobile user, and (2) the low switching barrier in a duopolistic mobile
telecommunications industry. Mobile operators needed to lower the price of mobile services in
order to encourage uptake. The low switching barrier ensures each mobile operator’s products
and services are competitive. Due to these factors, product and service offerings by the two
players are similar. Table 10 shows Smart and Globe offerings having similar pricing points,
and similar package inclusions.
Table 10
Smart and Globe Prepaid Products
Globe Smart
Cost
TM/ Globe Prepaid TNT/Sun Prepaid/Smart Prepaid
Php 10 (TM) 40MB data
(TM) 100 MB Data

Php 15
30 MB for Instagram
(TNT) 100MB Data

100MB FB every day
Php 20
Unlimited call to TNT/Smart/Sun
Unlimited texts to all networks
(TNT) 300MB Data

(TM) 300 MB Data
100MB FB every day
Php 30 50 MB for Facebook, Instagram,
Unlimited call to TNT/Smart/Sun
Viber or Snapchat
(TM) 1 GB data (TNT, Sun Prepaid, Smart Prepaid)

Unlimited texts to all networks 1GB Data
P50 1GB for choice of apps* 1GB/day of Video Every Day for YouTube, iFlix,
FREE 1 GB GoWiFi + FREE 1 GB iWant TV, NBA League Pass, Cignal TV Unlimited
per day for Facebook & Instagram texts to all networks
(TNT, Sun Prepaid)

1 GB Data
(Globe Prepaid)
1 hr./1 GB per day for YouTube, iWant, iFlix,
P70 1GB Data
Cignal, & NBA
Calls to TNT, Smart, Sun
Unlimited Text to All Networks
(Globe Prepaid)
2 GB Data,
P90
Php 25 voucher GCash
Globe Smart
Cost
TM/ Globe Prepaid TNT/Sun Prepaid/Smart Prepaid
(TNT, Smart Prepaid)

2GB
P99
1GB/day of Video Every Day for YouTube, iFlix,
iWant TV, NBA League Pass, Cignal TV
(Globe Prepaid)
3 GB Data
P120 Unlimited texts to all networks
Unlimited call to Globe/TM,
(Globe Prepaid)
P140 4 GB Data, 7 days validity, Unli text
to all networks
2 GB
1 hr/1 GB per day for YouTube, iWant, iFlix,
P149 Cignal, & NBA
Calls to TNT, Smart, Sun
Source: Smart, Sun, TNT, Globe, and TM websites.
Table 10 also shows price discrimination wherein varying amounts of products and
services are offered at different price points. Mobile subscribers are predominantly price
conscious and want to maximize the use of mobile credits. Through price discrimination,
subscribers have the power to choose packages to avail based on their consumption and spending
capacity. Low price points encourage small spenders to continue using services in small
amounts. Mobile operators focused on maintaining a large subscriber base to maximize the
monetization of its network infrastructure.
Evident also in Table 9 is the use of bundling where different services are put together in
one package. Voice calls and text messaging services are being replaced by more cost-effective
IP-based messaging applications, making them less desirable products. Through bundling,
uptake of “classic” mobile services are encouraged. The bundling of voice and text messaging
services to data services may further erode revenues from the classic mobile services stream.
Sachet marketing remained as the predominant approach as 95% of mobile subscribers
use prepaid services instead of postpaid. Most subscribers are low income but are willing to
spend on mobile communications. Through sachet marketing and price discrimination, mobile
operators can encourage uptake by letting users consume what they can pay for.
In 2019, mobile operators began adding OTT services in their mobile data offerings.
These include video streaming and social media application services. The free OTT services will
allow the habituation of subscribers to create more demand for mobile data. The use of Wi-Fi in
selected hotspots enables offloading of data traffic from mobile networks in places where spikes
on mobile data consumption is expected such as in coffee shops and in public transportation
terminals.
Figure 29
Monthly ARPU in Prepaid Services for the Years 2014-2018
Source: PLDT and Globe, 2018.

Note. Globe did not provide ARPU for Globe prepaid and TM in 2018.
Figure 30
Monthly ARPU in Postpaid Services for the Years 2014-2018
Source. PLDT and Globe, 2018.
There had been a prominent downward trend in ARPU towards 2016 both for prepaid and
postpaid services as shown in Figure 29 and Figure 30. While few mobile brands continue to
experience the downward trend, most ARPUs remained flat or rebounded from 2016 to 2018.
The gap among the market segments remain distinguishable showing ARPU spread is
somehow maintained. ARPU spread as used by Gröne et al (2017) is the difference between the
highest and lowest ARPUs among the different operators in a specific market. The ARPU spread
in 2018 contracted by a mere 0.18% signifying mobile services remain differentiated.

Figure 31
Global Trend in Wireless Services ARPU, 2006-2017
Source: PwC, 2017
As shown in Figure 31, the ARPU in wireless services in the Asia-Pacific region
decreased from 2006 to 2010 then remained flat until 2017. ARPU in the different regions all
followed the same pattern with the regions having the highest ARPU making the biggest drop
while those with the lowest ARPUs remained relatively flat. ARPU in Asia-Pacific is showing
resistance from the bottom indicating ARPU is not likely to suffer a significant drop but is also
unlikely to follow an upward trend basing from the past behavior in mobile services ARPU.
Table 11 shows the Philippine mobile telecommunications services ARPU as a
percentage of Gross National Income (GNI) per capita ratio is in line with the regional ratio for
prepaid services but is significantly higher for postpaid services. Note that postpaid subscription
in the Philippines is only 5% of the total mobile subscription in the country.

Table 11
ARPU as a Percentage of Gross National Income (GNI) per Capita
Asia-Pacific Philippines
1.3 to 2.3 for prepaid
ARPU (in USD) 5 to 10 16 to 22 for postpaid
GNI per capita
(constant 2010 USD) 9,973 3,625
ARPU as a percentage of 0.4% to 0.8% for prepaid
GNI per Capita 0.6% to 1.2% 5.3% to 7.6% for postpaid
Source: PLDT and Globe, 2018; PwC, 2017; World Bank, 2018
In summary, due to the structural characteristics of mobile telecommunications in the
country, products and services, and prices are similar among mobile service providers. ARPU
decreased then remained flat in recent years, and ARPU spread is maintained showing postpaid
and mainstream prepaid services continue to be differentiated.
4.3.1.2.3. Network quality and performance
As mobile services shift from “classic” services to mobile data, a good measure of signal
quality according to Opensignal (2018) is not just the download speed and availability of the
network but most importantly, the overall video experience. Video experience is characterized
by 1) the time it takes for video to load and begin playing, 2) the number of times the video
stalls, stops, and stutters during playback, and 3) the picture resolution.
As shown in Appendix B - Figure 72, out of the 69 countries surveyed by OpenSignal
(2018) for overall video experience, Philippines is at the bottom with a score of 34.98 out of 100;
poor according to the standards of the study. In Figure 32, the Philippines lagged all countries in
East Asia including Cambodia and Indonesia. One primary reason is the slow overall speed of
connection. At 6.03 Mbps, it is one of the lowest in the world. Overall speed is highly
correlated to video experience for those with lower overall speed but loosely related for higher
overall speed (OpenSignal, 2018).

Figure 32
Video Experience in East Asia, 2018
Source: OpenSignal, 2018

Note. Overall video experience score 0-100; Test Period May 14-Aug 11, 2018
Figure 33 shows mobile networks in the Philippines somehow mimics each other’s
network quality and availability. Mobile operators excluding the new entrant are at par in terms
of 4G availability but showed variance in terms of video experience.

Figure 33
Philippine Mobile Network Video Experience and 4G Availability, 2019
The structure of mobile telecommunications in the Philippines failed to provide
competitive mobile services compared to its peers. Duopoly may have contributed to high
relative ARPU and considerable differentiation of mobile services despite poor network
performance. The new entrant is expected to create an impact as the market remains susceptible
to poor video experience. Increased competition will improve the country’s mobile network
performance.
4.3.1.2.4. Marketing, advertising and loyalty programs
Two mobile providers currently corner 100% of the mobile subscriber market share, both
players maintaining above 40% market share each . Advertisement is both a defensive and
offensive move to maintain and gain market share.
Mobile operators generate vast user-generated information on the use of mobile services.
OTT services provide insight on applications users choose to spend their time on.
Advertisements of mobile operators are expected to be targeted and would differ in effectiveness
through content and impact. The consolidation in the past decades left the population with few
options, the remaining two players even colluded to buy a new entrant in joint venture. The
incumbent may be viewed as antagonistic and causing the country’s poor mobile
telecommunications services. There has been a nationwide clamor for a third telco in the past
years. The existing players only carry few brands and are thus enjoying high brand awareness.
Four prominent mobile telecommunications market segments in the Philippines are
served by four major products categories shown in Table 12.
Table 12
Product Categories in Philippine Mobile Telecommunications
Product Products/ Monthly Channels of

Mobile Brands
Category Services ARPU Distribution
Smart:
- TNT - Lower denomination
- Sun prepaid of mobile prepaid Street vendors,
Value-
(DMPI) credit reloading Php 66 to neighborhood sundry
sensitive
- Low price mobile Php 81 stores (sari-sari),
Prepaid
Globe: services retailers, etc.
- Touch Mobile (ex. Php 10)
- Higher denomination
of mobile prepaid
Smart Prepaid neighborhood sundry
Mainstream credits Php 115 to
stores (sari-sari),
Prepaid - Moderate prices of Php 118
Globe Prepaid retailers, online, etc.
mobile services (ex.
starting at Php 50)
Smart:
- Sun Postpaid
- Smart
- Fixed monthly
Signature
payment
Postpaid - Smart Infinity Php 401,
- Amortized devices Stores, telesales,
(Regular and Php 819 to
- Access to premium online
Premium) Globe: Php 1,161
entertainment
- Globe
applications
Postpaid
- Globe
Platinum
Source: Smart and Globe, 2018
Note. ARPU for Globe prepaid products were not reported in 2018 because there have been major changes in
prepaid subscribers as the memorandum order to set validity of SIM cards to 1 year reactivate dormant SIM cards.
The postpaid services category serves the middle to high income market segment. Mobile
operators offer devices from leading smartphone manufacturers using device amortization
models. Consumers sign contracts to pay for services on a monthly basis. Postpaid services are
hassle-free as subscribers can consume mobile credits up to a certain point and get billed at the
end of the month. Bundling of classic services to premium products encourages uptake. Postpaid
subscribers consume as much as four to ten times more than the average prepaid consumers.
Lock-in periods also increase switching costs, discouraging subscribers from porting to other
networks. Postpaid subscribers comprise a mere 5% of the mobile subscription market.
The mainstream prepaid category caters to middle income consumers. Subscribers in this
segment can spend up to 50% more the value-sensitive prepaid subscribers.
The value-sensitive prepaid category caters to the low-income segment and comprises
most mobile subscribers. Subscribers in this segment avail small quantities of mobile services at
low prices.
Figure 34
Philippine Mobile Subscription Market Segment Distribution in 2018

Figure 34 shows value-sensitive prepaid subscribers make up most of the country’s
mobile subscription market followed by mainstream prepaid. This signifies the country remains
predominantly low-income to moderate income. Postpaid services have the lowest market share
at around 5%.
Table 13
Philippines Telecommunications Selling, Advertising, and Promotions Expenditure
2018 2017 2016

Philippine Telecom Industry Total
Selling, Advertising, and Promotions
Expenditure
(in Php million) 13,342 11,323 12,078
As Percentage of Revenues 4.38% 3.95% 4.25%

Marketing Budget in
Communications/Media as Percentage
of Revenues 13%
Source, Smart and Globe, 2016-2018; Deloitte, 2017; Santo, 2019
Table 13 shows the industry expenditure in selling, advertising, and promotions. The
available benchmark cited by Moorman (2017) and Santo (2019) are based on the US market
which has its unique structure where telecommunications companies also offer media and
entertainment services which may elevate marketing expenditure. Moreover, according to
Moorman (2017), marketing budgets may differ as less than half of the companies included
employees as part of the marketing budget while data used for the Philippine telecom industry
does not include employees in the marketing budget. Given the high industry concentration in
the Philippines, marketing expenditure is conservative as few brands would compete for mobile
consumers' attention. Nonetheless, a meaningful investment in advertising is important to convey
information on products and services though prices and quality of service play a more important
role in gaining continued patronage in telecommunications (Olekan et al, 2015).

4.3.1.2.5. Distribution
The mobile telecommunications industry necessitates enterprises to provide services to
millions of Filipinos nationwide. For a low-income population spread across a fragmented
geography of difficult terrain and oftentimes poor transportation infrastructure, distribution of
products and services is a challenge. Mobile operators need to extend a wide reach while keeping
prices low. The presence and availability of the operator's network is important in maintaining
market share. Today, mobile subscription is showing it may have reached saturation point
marked by a negative growth in 2017 (Globe, 2018) while around 30% of the population remains
non-mobile (GSMA Intelligence, 2017) signifying few unserved and underserved areas are yet to
be reached by mobile networks.
The number of retailers of each mobile operator reaches as much as 1.2 million to 1.4
million nationwide (Globe and PLDT, 2018). Consumers can buy prepaid mobile credits for as
low as Php 10. Through an over-the-air reloading system, heralded as an innovative approach
catering to low-income markets, distribution approximates those of fast-moving consumer goods
(PLDT, 2018). Aside from distribution partners and retailers, mobile operators tap on other
distribution outlets such as convenience stores, gas stations, drugstores, bookstores, public utility
vehicles, street vendors, and selected restaurants.
Mobile operators also compete in postpaid mobile services where subscribers pay fixed
monthly cost. They offer the flagship models of leading smartphone manufacturers. They
operate around 90 to 224 stores nationwide and compete in creating concept stores located in
business districts not only to improve distribution but to enhance premium brands.
Emerging distribution channels include telesales, and online platforms. Consumers can
visit online shops to avail products and services, manage accounts, and reload prepaid mobile
credits.
In summary, mobile operators aimed for volume to realize profitability. They created an
extensive distribution network. Pricing schemes cater to the predominantly low-income
population while stores operated by mobile networks cater to higher income market segment.
4.3.1.2.6. Innovation and strategic partnership
The adoption of mobile technology entails high fixed costs and sunk costs. There is a
subsequent risk for mobile operators to pursue strategies on a nationwide scale. Advances in
technology can be disruptive. In the case of 5G, though it has high disruptive potential, there
seems to be no market demand yet. New technologies may require reconfiguration of existing
system architecture. There is a high concentration of suppliers as only few enterprises develop
advanced mobile telecommunications technology. These factors generate the need for strategic
partnerships.
Strategic partnerships will allow operators to learn from each other, maximizing transfer
of knowledge and expertise. This indirectly dilutes the cost of research and development, and it
minimizes risks in formulating and implementing strategies. The shared knowledge will
maximize management effectiveness and will create efficiencies. Finally, by forming
partnerships, mobile operators in the region concentrates themselves further and will increase
their bargaining power over suppliers of mobile technology. Offshore strategic partners on the
other hand will benefit from gaining market share outside of their geographical market. All
mobile operators in the country have strategic partnerships with mobile providers from
developed countries in Asia Pacific.
4.3.1.3. Industry Performance
4.3.1.3.1. Mobile service revenues
In the past three years, mobile service revenues have been shifting towards more mobile
data and away from classic mobile services. Voice calls and SMS revenues have been declining
rapidly while mobile data revenues have been rising and gaining momentum. Inbound roaming
declared as a separate revenue stream by one provider has also seen a high but decreasing growth
in the past three years. Figure 35 shows the compound annual growth rate (CAGR) of the
different mobile service revenue streams.
Figure 35
Mobile Service Revenue CAGR, 2015-2018
The growth in fixed and wireless telecommunications services in different regions across
the world is conservative with negative revenue growth in some regions, and peak revenue
growth of not more than 10% as shown in Figure 36. The CAGR of -1.96% in the Philippines is
slightly lower than the forecasted growth of around 2% for 2019 and 2020 for the Asia-Pacific
region. The growing demand for mobile internet is expected to continue to offset the declining
demand in voice calls and SMS.

Figure 36
Fixed and Wireless Telecommunications Revenue Growth, 2019
Source: S&P Global Ratings, 2019
Advances in technology impact the way consumers use mobile services. Technology is
making communication more efficient and more cost-effective. The market is responding to
maximize the value from such efficiency. The saturation of the mobile subscription market,
declining ARPU, and increasing competition is expected to continue to challenge revenues in the
mobile telecommunications industry.
4.3.1.4. Financial performance
Financial performance is the result of the industry structure and conduct according to the
SCP framework. Table 14 and Table 15 show the comparison of financial indicators of the
Philippine telecommunications industry (PLDT and Globe, 2018) to industry benchmarks mostly
in the Asia-Pacific region (Mooney et al, 2018) and other generally accepted global
telecommunications benchmarks.
Table 14
Profitability and Efficiency Ratios in the Telecommunications Industry, 2018
Philippine Telecommunications
Industry Benchmark
Financial Indicators
EBITDA Margin 35% 41-46%
Net Profit Margin 17% 12-13%
Source: S&P Global Ratings, 2019; PLDT and Globe, 2018; Maverick, J.B., 2018
Earnings before interest, taxes, depreciation and amortization (EBITDA) is a useful
metric in measuring operational efficiency and financial health because it shows the baseline
profitability. Telecommunications is high growth and capital intensive requiring high fixed cost
and high levels of debt financing resulting in high levels of depreciation expense. Through the
exclusion of depreciation, telecommunications enterprises with varying levels of capital
expenditure can be compared. The EBITDA margin of the Philippine telecommunications is
higher than the benchmark value for the Asia-Pacific region (Mooney et al, 2018). The country's
telecommunications companies can generate high profits due to lack of competition and
collusion among the existing players. Products and services are differentiated despite poor
quality of service.
Net profit margin takes depreciation and capital expenditure into account. Due to recent
investments in infrastructure and subsequent elevation of annual depreciation, the country's
telecommunications services showed lower net profit margin than the telecommunications
industry benchmark of 17% (Maverick, 2018). According to Maverick (2018), the industry
benchmark includes the relatively less competitive telecommunications equipment sub-sector
resulting in the elevation of the overall industry benchmark for net profit margin. Mobile
telecommunications in the country can therefore be considered at part with global
telecommunications enterprise in terms of net profit margin.

Table 15
Leverage and Investment Ratios in the Telecommunications Industry, 2018
Philippine Telecommunications
Industry Benchmark
Financial Indicators
Debt / EBITDA 2.0X 2.15-2.34
CAPEX / Revenue 18.30% 30-38%
Return on Capital Employed 5-6% 8-13%
Total Debt / Total Assets 40-45% 75%

Source: S&P Global Ratings, 2019; PLDT and Globe, 2018;
The debt to EBITDA ratio is the proportion of the debt to the amount of income
generated. It measures the enterprises’ ability to pay off its debt and shows financial flexibility.
Telecommunications enterprises in the Philippines have higher debt to EBITDA ratio than the
industry benchmark (Mooney et al, 2018). The country’s geographic and political environment
may have increased costs of doing business resulting in a high debt. Debt was the preferred way
of financing investments in infrastructure upgrades in recent years. Overall, debt to EBITDA
ratio shows mobile operators in the country are able to service their debts.
The capital expenditure to revenue ratio measures the level of enterprises’ investment
into the future. Philippine telecommunications scored high in this ratio due to recent upgrades in
telecommunications infrastructure. The dynamics of the country’s mobile telecommunications
industry is being altered by the entry of a new participant resulting in intensifying competition.
The explosion of mobile data traffic in recent years also prompted telecommunications
companies to increase network capacity and extend the availability of 4G-LTE networks. The
30-38% capital expenditure to revenue ratio is healthy for a telecommunications industry with
poor infrastructure and high potential demand for mobile data services.
The return on capital employed measures the effectiveness in the use of capital. This is
particularly useful for capital-intensive industries such as telecommunications. This ratio factors
in earnings before interest and tax (EBIT) , a measure of profitability, and capital employed,
combination of shareholder’s equity and debt liabilities. This ratio is high in the Philippines at
8-13% compared to industry benchmark of 5-6% (Mooney et al, 2018). The lack of competition
in the country results in differentiated products and services despite poor network quality and
availability. The collusion amidst duopoly allowed existing players to maintain high prices
relative to quality of service. With increasing competition, declining ARPU, and elevated capital
expenditure, this ratio is expected to constrict in succeeding years.
The total debt to assets ratio shows how much of the assets are financed by debt. The
country’s industry ratio is significantly higher than the industry benchmark. This ratio shows
telecommunications enterprises in the Philippines are aggressive in using debt to finance capital
expenditure resulting in less financial flexibility than regional peers.
The lack of competition in the Philippine telecommunications services resulted in high
profitability, and high return on investments. The increase in competition in recent years resulted
in elevated capital expenditure. Telecommunications enterprises are using more debt to finance
investments compared to regional peers. Overall, the country's telecommunications industry is
showing signs of healthy financial performance.
4.4. Porter’s Five Forces Analysis
4.4.1. Threats of New Entrants: High
The entry barrier in the mobile telecommunications industry is high because of the
requirement for a legislative franchise and CPCN whereby the entity must prove technical and
financial capability to provide telecommunications services on a national level (Philippine Board
of Investments, 2018). Specifically, for example, among the requirements of the NTC to the
third telco are the following (DICT, 2018):
● Filipinos must have 60% interest in the corporation or consortium
● Participant must have or has the capacity to raise Php 10 billion as net worth
● Participant shall have a proven technical capability, with experience in
provisioning, delivery and operations of telecommunications service for the last
ten years on a national scale
Despite the high entry barrier, Dito was confirmed as the third telco in November 2019
(ABS-CBN News, 2019). The industry has been left with only two major players after decades
of consolidation, and now there is a clamor for more options and better services possible through
the introduction of a new entrant in the industry.
Today, the third telco is not yet operational but has committed to NTC the following
(DICT, 2018):
● 37% coverage of the population in the first year
● 85% coverage of the population after five years of operations
● internet speeds of at least 55 Mbps over its five-year commitment period
Dito says it will invest more than USD 6 billion or Php 303 billion (ABS-CBN News,
2019). For 2018, capital expenditure of PLDT and the Globe Group are USD 1.15 billion or
Php 58.5 billion and USD 821 million or Php 41.6 billion respectively.
With the support of the government, Dito has successfully made it past hurdles to start its
operations in a relatively short time. It has secured all the necessary business permits including
congressional franchise and CPCN. It could now start its operations once it’s able to put up the
necessary network and system infrastructure.
The government also provides big support for Dito to establish its footing in the industry
through initiatives such as: (1) common telecommunications tower sharing, (2) Mobile Number
Portability (MNP) law, and (3) reduction of interconnection charges. Through these initiatives,
Dito will be able to maximize capital expenditure, expedite the rollout of network infrastructure,
and focus on establishing the necessary system to support its operations.

Today, Dito is yet to start its operations. It may also take some time for Dito to gain
market acceptance as the existing players are expected to defend market share. The government
effectively lowered the entry barrier and a new entrant made its way into the market. Increase in
the intensity of competition is inevitable.
4.4.2. Bargaining Powers of Suppliers: Moderate
As discussed in the Industry Structure Analysis - Supplier Concentration section, the
major suppliers of mobile providers in the country include (1) mobile technology developers and
mobile equipment manufacturers, (2) leading smartphone brands, and (3) IT providers.
Mobile technology developers and mobile equipment manufacturers have high
concentration due to high entry barriers and consolidation in the industry over the years.
Smartphone brands on the other hand have low concentration as many brands offer high
functionality at relatively low price while some brands like Apple and Samsung maintain
differentiation. Finally, IT providers are moderately concentrated as many firms offer IT services
for telecommunications companies but there is a skills gap despite the thousands of fresh IT and
engineering graduates joining the ICT sector each year.
High concentration from mobile technology and equipment providers should result in
high bargaining power if not for the similarly high concentration of mobile providers as there are
only few mobile providers in the country. Moreover, mobile providers establish strategic
partnerships, thereby concentrating themselves further resulting in increased bargaining power
against mobile technology and equipment suppliers. The bargaining power of suppliers is
moderate.
4.4.3. Bargaining Powers of Buyers: Moderate
As discussed in the Industry Structure Analysis - Buyer Concentration section, buyers
consist of millions of individual subscribers making concentration very low.

The mobile telecommunications industry is characterized by a predominantly low to
moderate income consumers who are provided with low switching barriers in using mobile
services. According to Tuha (as cited in Mamun et al, 2003), low-end users are more price
sensitive than customers with moderate usage. Having few options in mobile service providers
allows users to easily compare product and service offerings. Through expansive nationwide
distribution networks, mobile offerings in the market are readily available to consumers.
The mobile telecommunications providers have the upper-hand consolidating into merely
two operational players through a series of mergers and acquisitions(M&A) in the last decade,
but the price-sensitivity of consumers and low switching cost had urged players to provide
competitive products and services. The bargaining power of buyers is moderate.
4.4.4. Threat of Substitution: Low
Fixed and mobile wireless communications are not competing but are complementary
(Paul Budde, 2014). According to Budde, fixed broadband is preferred for its high bandwidth
capacity not easily achievable in mobile networks because of limitations in the use of available
frequencies. Mobile data is preferred for its portability but may be too expensive to be used for
data-intensive applications. For this reason, users often consume mobile data sparingly. Most
mobile applications provide options to download and upload data only when connected to Wi-Fi.
Switching between these two modes of digital communications is easy and can be automatic for
some devices switches immediately to Wi-Fi connections when available. Therefore, fixed
wireless communications services mildly substitute mobile data services.
OTT messaging applications gained popularity while service revenues from voice calls
and SMS eroded over the last five years. Data services are becoming the primary source of
revenue. OTTs are cheap and effective means of mobile communication offering many
functionalities not available through voice and SMS. OTTs have largely substituted voice and
SMS services.
In 2018, smartphones are the preferred device in playing games and in accessing the
internet (GlobalWebIndex, 2018). In the same report, smartphones are being used more than
laptops and tablets in ordering food for delivery, in uploading and sharing photos, in checking
the weather online, in using a map or getting directions, and in using messaging apps compared
to laptops and tablets. On the other hand, large devices such as laptops and desktops are
preferred for more important tasks (Moran and Flaherty, 2019).
In terms of mobile service subscription, there is an increasing use of 4G LTE. Though
older technologies could also provide mobile data connection, 4G LTE offers high speed and is
better suited for more data-intensive applications such as data streaming. Globally, 4G LTE is
currently the preferred technology for mobile services.
Considering the primary service in mobile telecommunications today is mobile data,
overall, there is low threat in substitution. Smartphones will be the preferred choice for mobile
devices, and users will continue to subscribe to mobile services especially 4G.
4.4.5. Competitive Rivalry: High
As discussed in Industry Concentration analysis, mobile services are highly concentrated.
Through a series of mergers and acquisitions in the last decade, the telecommunications industry
has consolidated into a duopoly. The few mobile communications brands in the market are
owned only by Smart and Globe. In 2017, PLDT and the Globe Group completed the purchase
of San Miguel, Corp.’s telecommunications unit, agreeing to split the payment 50-50 of the total
amount of Php 70 billion (Camus, 2017). Camus added, the companies defied the request of the
Philippine’s antitrust body to hold off the acquisition . High barrier of entry, duopoly, and
explicit coordination reduced the competitive rivalry in the industry.
The saturated mobile subscriber market is mostly prepaid services, contributing to 95%
of the total mobile subscriber market share. Only 5% are subscribed to postpaid services. The
low switching barrier, especially in prepaid services, increases competition.

Mobile providers cannot easily exit the market. The industry requires high fixed costs
that are generally sunk costs. The new entrant will pour in additional capital to the market to
expectedly matched by the existing players. Mobile providers maintained elevated capital
expenditure in recent years. In addition, advanced mobile technologies offer high capabilities to
fulfill demand for more data services. Moreover, as discussed in the Industry Structure Analysis -
Supplier Concentration section, prices of mobile telecommunications equipment are becoming
more affordable. These factors will increase overall network capacity in the country resulting in
increased competition. Competitive rivalry is currently moderate but is intensifying due to the
entry of the third player.
4.4.6. Conclusion
Table 16
Summary of Porter’s Five Forces
Force Low Moderate High

Threat of new entrants ✓
Bargaining power of suppliers ✓
Bargaining power of buyers ✓
Threat of substitutes ✓
Competitive rivalry ✓
Factors increasing competition in the mobile industry include (1) low switching cost, (2)
new entrant, (3) high capabilities and increased affordability of telecommunications equipment.
High entry barrier is one of the significant factors reducing competition.
Overall, the mobile telecommunications industry is moderately attractive to both the
incumbent and the new entrant. The improving capabilities and decreasing cost of mobile
technologies can be used to cater to the growing demand for mobile data services. The
continuous rollout and expansion of networks will significantly create capacity and will advance
competition. Currently, increased competition is necessary as the industry is highly
concentrated. High cost of mobile services is a usage barrier especially to a predominantly low-
end market. On top of the growing demand for data communications, lowered costs of mobile
services will increase usage. Intensifying competition might lower ARPU, reduce profitability,
increase the quality of mobile services, might increase churn rates, and it might also increase
overall service revenues.

4.5. Competitor Analysis
4.5.1. Competitor Profile
Smart only has two competitors in mobile telecommunications, Globe is the incumbent
that recently took the lead in subscriber and revenue market share while Dito Telecommunity
(Dito) is the new entrant that is expected to be operational in 2020.
4.5.1.1. Globe Telecom, Inc. (Globe)
Table 17
Select Company Business Information of Globe
Information Value
(as of the year ended 2018)
Services Fixed and wireless communications
Mobile Service Revenues, Market Share Php 92,255 million, 55.1%
Total Mobile Subscribers, Market Share 74.1 million, 55.06%
Coverage 95% in all municipalities in the Philippines
EBITDA, EBITDA margin Php 54,813million, 46.68%
Brands Globe Platinum, Globe Postpaid, Globe

Prepaid, Globe International
Number of employees 7,700 employees

Source: Globe, 2018
Globe is currently the market leader in mobile telecommunications. It was established
almost at the same time as Smart in the early 1990s. During the early years, Smart became the
market leader as it leveraged on the telecommunications assets of its behemoth parent company,
PLDT, while being the first mobile provider to offer prepaid services. Globe on the other hand
was the telecommunications arm of Ayala Corporation. The Ayala Group partnered with the
Singtel Group for both financial and technical assistance. Globe was solely providing postpaid
services in its early years and had historically maintained high ARPU. When Globe offered
prepaid services, the combined high ARPU of postpaid services, and increasing market share in
prepaid subscription had paved the way to market leadership.
In 2009, Ernest Cu was appointed as president. Prior to this, Cu was the President and
CEO of SPi Technologies, Inc., a technology and data science company. Cu was entrepreneurial
and has spurred the beginning of Business Process Outsourcing (BPO) in the country earning
him recognition as one of the founding fathers of BPO in the country(Globe, n.d.). Cu’s
visionary and transformational leadership enabled the company to build its competitive strengths.
In 2012, Globe had a market share of only 32%. Globe pursued key strategies defined under the
company’s “transformation house” shown in Figure 37. In this model, Globe identified network,
IT and systems, and talent and culture as pillars for commercial transformation. Basically, Globe
initiated digital transformation to build strong and innovative network infrastructure and
systems. Globe was able to capture the market shifting to mobile data. It offered G-cash, an e-
wallet service to leverage on telecommunications services. G-cash was widely accepted and
used among Globe subscribers. Currently, it is among few mobile providers in the world to offer
commercial products and services using the 5G technology. The 5G technology is potentially
disruptive in mobile communications but market demands are practically non-existent. Globe
commercial transformation established its competitive strengths including strong network
infrastructure, superior IT and systems, and market adaptability. In 2016, Globe equaled PLDT’s
mobile subscriber market share and in 2017, it finally took over the latter as the leader in mobile
telecommunications services in terms of both mobile subscribers and revenue.

Figure 37
Globe’s Transformation House
Source: Joshi et.al, 2018
Known for its postpaid service, its innovation, and management expertise, Globe was
able to establish differentiation by building a strong brand. Currently, Globe offers a streamlined
mobile brand portfolio, assigning one brand and product category for each market segment.
Globe Platinum is a differentiated postpaid brand for the upper market, Globe postpaid is for the
middle to upper market, Globe mainstream prepaid is for the middle market, and Touch Mobile
(TM) is for the value-sensitive market. Today, Globe shows higher profit margin and greater
operational efficiency than Smart as a result of streamlined brands, prudent use of capital, and
management expertise.
In the past decades, PLDT has taken into its hands the lowering of competition in the
industry through the acquisition of the Red Mobile and Sun Cellular brands. Globe, on the other
hand, is the result of the merger of Globe and Isla Communications Inc. (Islacom). Merger and
acquisition in the past decades resulted in a duopoly. Moreover, collusion, evidenced by the joint
venture of Smart and Globe to purchase San Miguel Corporation’s telecommunications unit,
further reduced competition in the market.
Today, the duopolistic structure of the mobile telecommunications industry is expected to
be disrupted by the entry of a third player. Merger and acquisition don’t seem to be a viable
option in managing competition as the government actively pursues increased competition in the
industry and has instituted reforms to guard the market against anti-competition practices.
Globe, being the market leader, will be the target of Smart’s aggressive move to regain lost
market share as well as Dito’s move to build its subscriber base. Globe is seen cooperative
towards the government's initiatives to increase competition including the tower sharing. Globe
is willing to divest some or all its communications towers. Tower sharing will enable mobile
operators to reduce cost and increase network coverage, but it will also allow the third player to
expedite the rollout of network infrastructure and start its operations. According to Globe’s
President, “the company does not want to go against what the customer wants, rather, it will
identify what the customer wants and find its place in the ecosystem”. Globe’s main strategy in
the succeeding years is to continue establishing a superior network using the latest technology in
mobile telecommunications, build strong IT and systems, and continue to establish an innovative
culture focused on customers.
4.5.1.2. Dito Telecommunity (Dito)
Dito Telecommunity Corporation (Dito), formerly known as Mindanao Islamic
Telephone Company, Inc., or Mislatel, is the new mobile telecommunications provider in the
Philippines. It is a Joint Venture Company of Udenna Corporation (Udenna), Chelsea Logistics
Holdings Corp. (Chelsea), and China Telecommunications Corporation (China Telecom).
The main impetus in the participation of Dito in mobile telecommunications is the recent
active stance of the government to increase competition in the industry. In the third State of the
Nation Address (SONA) of Pres. Rodrigo Duterte, he pledged to bring in a new player to ensure
reliability, affordability, and security in telecommunications services (Amojelar, 2018). Dennis
Uy, the chairman of Chelsea and chairman and CEO of Udenna, is a Davao-based businessman
who has close ties with the President (Ager, 2019).

Dito quickly overcame primary hurdles to enter the market as the time-sensitive endeavor
of selecting the third telco was aggressively driven by the government. The reappointed acting
secretary of the DICT, BGen. Eliseo Rio, Jr. is the same person who allowed the entry of the
previous third player, Sun Cellular. The establishment of the third telco is a personal legacy of
Rio. Through the support of the government, Dito was able to secure all business permits
required to start its operation including a congressional franchise and a CPCN.
Dito passed the DICT’s requirement for technical and financial capability to operate
mobile telecommunications on a national scale. China Telecom will provide the necessary
financial and technical assistance.
Currently, Dito is not yet operational. It plans to start operations this year, 2020. Among
the government initiatives helping Dito start its operations include (1) communications tower
sharing among mobile providers, (2) Mobile Number Portability (MNP) law, and (3) lowering of
interconnection charges.
Today, the main mission of Dito is to fulfill its commitments with the NTC including (1)
37% coverage of the population after the first year of operations, (2) 85% coverage after five
years of operations, and (3) internet speeds of at least 55 megabits per second over its five-year
commitment period. Failure to deliver commitment will result in forfeiture of P25.7 billion
performance bonds (ABS-CBN News, 2020).
Dito found some local allies in the person of businessman Luis “Chavit” C. Singson of
LCS Holdings, Inc. and with ABS-CBN Corp.’s Sky Cable Corp. (Sky Cable). Dito will use Sky
Cable’s unused fiber optic cables in Metro Manila and it will partner with LCS to put up shared
communications towers. In October 2019, the first common tower broke ground in Caoayan,
Ilocos Sur, near the historic town of Vigan and Singson’s zoo called Baluarte(Marasigan, 2019).
Singson’s Group partnered with Ua Withya Public Co. Ltd., a Thailand-based manufacturing
company, to build the tower. It plans to rollout as much as 70,000 common towers nationwide in
the next decade (Marasigan, 2019). Other firms seek to participate in building common towers
as well including a joint venture of Malaysia's edotco and Philippines' ISOC Infrastructure, Inc.
who would bring in a combined initial investment of USD 10 million to build 400 to 500
common towers in their first year of operations (Fenol, 2019). The building of common towers
by experienced firms from outside of the country will enable Dito to free up vital capital while
expediting the rollout of necessary network infrastructure. Dito can take advantage of the clamor
of various firms to gain market share in telecommunications tower manufacturing, building and
operations.
The natural competitive advantage of being a new player in telecommunications is the
ability to create a new network and system infrastructure using the latest technology without
being saddled by legacy systems. Two decades have passed since the establishment of mobile
telecommunications in the country. Mobile technology has evolved, making communications
much cheaper and more efficient than before. Today, the world is at the cusp of achieving a
breakthrough in mobile telecommunications with the 5G technology, although adoption of the
technology entails some risks because of the non-existence of market demands. Dito could at the
minimum benefit from the simplified architecture and standards in 4G Long-Term Evolution
technology, bypassing the insufficient capabilities of older mobile technologies. By using
advanced technologies, Dito can create a superior network and systems infrastructure to rival or
even surpass the incumbents’ infrastructure in select locations. Dito would benefit from effective
use of capital by not incurring obsolescence of assets. Dito could create systems that are more
efficient and more responsive to market changes.
Strategic partnership with China Telecom is also a key competitive advantage as the firm
works closely with Huawei, a leader in mobile technology development. China is one of the few
countries to develop 5G technology. In 2019, China Telecom and Huawei jointly released the 5G
Super Uplink Joint Technology Innovation solution in China, enabling unprecedented uplink rate
of 5G networks and reducing latency with its over-the-air interface (Huawei, 2019). Huawei is a
supplier of mobile technology and equipment to both Smart and Globe. Dito could leverage on
China Telecom to build a strong relationship with Huawei and have access to the latest in mobile
technology.
While Smart and Globe work on providing a wide range of products and services with the
latter citing customization as key in competitive offerings, a simplified portfolio would benefit
Dito. With fewer products and services, Dito could eliminate complexities to increase its focus
in establishing and cementing a strong and reliable system. Simplified brand, and products and
services will allow Dito to set minimal and more manageable expectations to consumers.
Global and local politics might have an impact on Dito. The U.S. is vigilant in the use of
telecommunications equipment from China and is actively influencing other countries to ban the
importation and use of Huawei products. Many countries do not heed the call of the U.S. and
have continuously worked with Huawei in enhancing network infrastructure citing precautionary
and backup measures are in place to counter cybersecurity threats. Locally, it is important for
Dito to start its operations before the end of the term of Pres. Duterte. Pres. Duterte is the
primary factor in the ability of Dito to enter the market. The company might face various
opponents once the president is no longer in power.
Poor network quality and availability relative to peers signify the market is still
susceptible. Like other mobile operators, Dito should also cater to the demands in mobile data.
Subscribers want cheaper prices and higher quality of mobile services. The increased capacity
and increased competition brought by Dito will result in decrease in ARPU, increase in churn
rates, decrease in the incumbent’s profitability, and improvement in the overall quality of mobile
services in the country.
For now, the country is still waiting for Dito to start its operations, eager to see what
place it will take in the mobile telecommunications ecosystem.

4.6. Mobile Subscriber Market Share
The total mobile subscribers are shared only by Smart and Globe. Dito Telecommunity is
currently not yet operational and therefore holds zero market share.
The Sun Cellular brand should be independent from the Smart brand because PLDT
agreed with NTC to maintain Sun as a separate brand when it acquired Digitel including its
subsidiary Digitel Mobile Philippines, Inc. (DMPI), carrier of the Sun brand. NTC mandated
PLDT to continue offering Sun’s unlimited services. On August 1, 2016, DMPI’s trademark and
subscribers including all DMPI’s assets, rights and obligations related to its postpaid cellular and
broadband subscribers was transferred to Smart (PLDT, 2018). This is to integrate and simplify
the wireless business segment. The transfer was completed on November 1, 2016 and only the
prepaid cellular business remained with DMPI. The separation of the Sun prepaid brand is a
technical maneuver to comply with NTC. PLDT reflected the Sun prepaid brand as part of the
whole wireless business segment for mobile, thus, the Sun prepaid brand is treated in this paper
as part of the Smart.
Total mobile subscribers are dominated by Globe, cornering 55.1% of the market share
while Smart corners the rest at 44.9% of the market share shown in Figure 38. Globe has taken
over Smart mainly due to its adoption of prepaid services, and in recent years, its dominance in
mobile data services.

Figure 38
Total Mobile Subscribers, 2018
Figure 39 shows the distribution of total mobile subscribers by service type. Globe
dominates both postpaid and prepaid categories with slightly higher market share in prepaid
compared to postpaid.
Figure 39
Total Subscribers by Service Type, 2018
Figure 40 shows the distribution of total mobile subscribers by brand. The Globe brands
TM and Globe prepaid cornered two of the highest market shares at 27.4% and 25.7%,
respectively. This is followed by the Smart brands TNT and Smart prepaid cornering 23.7% and
15.3% of the market share, respectively. Sun prepaid concerned 4.27% of the market share. The
postpaid brands captured less than 5% of the market share.

Figure 40
Total Subscribers by Mobile Brand, 2018
Market share analysis of mobile subscribers show Globe dominated all the mobile service
categories: postpaid, mainstream prepaid, and value-sensitive prepaid. The separation of Smart
and Sun brands did not help in establishing a dominant network of subscribers in respective
categories; it may have instead fragmented the Smart brand. Carrying the Sun brand is not a
strategic move but a technical maneuver to comply with NTC.
4.7. Service Revenue Market Share
In 2017, Globe made a breakthrough by finally overtaking Smart as the leader in mobile
telecommunications in terms of revenue. Figure 41 shows Globe followed an upward trend while
Smart did the reverse in the past three years,. It also shows Globe and Smart switched places in
2017, the former now being the market leader in mobile service revenue. Figure 41 shows Globe
dominated the mobile service revenue at 55.1% of the market share while Smart cornered the rest
at 44.9% of the market share in 2018.

Figure 41
Mobile Service Revenues, 2016-2018
Source: PLDT, 2016-2018
Figure 42
Mobile Service Revenue Market Share Distribution, 2018
Globe overtook Smart in total number of subscribers and in mobile service revenues. In
the early decades of mobile telecommunications, Smart had captured most mobile subscribers by
being first in offering prepaid services. This form of “sachet marketing” had been successful in
catering to the low-income market. Globe was then offering only postpaid services and
maintained high ARPU. When Globe started offering prepaid services, it slowly increased its
market share. The combination of prevailing high ARPU in postpaid services and increasing
market share in prepaid subscription eventually made Globe the market leader in mobile
telecommunications. It also successfully captured the emerging market for mobile data.
Market share in mobile service revenue is directly proportional to the market share in
mobile subscription. Enterprises that made the first move in capturing the shifting market had
become the leader in mobile telecommunications.

5. Competitive Profile Matrix
5.1. CSF 1: Network Speed and Availability
Table 18
Network Speed and Availability Weight of Importance and Rating
Weight Smart Globe Dito
15% 4 3 1
Nwakanma et. al(2018), in their study of subscriber switching among network providers
in Nigeria, identified network coverage and network quality as top two of the five factors
influencing switching to other networks. This factor is given the highest weight of 15% because
it has a direct correlation to service demand, and ultimately, to the success of the business. This
metric is indicative of the integration of the underlying components of good network experience
such as infrastructure, financing, and management.
Smart exceeds Globe in four of five criteria in mobile experience as shown in Figure 43.
Smart is at part with Globe in 4G availability, but it is more superior in terms of video
experience, download and upload speed, and latency experience.
Figure 43
OpenSignal Mobile Experience Awards, Philippines, September 2019
Source: OpenSignal, September 2019

Smart and Globe are at par in 4G availability as shown in Figure 44. 4G services of
Globe are available 75.3% of the time while services of Smart are available 74.3% of the time.
Figure 44
4G Availability Report, September 2019
Smart far exceeds Globe in video experience as shown in Figure 45. In a scale of 0-100,
Smart scored 47.6, translated as fair video experience, while Globe scored 30.4, translated as
poor video experience. To quantify performances in this criterion, video streams from end-user
devices are measured in terms of load times, stalling, and video resolution over both 3G and 4G
networks using an ITU-based approach.
Figure 45
Video Experience Report, September 2019
Smart far outweighs Globe in both download and upload speed experience as shown in
Figure 46. Smart’s download speed reached 9.4 Mbps while Globe reached 6.5 Mbps. Smart’s
upload speed is 3.3 Mbps while Globe’s speed is 1.7 Mbps. As discussed in the Industry
Performance Analysis - Network Quality and Performance section, overall speed is highly
correlated to video experience for those belonging to the lower range (Opensignal, 2018).
Therefore, the result showing Smart is better than Globe in video experience is in line with the
result showing the former has faster overall speed than the latter.
Figure 46
Download and Upload Speed Experience Report, September 2019
Finally, Smart is better than Globe in latency experience as shown in Figure 47. Latency
is the time it takes for a media being downloaded to be usable. A lower latency figure translates
to a more responsive network. Smart’s latency at 61.9 ms is 2.3 ms shorter the Globe’s 64.2 ms
latency. OpenSignal (2019) considers the 2.3 ms difference as significant to award Smart as a
winner in this criterion. The difference in latency is relatively narrow as both companies employ
the same mobile technology, 3G and 4G LTE. As discussed in the Technological External
Factors section, 5G technology would provide significantly lower latency.

Figure 47
Latency Experience Report, September 2019
Mobile network experience is the performance of the provider’s network infrastructure
and systems. One major advantage of Smart over Globe is the integration of its wireless
infrastructure to PLDT’s network that the company claims as having the Philippine’s most
extensive fiber optic backbone. Globe was first to achieve high scores in mobile experience but
recently, through the aggressive rollout of 4G LTE, Smart significantly improved its
performance to rival and exceed Globe. Fitch Solutions (2019) gave the same ratings to PLDT
and Globe in technology and network criteria as shown in Figure 48.

Figure 48
Asia-Pacific Telecommunications Rating for Network Infrastructure and Performance
Source: Fitch Solutions, 2019
Dito aims for a speed of connection of 55 Mbps over its 5-year commitment period. To
take this target speed in context, South Korea achieved the highest speed of connection globally
with a download speed of 45 Mbps (Opensignal, 2018). Dito may be setting an unrealistic target
given its infrastructure, target population coverage, and timeframe. The 5G technology is
capable of providing higher speed of connection and lower latency than 4G LTE, but the
technology requires 5G frequencies that are limited and numerous mini 5G towers. Moreover,
5G technology is susceptible to weather disturbances such as heavy rains. High speed of
connection alone cannot guarantee an excellent video experience from the way Opensignal
measures the criterion. Dito will have to invest a big amount to be at par with existing mobile
players.
Smart showed a stronger performance in mobile experience with its strong network
infrastructure. Smart and Globe have comparable 4G availability, but the former is more superior
in network quality. This factor is a major strength(4) of Smart and a minor strength(3) of Globe.
It is a major weakness(1) of Dito as the new entrant has not yet established an operational
network infrastructure.
5.2. CSF 2: Product and Service Offerings and Pricing
Table 19
Product and Service Offerings and Pricing Weight and Rating
13% 3 4 1
Network infrastructure is monetized through products and services capturing the market.
The successful approach towards the predominantly low-income but willing subscribers
of mobile services had been “sachet marketing”(Trendwatching, 2004), where prices are broken
down into much smaller denominations(Anderson, 2006). Such approach still seems to be
effective today with most subscribers, more than 95% of total subscribers, opting for prepaid
services. On the other hand, the continuous growth of the economy resulting in higher income
may change the dynamics of the consumer market (Ferrolino, 2019). There are now more than
71 million prepaid subscribers and more than 5 million postpaid subscribers in the country.
Another approach is price discrimination whereby mobile operators offer different
packages at different price points. This is to cater to different segments with different needs.
Globe is more adept in this approach compared to Smart as it offers a wider range of price points
and more customizable products. Globe offers data packages higher than 2G including unlimited
time-bound internet surfing not offered by Smart.
Bundling is done to sell less desirable products with the more desirable products. This is
to increase the uptake of less desirable products such as voice and SMS. Both Smart and Globe
bundle voice calls and SMS services with mobile data.
As discussed in the Industry Conduct Analysis - Product and Service Offerings and
Pricing section, the mobile providers are seen mimicking each other’s offerings and pricing. A
close inspection shows Globe offering a slightly wider variety of price points. For data packages
in the range of Php 10-149, Globe provided eight different price points while Smart provided six.
Where prices are the same, inclusions are the same. For the 2 GB offering, Globe is slightly
cheaper than Smart at Php 90 compared to Php 99. Globe offers data packages as low as Php 10
and Php 15, and also offers 3 GB and 4 GB data packages not offered by Smart. The 2 GB
offering of TNT at Php 149 is higher than Globe’s 4 GB offering at Php 140, twice the mobile
data inclusion at a slightly lower price.
Globe provides more packages to choose from. It also offers slightly cheaper prices for
low mobile data offerings (e.g. less than 2 Gb packages), and significantly cheaper prices for
higher mobile data offerings (e.g. 3 Gb and 4 Gb packages). Globe prepaid and TM offerings are
complementary and simplified as these brands don’t offer the same packages. TM covers the
lower price points while Globe prepaid offers higher price points. Smart on the other hand, offers
practically the same bundles through its three brands, Smart prepaid, Sun prepaid and TNT.
As discussed in the Competitor Analysis - Dito Profile section, a simple portfolio would
work well for the company to allow it to avoid complexities while establishing and cementing its
system. Unless Dito offers significantly lower prices that are expected to be matched by the
existing players, the company will be less superior with a limited variety of products and
services. So far, Dito is yet to start its operations and advertise its offerings.
The products and services of both Smart and Globe successfully captured the mobile
telecommunications market. With better coverage of the different price points, slightly cheaper
prices, and consolidated offerings of its brands, Globe is given the highest rating. This factor is a
major strength(4) of Globe, a minor strength(3) of Smart, and a major weakness(1) of Dito.
5.3. CSF 3: Financial Flexibility
Table 20
Financial Flexibility Weight of Importance and Rating
12% 3 4 1
Financial flexibility is a key factor in the ability of mobile providers to build the
necessary infrastructure. It is recognized by the NTC as an important factor in the feasibility of
the third telco to gain footing in the industry. Php 10 billion minimum capitalization is the
requirement for the third telco. In a capital intensive industry such as mobile
telecommunications, funding is important in implementing strategies to steer the company in the
right direction.
Table 21 shows how capital expenditure is spent by telecommunications providers in the
country.
Table 21
Telecommunications Capital Expenditure, 2018
Amount
Group Description
(in million Php)
Smart 31,884 for the expansion of LTE (4G) coverage and capacity
used to finance the modernization program , expansion of
PLDT 15,252 domestic fiber optic network, and expansion of data center
business
Globe 43,259 for network upgrade and expansion
Table 22
Financial Performance Indicators for the Year 2018
Financial Flexibility Indicators (as of FY 2018)

Industry
Indicator PLDT (Smart) Globe Group Dito
Benchmark
Revenue 164,752 132,875 --
EBITDA 64,027 65,127 --
EBITDA margin 30-35% 41% 46% --
Net Income After Tax (NIAT) 18,973 18,626 --
Capital Expenditure 48,771 43,259 ~10,000
Total Debt 176,276 148,282 --
Total Debt to EBITDA Ratio 2.0X 2.75 2.33 --
Net CFs from operating
61,116 57,851 --
activities
CF/CAPEX 1.25 1.34 --
CAPEX/Revenue 18.3% 30% 33% --
Source: PLDT and Globe, 2018; Frisiani et. al, 2017; S&P Global Ratings, 2018
Table 22 shows the different indicators used to compare the financial flexibility of the
PLDT(Smart), the Globe Group and Dito. PLDT has higher total revenue but lower EBITDA
than Globe. NIAT of PLDT is marginally higher than Globe. For 2018, PLDT’s capital
expenditure is higher than Globe by Php 5,512 million or 12.74% of Globe’s capital expenditure.
In 2018, PLDT has a higher total debt than Globe. Moveover, the latter has higher
EBITDA. Consequently, PLDT has a higher total debt to EBITDA ratio than the Globe Group
which means that it will take it longer to pay back all of its debt using its profits. This makes the
Globe Group more financially flexible in considering debt and profitability.
The cash flow to capital expenditure (CF/CAPEX) of the Globe Group is higher than the
PLDT. The latter has higher net cash flow from operating activities but is also more aggressive
in capital expenditure compared to Globe.
Figure 49 shows Globe having higher financial flexibility than PLDT represented by the
gap between the negative and positive threshold identified by Fitch Solutions (2019) in their
study of peer comparison of telecommunications companies in Asia-Pacific. It also shows the
current state of leverage of the companies vis-a-vis leverage sensitivity.
Figure 49
Rating Headroom by Leverage
Source: Fitch Ratings, 2019
Dito has not yet revealed how it will raise capital to build its infrastructure. It planned
and retracted backdoor listing through ISM Communications Corp. The ownership of China
Telecom is limited to 40% of the company, limiting equities coming from it as partner of Dito.
Capital may be raised through debt, the way other mobile providers did. The maturity of mobile
technologies, including 4G LTE and 5G, contributes to increased network capacity at reduced
costs. The use of advanced mobile technology reduces risk of asset obsolescence and ensures
effective use of capital. Moreover, common tower infrastructure builders and operators will
take part in investing in mobile telecommunications infrastructure, an option previously not
available to mobile providers. Dito may have less financial flexibility due to the high capital
needed to build massive infrastructure but the company will benefit from efficiencies brought by
the advanced technologies and regulations supporting buildup of network infrastructure.
In summary, PLDT may have higher service revenue but Globe is more efficient. PLDT
generates more cash than Globe and is more aggressive in its capital expenditure. The efficiency
of Globe offsets its lower ability to generate revenue compared to PLDT. PLDT and Globe are
well-positioned in taking high capital expenditure, as high as five times the initial investment
requirement of the third telco. They both have financial flexibility. Dito is supported by the
current technology and regulations to effectively use capital but is less financially flexible
because of the capital needed to build massive infrastructure from the ground.
Financial flexibility is a major strength(4) of Globe, a minor strength(3) of Smart, and a
major weakness(1) of Dito.
5.4. CSF 4: Subscriber base
Table 23
Subscriber Base Weight of Importance and Rating
11% 3 4 1
According to Koi-Akrofi (2012), the subscriber base has positive correlation to net profit,
total revenue, earnings before income tax, and total assets and noncurrent assets. Koi-Akrofi
recommended effective management of assets as necessary in generating huge revenues to be
reinvested to improve service delivery. According to Smart (2018), erosion of its revenue was
partly caused by the loss of subscriber market share. The cost of putting up infrastructure is
shared among the mobile subscribers. With low revenue per user, a monthly blended ARPU of
Php 106 for Smart and Php 103 for Globe, the key in profiting from high capital expenditure is
in volume.
Another benefit from having a large number of subscribers is the ability to gather
customer information collected during registration and cancellation of services. Customers are
required to provide personal information and could be asked about views on products and
services. Customer segmentation could be derived from their behavior and preferred usage of the
network. This information could help mobile providers in operations and marketing analysis.
As shown in Table 24, Globe has around 13 million more subscribers than Smart, a
difference of around more than 10 percent of the mobile subscriber market share. It has a greater
number of subscribers for both postpaid and prepaid services, 5.86% and 10.27% more
subscribers, respectively.
Table 24
Subscriber Base, 2018
Total Postpaid Prepaid

Company
Subscribers % Share Subscribers % Share Subscribers % Share
Smart 60,499,017 44.94% 2,320,039 47.07% 58,178,978 44.86%
Globe 74,109,027 55.06% 2,609,027 52.93% 71,500,000 55.14%
Difference 13,610,010 10.11% 288,988 5.86% 13,321,022 10.27%

Dito has zero subscribers as it is yet to start its operations expectedly at the second half of
2020. Dito targets 30% of the market share in its first year of operations, an ambitious number
given Sun Cellular gained only 5% of the market share at the most even when its entry was met
by high market acceptance in response to aggressive market penetration initiatives such as
frequent advertising and substantial price reduction with its unlimited voice calls and SMS
services. Dito would have to implement similarly aggressive market penetration strategy to gain
substantial subscriber base.
Subscriber base is a major strength(4) of Globe, a minor strength(3) of Smart and a major
weakness(1) of Dito.
5.5. CSF 5: Market Adaptability
Table 25
Market Adaptability Weight of Importance and Rating

10% 2 3 1
Market adaptability is a proven critical success factor based on historical results in the
Philippines mobile telecommunications. The network who takes the lead in catering to new
market demands gains upper hand. Smart became the market leader when it was first to introduce
prepaid services then Globe took over when it was first in capturing the market shifting to mobile
data.
Today, customers are changing the way they use mobile services, technologies are
becoming obsolete and technological advancements are disrupting the business landscape. These
changes are shaking the incumbents’ position in the market, they are changing revenue streams,
and they are taking the industry into a new direction.
Market adaptability is enabled by 1) the ability to identify market trends, 2)
transformational leadership, 3) systems agility to respond to changes, and 4) alignment of assets
to new market demands.
5.5.1. Market adaptability through transformational leadership
Among the three providers, Globe exhibited the highest degree of transformational
leadership through Globe president, Ernest Cu. Cu has the necessary ICT background to create a
path for Globe towards “commercial transformation”. Through Cu’s transformational leadership,
the company made bold investments for modernization. Globe is first to respond to the demands
of mobile data, and now, it's one of the few mobile providers in the world to commercialize 5G.
Cu’s leadership took Globe from being a laggard in the industry to a modern and innovative
market leader in mobile telecommunications.
Smart is led by Manuel Pangilinan as chairman and Alfredo Panlilio as president. The
leadership of Smart is equally competitive and business savvy. The dominance of Smart is the
result of aggressive subjugation of the industry with a series of acquisitions leading to high
concentration in the market. Smart had shown innovation by being the first in bringing prepaid
services to the market. However, the leadership of Smart has become traditional rather than
transformational. In a way, the youthful and energetic vibe of Smart was dragged by PLDT’s
slow and bureaucratic style of management. Smart is now marked with an aging workforce and
systems. Its network infrastructure is competitive, but the company has not shown evidence of
innovation in recent years. It was late in adopting new mobile technologies which resulted in
loss of market share, and ultimately, loss of market leadership.
Dito has not installed a leader dedicated to the mobile telecommunications business.
Dennis Uy, chairman of Udenna is the de facto leader of Dito. He is a bold businessman who is
taking advantage of his close ties with President Duterte by taking on businesses being opened
by the government. So far, Dennis Uy has shown lack of expertise in mobile telecommunications
and had made unsupported remarks on how Dito will position itself in the market. The 30%
target market share is ambitious, the 55 Mbps mobile internet speed may be unattainable. The
company is not making significant progress despite the support given to it by the government.
Dito’s leadership does not contribute to market adaptability.
5.5.2. Market adaptability through lean brand portfolio
Globe’s streamlined brand portfolio contributes to market adaptability. Globe carries only
four brands to cater to the different market segments, Smart carries seven. Dito is carrying one
brand so far and is not yet operational. When offering new products and services, the company
needs to promote them through these brands. The bloated brand portfolio of Smart dilutes efforts
in promoting products and services. For example, while Globe operates more than 200 stores, the
stores of Smart are divided between its Smart and Sun brands, totaling to around 100 stores for
each brand. This reduces the availability and accessibility of the products and services of the
different Smart brands. The consolidation of marketing resources through the lean brand
portfolio of Globe contributes to high market adaptability.
5.5.3. Market adaptability through agile systems and marketing platforms
Globe considered IT and systems as one of the pillars in its “commercial transformation”.
When the strategic initiative was completed, Globe created a competitive strength in the form of
advanced IT and systems allowing the company to offer new products and services and bill the
customers correctly. The system also includes digital platforms with high market acceptability.
G-cash, an e-wallet application allows Globe subscribers to spend digital money. The application
requires each user to enter personal information such as real name, age, gender, and address
among others. This information allows Globe to build a powerful database of real and accurate
information about its customers. The advanced IT and systems of Globe contributes to its market
adaptability.
PLDT previously focused on integrating its systems, consolidating the systems of the
PLDT, Smart, DMPI, and ePLDT. Its digital platforms do not enjoy high market acceptability.
Though the company is also capable of gaining marketing insight from user transactions of its
digital services, especially from its postpaid services where users are also required to supply
personal information, the company does not gain additional advantage from its IT and system.
Dito has not established an operational IT and systems but it should benefit from lean and agile
systems using purely advanced digital technology. The company will not be slowed down by
legacy systems unlike other mobile operators.

5.5.4. Market adaptability through alignment of assets to market demands
Recently, Smart has become more competitive in the mobile data market. The company
leverages on the strong network infrastructure of PLDT to cater to the demands of mobile data.
Moreover, Smart expedited the roll out of its 4G LTE network expansion. Globe is now lagging
in terms of network performance. The alignment of Smart’s assets in network infrastructure
allowed it to cater to the emerging demands in mobile telecommunications.
Overall, Globe is superior in market adaptability because of 1) transformational
leadership, 2) advanced IT and system, 3) widely accepted digital platforms, and 4) lean brand
portfolio. On the other hand, Smart shows market adaptability primarily with its business
acumen, and with the alignment of its strong network infrastructure assets to the emerging
demands in mobile internet. Market adaptability is a minor strength(3) of Globe, a minor
weakness(2) of Smart, and a major weakness(1) of Dito.
5.6. CSF 6: Strategic Partnership
Table 26
Strategic Partnership Weight of Importance and Rating

10% 3 3 4
Strategic partnership is an arrangement between two companies or organizations to help
each other or work together, to make it easier for each of them to achieve the things they want to
achieve (Cambridge Dictionary, n.d.). According to Hae-Chul Lee (1999), in a borderless
competition brought by globalization, strategic alliance or partnership is particularly beneficial to
telecommunications operators. These benefits may include acquisition or sharing of information
on new technologies and markets, sharing of complementary resources, and dispersion of
political and economic risks in unstable markets.

The strategic partners of PLDT, the Globe Group, and Dito are NTT Docomo and NTT
Communications, Singtel, and China Telecom, respectively. NTT Docomo and NTT
Communications together beneficially owned approximately 20% of PLDT’s outstanding
common stock as at December 31, 2018 and 2017 (PLDT, 2018). On the other hand, the joint
venture of Ayala Corporation and the Singtel Group, Asiacom Philippines, Inc., owns 100% of
the preferred shares of the Globe Group (Globe, n.d.). China Telecom owns 40% of Dito.
5.6.1. PLDT, Smart, NTT Docomo, and NTT Communications
NTT Docomo, established in 1992, a year after the incorporation of Smart in the
Philippines, is Japan's largest telecommunications company providing mobile services to around
73 million customers via advanced wireless networks, including a nationwide LTE network and
one of the world's most progressive LTE-Advanced Networks(NTT Docomo, n.d.). It is a world-
leading developer of 5G networks with plans of deploying the technology in 2020. It is driving
innovation on NFC infrastructure and services, emerging IoT solutions and many other mobile-
related initiatives. Outside Japan, it provides technical and operational expertise to mobile
operators and other partner companies, and contributes to the global standardization of new
mobile technologies.
NTT Communications is a wholly owned subsidiary of Nippon Telegraph and Telephone
Group. It provides a wide range of Information and Communications Technology (ICT)
solutions including cloud, network, and security services, helping customers to strengthen
competitiveness, enter new markets, and develop new businesses (NTT Communications, n.d.).
PLDT considers its strategic partnership with NTT Docomo and NTT Communications
as one of its competitive strengths. Through its partnerships, PLDT believes its market
leadership and its ability to cross-sell a wider range of products and services is enhanced. PLDT
and NTT DOCOMO agreed to collaborate with each other on the business development, and
roll-out and use of a Wireless-Code Division Multiple Access mobile communication network.
In addition, PLDT agreed to become a member of a strategic alliance group for international
roaming and corporate sales and services, and enter into a business relationship concerning
preferred roaming and inter-operator tariff discounts with NTT DOCOMO.
5.6.2. Globe and Singtel
Singtel is Asia’s leading communications technology group, providing an extensive range
of telecommunications and digital services to consumers and businesses across Asia, Australia,
Africa, and the United States. It serves more than 700 million mobile customers in 21 countries,
including Singapore, Australia (via wholly owned subsidiary Singtel Optus), and the emerging
markets of India, Indonesia, Philippines, Thailand, and Africa. The Group has diversified beyond
its core carriage business into InfoCommunications (ICT), cybersecurity, and digital marketing.
Its carriage business generates steady cash flows, while the digital operations are its growth
engines into the future (Globe, n.d.).
Ayala Corporation needed Singtel to diversify into telecommunications from its other
businesses in real estate, banking, water, power, industrial technologies, infrastructure,
healthcare, and education (Globe, n.d.). According to Globe (2018), aside from providing
financial support, the partnership with Singtel has created various synergies and has enabled the
sharing of best practices in the areas of purchasing, technical operations, and marketing among
others. Globe and Singtel have business agreements including interconnection, and technical
agreements where the latter will provide consultancy and advisory services, including those with
respect to the construction and operation of former’s network communications equipment
procurement and personnel services. In addition, they also have agreements on software
development, supply, license and support arrangements, lease of cable facilities, maintenance
and restoration costs and other transactions (Globe, 2018).

5.6.3. Dito and China Telecom
China Telecom owns 40% of Dito. It is one of the world's largest providers of integrated
telecommunications services with subsidiaries in 27 countries and regions, 63 overseas point-of-
presence, and owns more than 9T capacities in international connectivity bandwidth and
intercontinental capacity, and resources on 33 submarine cables (China Telecom, n.d.).
The partnership of the Philippines and China in putting up the third telco is part of the "
Belt and Road (B&R) Initiative '' of China. This initiative includes industrial cooperation
encouraging direct investments from China in B&R countries (Bicheno, 2019). One main
implicitly identified contributor to the entry of the partnership in the industry is the close ties of
President Rodrigo Duterte to both the chairman of Udenna, Dennis Uy, and to the Government
of China. Pres. Duterte pledged in his State to the Nation Address (SONA) to introduce a third
player in the highly concentrated mobile telecommunications industry. Udenna is in the business
of distribution and retail of petroleum products and lubricants, and through Chelsea, it is also
engaged in shipping and logistics. Udenna and Chelsea don't have experience in the business of
telecommunications. China Telecom will provide the necessary financial and technical expertise;
on the other hand, China Telecom benefits from increased geographical footprint by penetrating
the Philippine mobile telecommunications market.
China Telecom is state-owned. It means commercial activities are done on behalf of the
Government of China. Giving China Telecom the authority to operate the country’s mobile
telecommunications is perceived by some as a risk at it may expose the government and the
people to cybersecurity and data privacy threats.
China Telecom works closely with Huawei. Huawei faces trade ban in the United States
for the same concerns of cyber security risks. Huawei has vague ownership as the company
declares it is entirely owned by its employees, and no outside organization, including any
affiliated with the Chinese government, own shares (Zhong, 2019). Huawei and China Telecom
are leaders in mobile technology. Huawei works with mobile operators in different countries as a
partner in building network infrastructure using advanced mobile technology including 5G.
Many countries do not heed the call of the U.S. to follow suit in banning Huawei, citing
precautionary and backup measures are existing to ensure integrity of networks.
Dito's partnership with China Telecom drastically improves the company’s probability of
success by being provided with financial and technical support; however, it raises the perceived
risk in the integrity of the company’s network against cybersecurity and data privacy threats
from the operator itself.
NTT Docomo, Singtel, and China Telecom are all leading mobile operators with strong
revenue streams by serving countries with large economies. All three are at the forefront of
mobile technology. NTT Docomo and Singtel have collaborations in a groundbreaking work on
trial usage of single worldwide SIM cards (Singtel, 2013). China Telecom has a collaboration
with mobile technology developer, Huawei. China Telecom is more controversial than Singtel
and NTT Docomo as it is state-owned by China. PLDT and Globe were successful in their
partnerships as both companies were able to expand their network and secure market share.
China Telecom drastically increases the chance of Dito in establishing footing in the industry.
Being a budding telecommunications company, Dito gains more benefit in its partnership than
Smart and Globe with their respective partners.
This factor is a major strength(4) of Dito, and a minor strength(3) of Smart and Globe.
5.7. CSF 7: Customer Service
Table 27
Customer Service Weight of Importance and Rating

9% 2 3 1
According to Burton (2011), customer service helps produce an environment conducive
to loyal customers and is often cited by small-business owners as the factor most important in
establishing and maintaining a successful company. On the other hand, in a study of factors
affecting the decision of a subscriber to switch networks in Nigeria (Nwakanma et al, 2018),
customer care or customer service has the weakest correlation among the factors considered by a
telecommunications subscriber to switch network.
According to Cooper and Fawcett (2000), customer service measures internal service
levels and focuses on what the firm can do while customer satisfaction is externally oriented and
can be measured through customer feedback.

Table 28
Average Monthly Churn Rate, 2016-2108
2018 2017 2016
Smart prepaid 6.5% 6.7% 7.6%

Sun Prepaid 6.1% 7.7% 8.8%
TNT 5.8% 6.8% 6.3%
Globe Prepaid 7.7% 6.8%
TM (Prepaid) 8.0% 6.8%
Smart postpaid 2.0% 2.3% 4.8%
-Sun Postpaid 3.5% 3.5% 6.4%
Globe Postpaid 1.8% 2.5% 3.3%

Note. For the Prepaid combined subscriber count, Prepaid ARPU, SAC and churn rate for 2017 and 2018, there is
no year-on-year comparison given the impact of the prepaid load validity extension to one (1) year in 2018;
Overall, there is no pattern on the churn rates seen as common among the different
mobile brands. For prepaid services, Smart brands improved their churn rates from 2016 to 2018
while Globe brands showed worse churn rates in 2017 compared to 2016. For postpaid services,
Globe showed the lowest churn rate at 1.8%, followed by Smart and Sun brands with churn rates
of 2.0% and 3.5%, respectively.
Customer satisfaction of Smart and Globe can be partly measured by the churn rate.
Churn rate is the annual percentage rate at which customers stop subscribing to a service. Table
28 shows the change in subscriber base for 2016-2017 and 2017-2018. For 2018, values may be
inflated because the expiration date of prepaid load, and subsequently of SIM cards, was adjusted
to one year pursuant to Joint Memorandum Circular No. 05-12-2017 by NTC, DICT, and
Department of Trade and Industry (DTI). Prepaid load is now valid for one year regardless of
amount, resulting in reactivation of previously deactivated SIM cards that had been dormant for
more than three months.

In 2018, Smart focused on improving the capability of Sun customer service by enabling
customer service agents to fulfill service requests at the time of customers' calls. The result is
faster resolution of customer issues, reduced repeated interactions, a callback feature for
abandoned calls, and ultimately improved customer experience when engaging through the
hotlines (PLDT, 2018). Resolution rates for technical concerns improved from 20% to 70-80% in
2018. Dedicated contact center agents were allocated for Sun prepaid customers and retailers in
Cebu as part of the relaunch efforts for Sun in Cebu.
PLDT’s metric for customer satisfaction or experience is shown in Figure 50. Some
indicators may indirectly translate to customer satisfaction such as customer waiting time, time
to restore, after-sales fulfillment rate, percentage of calls answered within set threshold while
other indicators are focused on efficiency and productivity such as repair tickets created and
social media speed of answer. The way PLDT and Smart measure customer satisfaction is
traditional and may be ineffective.
Figure 50
Customer Support Metrics of Smart and PLDT, 2017-2018
Source: PLDT, 2018

Globe integrated technology and people and engaged both employees and customers in
developing customer service solutions. Globe Community is a platform where customers can
engage in user-research and co-designing processes prior to product and service launches. It is
now participated by around 200,000 customers and growing. User-centered design practices are
adopted so customers influence every aspect of the business.
In 2018, the company started delivering cloud-based intelligent omni channel routing and
interaction management allowing correspondence through web, portal, self-service and mobile
applications, social media and messaging platform, hotline, and email. This initiative was done
in collaboration with Amdocs, a provider of software services and Amazon Web Services(AWS),
and powered by technologies such as AI, machine learning, and a desktop application enabling
front liners to assist customers efficiently.
Through the Learning Globe Wonderful Service (LGWS), employees, “Ka-Globe”, are
taught how to address customer concerns efficiently using a common service language., The
learning process is made effective by mixing classroom training with immersions.
Finally, Globe uses the Net Promoter Score (NPS) tool to gauge customer loyalty. By
enabling frontlines to efficiently address customer concerns, the company was able to raise its
NPS from 28.9% to 38.3% for 2017 and 2018, respectively (Globe, 2018).
Table 29
Company Facebook Page Indicators, January 1, 2020
Facebook Indicators Smart Globe Dito
Page Followers 4,621,867 5,419,787 2,864
Page Likes 4,609,381 5,395,216 2,699
Typically replies Very responsive to

Responsiveness
within an hour messages
Random advertisement
reactions:
Angry 10.54% 7.02%
Heart 7.70% 15.27%

Likes 72.96% 70.16%
Heart and Likes 80.66% 85.43%
Other 8.80% 7.56%

Source: Smart, Globe, and Dito Facebook pages.
Social media indicators, though informal and inaccurate, show the reception of
consumers to the companies’ products and services, and customer services. Globe having the
highest page likes and following as shown in Table 29 is in line with having the largest
subscriber base. The responsiveness of Globe is better than Smart as it is “very responsive to
messages” while Smart typically replies within an hour. In a sample random advertisement
posted by Smart and Globe, the former received higher “angry” reactions, at around 10%
compared to the 7% reaction with Globe. Globe received more “hearts” and overall “hearts and
likes” than Smart. The two companies received around 80-85% positive reactions in their
advertisement indicating products and services are well received.
The results show that churn rates may be conclusive in measuring customer service.
Smart better churn rate than Globe in prepaid service in 2017, while the latter has better churn
rates than the former in postpaid services in 2018. Smart’s approach towards customer support is
reactive rather than proactive, focusing on improving Sun Cellar’s responsiveness to customer
concerns since the brand is suffering from high churn rate and high percentage decrease in
subscribers. Globe, on the other hand, implemented various approaches towards customer
service, ensuring high engagement of both customers and employees. The company also made
use of different channels and platforms to engage with customers. Finally, Globe metric towards
customer satisfaction, NPS, is more effective than Smart customer experience criteria.
Customer service is a minor strength(3) of Globe and a minor weakness(2) of Smart.
Since Dito has not established its customer service system yet, we assign it as a major
weakness(1) of the company.

5.8. CSF 8: IT and Systems
Table 30
IT and Systems Weight of Importance and Rating

8% 2 3 1
For this factor, we considered both the operational capabilities of the company’s IT and
systems as well as resilience against cybersecurity threats. Information technology comprises
hardware, software, network and communications structures, and data and information
structures. It is used to improve efficiency and reduce costs, improve customer satisfaction,
provide information and support decisions-making (Lucey as cited in Berisha-Namani, 2013).
The digital nature of mobile telecommunications makes the industry suitable for the use of
digitized IT and systems to harness its many benefits.
5.8.1. IT and systems operational capabilities
Globe identified IT and systems as one of the “transformation pillars” in its
modernization efforts which started in 2011(Joshi, Dula, and Zerrillo, 2018). Prior to this, the
company was weighed down by legacy systems, losing market share as Smart was ahead in
capturing the prepaid market. According to Globe’s president, Ernest Cu, the right system and
technology is needed to offer prepaid products, to enable proper billing to millions of customers.
Globe invested $400 million into its IT system to enable billing, business support and usage
tracking. Data analytics allowed the company to gain insights on how customers use mobile
services, and has been a key competitive advantage in the delivery of services catering to
customers' needs.
Globe continues to build on its ICT capabilities and digitize internal processes to enhance
the pace of innovation and provide superior customer experience. Globe signed a three-year
agreement with SAP in 2018 to digitize its finance processes, enabling real-time decision making
and supporting an agile business environment (Globe, 2018). SAP is the market leader in
enterprise application software. Through enhancement and rollout of different business
applications namely, S4/HANA business suite platform, Concur, and Ariba Procure-to-Pay (P2P)
service solutions, the company upgraded its Enterprise Resource Planning (ERP) automating
many of its manual processes (Globe, 2018).
PLDT and Smart do not consider its IT and systems as a key competitive strength.
Currently, Smart also has an established IT system composed of custom websites for customer
and vendor management, and a unified ERP system to support various business transactions
such as finance, inventory control, and warehouse management among others. PLDT has
worked on integrating the systems of PLDT, Smart, and other subsidiaries in a unified ERP
system. On January 24, 2018, PLDT and Smart entered into a seven-year Managed
Transformation Agreement with Amdocs for a total of USD 300 million (PLDT, 2018).
Amdocs, which was tapped by Globe in the same year to support enhancement of omni-channel
applications, is a leading provider of software and services to communications and media
companies. Through the agreement, PLDT will upgrade its IT systems to enhance consumer
satisfaction and reduce cost. On September 28, 2018, PLDT and Amdocs expanded their
strategic partnership under a new six-year service agreement to consolidate, modernize and
manage PLDT and Smart’s IT Infrastructure, to further enhance customer experience and
engagement (Business World, 2018). Under the new deal, PLDT will introduce AI, machine
learning, analytics, and robotics to its operations.
5.8.2. IT and systems cybersecurity capabilities
Smart is certified with ISO 27001 denoting compliance to standards in organizational
security, technical security, and physical security. In developing its comprehensive and
integrated risk management program, the company identified privacy and identity management
and increase in information security issues as top risks. In 2017, mobile technology partner
Huawei reported 186 security standard proposals . Smart is certified for CCNA Security and
DNS Security, and conducted cybersecurity training. The company established protection
measures for its assets and infrastructure. It utilizes defense-in-depth approach by mixing
capable personnel and industrial security technology including closed-circuit TV(CCTV)
systems, intrusion detection alarms, and 24/7 security monitoring command center.
In 2017, PLDT appointed its Chief Data Privacy Officer(CDPO) who leads the Data
Privacy and Information Security Governance (DPISG) unit that is responsible for strengthening
privacy and information security practices. The CDPO was instrumental in creating PLDT’s
Personal Data Privacy Policy, ensuring compliance to relevant data protection laws and
regulations. Then in 2018, a Chief Information Security Officer(CISO) was appointed to oversee
the implementation and management of cybersecurity processes.
For 2018, 99.23% of PLDT, Smart and Digitel have complied with training requirements
for data privacy through e-learning programs.
In 2018, there were an overall 2,467 security incidents reported in PLDT, all met with
prompt response and containment. PLDT also reported 18 customer privacy incidents (10 for
Smart, 8 for PLDT) to the National Privacy Commission (NPC). NPC is the agency
implementing data privacy law and mandating all suspected data privacy incidents be reported
to them within 72 hours upon discovery.
Globe completed its three-year Cybersecurity Transformation program in 2017 including
expansion of the cybersecurity team to 260% of the team size in 2014, adoption of technologies
and standards, and collaboration with global partners in space. Globe invested a total of USD 47
million in cybersecurity since 2015. The company has completed around 54 projects related to
cybersecurity infrastructure (Globe, 2018). Globe has also formally assigned a Chief Information
Security Officer as Data Protection Officer to comply with Data Privacy Act of 2012.
Globe implemented intense measures to campaign against fraudsters and thieves to
protect customers against illegal activities. In 2018, Globe embarked on a system refresh to align
all rules to ensure VAS content providers comply against the unscrupulous practice of enrolling
customers automatically resulting in prepaid load deduction. Globe also enforced an anti-
scamming campaign, blocking prepaid numbers found to be consistent sources of spam/scam
text messages. It uses a comprehensive and fully automated mechanism that filters out unwanted
and unsolicited SMS messages. The spamming number can be reported to the company website.
Globe established its Advanced Security Operations Center (ASOC) to handle customer
service management, threat detection, threat hunting, and incidence response for both the Globe
network and the network of its customers. This is linked to Trustwave’s global network of
federated ASOCs and is supported by a worldwide team of security-minded professionals.
In January 2019, Globe rectified issues with affected customers on sending wrong
confirmation receipt to another individual and reported the incident to the NPC in compliance
with regulatory requirements.
Overall, Globe is superior in IT and systems with its digitized processes, data analytics
capability, and use of diverse measures to ensure cyber security. Smart also shows strong IT and
systems with the integration of subsidiary and departmental subsystems with its unified ERP
system, and its compliance to cybersecurity standards. Both Smart and Globe continue to
enhance their systems, the former embarking on a major digital transformation journey to
automate most of its processes. Dito is yet to fully utilize its IT and systems.
IT and systems are a minor strength(3) of Globe, a minor weakness(2) of Smart, and a
major weakness(1) of Dito.

5.9. CSF 9: Advertising, Promotion, and Distribution
Table 31
Advertising, Promotions and Distribution Weight and Rating

7% 2 4 1
McDonald (2008) defines advertising and promotion as impersonal communications
methods used to communicate with both existing and potential customers to achieve marketing
objectives. According to him, advertising objectives are concerned principally with creating
awareness and changing attitudes. The mobile subscription market in the Philippines has
reached its saturation point when it posted a negative growth rate in penetration rate in 2017.
The demands in mobile telecommunications services have shifted towards mobile data resulting
in the explosion of data traffic in recent years. The market has veered away from voice calls and
SMS services that are being replaced by low-cost or even free OTT messaging applications.
There is also a growing demand for OTT video applications comprising most of the demand for
mobile data. Smart and Globe were prompted to update their product offerings to add more data
inclusions and OTT services. With these frequent updates in product offerings, and the need to
defend market share in the saturated mobile subscription market, the ability to advertise,
promote, and distribute products and services effectively is a critical success factor in the mobile
telecommunications industry.
Instead of working against OTT services eroding revenue from “classic” mobile services,
both Smart and Globe partnered with OTT platform developers to monetize data. The
“freemium” approach where services are offered for free but additional features are offered at a
cost was used. “Freemium” maximizes habituation by taking customers from awareness, to trial,
to adoption, according to Globe’s president, Ernest Cu (Go, 2017); it takes customers from
awareness to trial and adoption. Filipinos who were then used to downloading illegal content via
torrent are now engaged in services like Netflix and Spotify, resulting in increased data burn.
Loyalty programs are also used by mobile providers in encouraging subscribers’ continued use
of mobile services. Subscribers gain points for performing certain activities such as reloading
mobile credits or subscribing to certain mobile services.
Table 32
Selling, Advertisement, and Promotions Expense, 2016-2018
2018 2017 2016

% of % of % of
Value Revenue Value Revenue Value Revenue
PLDT (Smart) 7,687 4.98% 5,908 3.91% 6,340 4.03%
Globe Group 5,655 3.76% 5,415 4.00% 5,738 4.53%

Note. Values are in Php millions
Smart and Globe spend about the same amount for selling, advertising, and promotions.
They spend around Php 5 -7 million or 4-5% of total revenues each.
Globe is more effective in advertising, promotion, and distribution because of the
following factors:
1. Lean brand portfolio. By offering only four mobile brands including Globe
Platinum, Globe Postpaid, Globe Prepaid, and ™, Globe can perform focused
marketing activities for specific market segments.
2. Access to customer information. Globe has the largest subscriber base, 13.6
million more than Smart. Moreover, G-cash, Globe’s e-wallet application, gained
market acceptability with 20 million users and 63,000 partner merchants. G-cash
requires users to provide validated personal information including name, age,
gender, and address among others. Globe’s vast database of mobile subscribers
enables the company to gain market insight to be used creating the right content
for targeted advertising and promotional campaigns.
3. Social engagement. Globe can leverage on the personal network of its millions of
social media followers as online interactions exposes Globe’s contents to users’
active network. Table 33 shows Globe has more Facebook likes and followers
compared to competitors.
Table 33
Facebook Engagement, January 1, 2020
Page Followers 4,621,867 5,419,787 2,864
Page Likes 4,609,381 5,395,216 2,699w

Source: Smart, Globe and Dito Facebook pages.
The effectiveness of Smart’s advertising and promotions efforts is lessened because of the
following factors:
1. Bloated brand portfolio. Smart carries three main brands, namely, Smart, Sun, and TM.
Sub-brands would total seven, almost twice the brands carried by Globe. Most of the
brands are offering similar products and services. Marketing efforts are divided among
these brands as each main brand launches its own advertising and promotional campaign.
Moreover, as shown in Table 34, Smart operates separate stores for Sun. Smart and Sun
each have half of the total stores of Globe. This reduces the presence and availability of
the Smart and Sun brands among users.
2. Ineffective use of advertising and promotions budget. PLDT and Smart entered into
advertising placement agreement with TV5 amounting to Php 409 million, Php 149
million and Php 126 million for the years ended December 31, 2018, 2017 and 2016,
respectively. TV5 is a subsidiary of MediaQuest which is a wholly owned investee
company of PLDT Beneficial Trust Fund. TV5 does not command high following
compared to other TV networks like ABS-CBN and GMA. This move may benefit other
subsidiaries of PLDT but may not be effective in advertising and promoting Smart’s
products and services.
Table 34
Number of Stores Nationwide, 2018
Mobile Provider Number of

Stores
Smart 115
Sun (also a Smart brand) 91
Globe 224
Dito, despite claims of wanting to gain 30% of mobile telecommunications market share
in its first year of operations, is not seen conducting any marketing campaign to create some
buzz about the brand. Social media following is also minimal. Given the clamor for a third telco,
Dito does not seem to induce excitement towards its impending participation in the mobile
telecommunications market.
Overall, Globe is most effective in advertising and promotions. Smart, though restrained
by some factors, is also able to promote its products and services. Advertising and promotions
are a major strength(4) of Globe, a minor weakness(2) of Smart, and a major weakness(1) of
Dito.
5.10. CSF 10: Brand Equity
Table 35
Brand Equity Weight of Importance and Rating

5% 3 4 1
Brand equity is a critical success factor in mobile telecommunications because mobile
subscribers identify with brands, making them comfortable in subscribing to mobile services.
This is evident in Philippine mobile telecommunications as the predominantly low-income
market subscribe to value-sensitive prepaid services even when products and services are similar
to mainstream prepaid. Brand equity in postpaid services allows companies to cater to the
middle- and upper-class market segments.
There are only few mobile providers in the country carrying few mobile brands. Existing
players corner at least more than 40% of mobile subscriber market share each consisting of
millions of subscribers nationwide. Mobile providers enjoy high brand awareness. Dito, as a
newcomer, may have the least brand awareness but it is still relatively well-known as the
selection of the third telco has been talked about in mainstream and social media.
Globe and Smart operates new, modern and engaging stores in strategic locations. The
high brand of Smart and Globe allows them to carry high-end smartphone brands such as
Samsung and iPhone. By creating high brands for postpaid services, consumers gain value when
buying high-end phones in their stores. It creates an “awesome” experience to unbox high-end
mobile phones in Smart and Globe stores.
The Sun brand from Smart’s brand portfolio may be losing its brand equity. Its main
value proposition was the unlimited text and voice calls. As Smart and Globe are now offering
unlimited text and voice calls, the value proposition of Sun is now diminished. Moreover, Sun
has been limited to 3G services making it less competitive in the mobile data market.
Dito, expected to start operations in July 2020, is in the position to build its brand equity.
It should show decisive ability to operate mobile telecommunications on a national scale. Being
known as having no experience in the industry, it creates brand equity through its partnership
with China Telecom. Consumers are aware Dito will be a good contender in the market through
the financial and technical support of China Telecom. Today, Dito has not yet started its
operations despite immense support given by the government. This raises concerns in its ability
to put up and operate mobile telecommunications network. Consumers have high awareness of
Dito, they are eager and supportive of its participation in the highly concentrated market, but are
also convinced its services, though offered at a low price, may be limited in terms of network
quality and coverage at least in the next 3-5 years.
Overall, consumers think of Smart and Globe brands as having the capability to provide
acceptable quality of mobile services. Through experience, mobile users know the level of
network quality in specific areas and subscribe to the network with the most consistent network
performance based on daily usage. Brand awareness is the key in informing users of new
product offerings, and it influences the users to try new products. The weakening Sun brand
reduces the brand equity of Smart brand portfolio. Brand equity is a major strength(4) of Globe,
a minor strength(3) of Smart, and a major weakness(1) of Dito.

5.11. Conclusion
Table 36
Competitive Profile Matrix
Critical Smart Globe Dito

Weight
Success Factor Rating Score Rating Score Rating Score
1. Network Speed and
15% 4 0.60 3 0.45 1 0.15
Availability
2. Product Offerings and Pricing 13% 3 0.39 4 0.52 1 0.13
3. Financial Flexibility 12% 3 0.36 4 0.48 1 0.12
4. Subscriber Base 11% 3 0.33 4 0.44 1 0.11
5. Market Adaptability 10% 2 0.20 3 0.30 1 0.1
6. Strategic Partnership 10% 3 0.30 3 0.30 4 0.4
7. Customer Service 9% 2 0.18 3 0.27 1 0.09
8. IT & Systems 8% 2 0.16 3 0.24 1 0.08
9. Advertising, Promotion, and
7% 2 0.14 4 0.28 1 0.07
Distribution
10. Brand Equity 5% 3 0.15 4 0.20 1 0.05
Total: 100% 2.81 3.48 1.3
The competitive profile matrix shows both Smart and Globe are competitive. Globe
shows the highest performance as it scored significantly above the average mark. Smart scored
slightly above average. Dito is the least competitive with below average score.
6. External Factor Evaluation Matrix (EFE)
6.1. External Opportunities
6.1.1. Opportunity 1: Growing demand in mobile internet services
Weight of Importance: 14%
Mobile data is the only mobile service showing growth, with a rapid two-digit year-on-
year growth of data traffic in recent years and at least for the next five years. The increased
revenues in mobile data offsets the decreasing revenues from classic mobile services. The
Philippines is a top user of mobile internet services globally. The forecasted demand for mobile
internet is high, and the market is susceptible.
Response Rating: Superior (4)
Smart’s response is superior(4) because of the rapid expansion of its 4G LTE network
infrastructure, ensuring superior mobile internet experience in speed and in availability.
6.1.2. Opportunity 2: Increased demand for OTT services
OTT is becoming the preferred way in consuming mobile services. Consumers prefer
OTT services over classic mobile services because (1) they are cheaper as they are being offered
at a minimal cost or no cost, and (2) thay are more convenient as OTT applications offer various
features not available in classic mobile services such as video calls, social media, and messaging
among others. The Philippine population is particularly receptive to OTT applications because of
its young, vibrant, tech-savvy population, with high level of literacy and high percentage of
English speakers. Many adapt well to technological changes and have used OTT services to cut
costs and maximize features. Before, mobile operators considered OTT services as threats as it
eroded revenues from “classic” mobile services, but now, they are capitalizing on the benefits of
creating a high demand for mobile internet. OTT services will increase revenues from mobile
data.
Response Rating: Above Average (3)
Smart responded well to this factor by improving its mobile internet services, and
generously offering OTT service inclusions (e.g. 1GB YouTube Every day). However, the
company was not able to successfully commercialize its own OTT application services that its
rival Globe was able to accomplish. One example of Globe’s widely accepted OTT service is
GCash, an e-wallet application. Commercializing own OTT services may augment and diversify
revenues in mobile telecommunications and may provide other benefits such as being a source of
marketing information. The response of Smart is above average(3).
6.1.3. Opportunity 3: Advances in digital technology
The integration of advanced digital technologies to areas in the business is termed as
digital transformation. Digital transformation increases revenues and reduces both capital and
operational costs. This includes the use of machine learning and AI in predictive maintenance of
networks, automation of customer support and automation of back office processes. It also
includes the use of advanced analytics in determining patterns both in consumer behavior and in
network traffic. Knowledge about gaps in the network can be used in smart capital spending.
Overall digital transformation can improve cash-flow margin to as much as double the existing
amount
PLDT and Smart embarked on its IT & systems transformation journey when it entered
into an agreement with Amdocs in January 2018 to consolidate, modernize and manage its IT
infrastructure. Among the features aimed to be developed in this agreement is advanced
analytics, AI, machine learning, and robotics. The cost of this agreement is USD 300 million.
With the heavy investment of PLDT and Smart to automate its IT & systems using advanced
digital technologies, the response rating given to Smart is superior(4).
6.1.4. Opportunity 4: Decreasing prices of mobile telecommunications equipment
Prices of telecommunications equipment are seen following a downward trend with as
much as -14.4% average annual change. Telecommunications equipment is the main component
in mobile telecommunications, and it is the primary expenditure in the form of annual
depreciation in the income statement. Emerging mobile telecommunication technologies such as
5G may increase cost of ownership initially as adoption entails changes in the network
architecture, but overall, telecommunication equipment like other electronic and digital products
increase in capability and decrease in price. This factor is an opportunity to mobile providers in
the form of decreased capital expenditure for network telecommunication equipment and
decreased annual depreciation.
Response Rating: Below Average (2)
In building its network infrastructure, Smart engaged with multiple vendors namely,
Huawei, Nokia, and Ericsson, unlike its rival Globe that implemented a single-vendor policy.
The network of Smart and PLDT is a complex mix of new technologies and legacy systems, and
mix of equipment from different vendors. The complexity of the network makes it hard to
integrate new mobile technologies and equipment, thereby adding time and cost in the expansion
of the network. The response rating of Smart is below average (2).

6.1.5. Opportunity 5: Increased spending in communications.
This factor is given a 6% weight in importance as growth forecast is minimal and several
factors are at play to successfully realize this opportunity. The shift from predominantly low-
income class to middle income class will allow Filipinos to spend more on communications with
their added disposable income. However, other factors may decrease communication spending
such as (1) increased competition leading to price reduction and even price wars, and (2)
continuous adoption of OTT services leading to continuous reduction in voice and SMS
spending. These factors may be offset by increased demand in mobile internet.
Smart is capitalizing on this opportunity with the aggressive expansion of its 4G LTE
network while urging its subscribers to upgrade their SIM cards and phones to 4G LTE. Smart is
now at par with its rival Globe in 4G availability, and even surpasses it in 4G download and
upload speed, and latency. Smart also provides generous OTT service inclusions which creates
habituation and increases demand in mobile data. Although Smart did well in improving its
mobile internet services, it is behind its rival in offerings and pricing, and customer service,
factors that impacts continued use of services. Prices, for example, remain elevated and still
serve as a usage barrier to some customers. The response of Smart to this factor is above
average(3).
6.2. External Threats
6.2.1. Threat 1: Participation of third telco
The participation of the third telco will have a big impact on the dynamics of the mobile
telecommunications industry by breaking the existing duopoly. Already, increased competition

had prompted a historic-high capital investment from PLDT, and 45.5% hike from previous year
capital expenditure from Globe in 2018. The incumbent also rolled out new product offerings
with as much as 400% more data allocation mostly for additional OTT services such as 1GB
YouTube Every day, 1GB Facebook/Instagram Everyday plus 1GB free Wi-Fi access. Mobile
providers had also increased their mobile network experience ratings in recent years translating
to better services. The increased competition drives investments and may lead to reduction in
prices and profit margin. Finally, the third telco, an entity with proven technical and financial
capability is expected to be operational in the 2nd half of 2020. The third player will increase the
country’s total mobile network capacity, leading to increased competition in the immediate
future and in the long run.
The response of Smart is above average(3) as it increased its data allocation in its product
offerings and had aggressively expanded its 4G LTE network. The inferiority of Smart in some
critical success factors such as market adaptability, customer service and product offerings and
pricing, IT and systems, and brand equity does not help Smart in avoiding the threat.
6.2.2. Threat 2: Continuous erosion of revenues from classic mobile services
SMS and voice calls contribute to around 50% of total mobile service revenues.
Decrease in contribution from classic services will result in a decrease in total mobile service
revenues. Voice calls and SMS are seen to contribute 15-20% and 5-10% of mobile service
revenues by 2022, respectively. This is a decrease of 50% for both voice and SMS in three
years.
One factor causing the decrease in revenues from mobile services is the NTC’s mandate
to reduce interconnection charges. Smart complied with this regulation. Smart focused on
capturing the market for mobile data as the market is showing high growth that would
compensate for the contracting classic mobile services. Smart is aggressive in penetrating this
market by expediting its roll out of its 4G LTE network expansion and offering generous OTT
inclusions to promote habituation . The rating given to Smart is superior(4).
6.2.3. Threat 3: Pressure to adopt 5G
The 5G technology is potentially disruptive. It has advanced capabilities compared to its
predecessor 4G LTE. It provides higher speed of connection and lower latency. The threat of 5G
is the technology being in its early stages where there is no existing demand for 5G services.
The adoption of 5G entails changes in network architecture requiring high capital expenditure.
Many mobile providers, including Smart, delay the adoption of 5G to continue monetizing
investments in older technologies. Today, smartphone brands are now launching 5G phones.
Mobile providers are pressured to adopt 5G even if the market does not exist yet. If the mobile
provider adopts 5G with no existing demand, it will incur high capital expenditure with no
increase in revenue. If the company is late in the adoption of 5G, it may lose market share.
Response Rating: Below Average (2)
The response of Smart to this threat is below average because 1) the company is late in
adopting 4G LTE, 2) the company employed a multi-vendor approach in building its network
infrastructure, and 3) the company has not successfully commercialized 5G.
The late adoption of 4G LTE results in lost opportunity in monetizing enhanced network
if 5G is adopted. The company will have to reconfigure its network to integrate the new
technology. Integration would be difficult as the company employed three vendors in building its
network infrastructure namely, Huawei, Nokia and Ericsson. Complexities add costs and
lengthens time-to-market. Finally, Smart, unlike its rival, Globe, has not brought 5G to the
market. The company is again late in adopting the technology, delaying monetization of network
infrastructure. Smart’s response to this opportunity is below average (2).
6.2.4. Threat 4: Tower sharing
Tower sharing is a new paradigm in building network infrastructure in the Philippines.
This has not been an option to the mobile providers before, making it difficult to expand
networks. Without tower sharing, mobile operators individually spend on communications tower
infrastructure where construction is oftentimes delayed by the bureaucratic government requiring
many business permits. This factor is currently a threat as will expedite the establishment of
Dito’s network infrastructure resulting in higher capacity in the market, and intensifying
competition. However, it is also an opportunity in the long run as the mature market of mobile
telecommunications shifts from coverage to service delivery.
Rating: Above Average (3)
Currently, Smart is cooperating in this government initiative to show active participation
and to maintain good relationships with the government. Smart is seen pursuing this endeavor in
unserved and underserved areas to improve the company’s network coverage. The passive
participation of Smart is necessary in delaying the rollout of the network infrastructure of Dito.
The response of Smart is above average(3).

6.2.5. Threat 5: Law on Mobile Number Portability (MNP)
With the mobile number portability law, users can now retain their mobile numbers when
switching to other networks. This significantly reduces the switching barrier, which is already
low given most subscribers use prepaid services. The MNP law will make users sensitive to
prices and quality of mobile services, it will increase the subscriber’s bargaining power, and
ultimately, it will increase competition in the industry. The MNP will put pressure in ensuring
high quality of service, and maintain low prices. It may also increase churn rates.
Smart has drastically improved its network quality and availability and has also been
more generous with its OTT service offerings. It’s also investing on improving its systems. With
these initiatives, Smart is seen as competitive in defending and regaining market share.
However, the company is rated as inferior on some critical success factors. Overall, the response
of Smart is above average (3).

6.3. Conclusion
Table 37
External Factor Evaluation Matrix
Wgt. Rating Score
Opportunities
1. Growing demand for mobile internet services 14% 4 0.56
2. Increase demand for OTT services 12% 3 0.36
3. Advances in digital technology 10% 4 0.4
4. Decreasing prices in mobile equipment 8% 2 0.16
5. Increased spending in communications 6% 3 0.18
Subtotal 50% 1.66
Threats
1. Participation of third telco 14% 3 0.42

2. Continuous erosion of revenues from classic
mobile services 12% 4 0.48
3. Pressure to adopt 5G 10% 2 0.2
4. Tower sharing 8% 3 0.24
5. Mobile Number Portability (MNP) law 6% 3 0.18
Subtotal 50% 1.52
Total 100% 3.18
Note. Response rating: 1 = the response is poor. 2 = the response is below average. 3 = above average. 4 = superior
The overall score of 3.18 shows Smart is responding well to opportunities in the market.
The average score is 2.5. The 3.18 score is above average.

7. INTERNAL ANALYSIS
7.1. McKinsey’s 7s Model
7.1.1. Strategy
The highly consolidated mobile telecommunications industry is now challenged by the
new entrant supported by a government with an active stance in increasing competition. Smart
has become a formidable player gaining almost half of the market share and building a strong
network over three decades of operation.
For 2019, Smart faces challenges head-on using the following strategies:
1. Market penetration with expansion of its footprint of wireless services.
2. Product development with expansion of capacity and development of new platforms to
expand service offerings.
3. Digital transformation with the modernization of PLDT’s service delivery platform,
networks, and IT and support systems.
4. Market development with the continuous investment in 5G
Smart has become more aggressive towards modernization and expansion of its 4G LTE
network. Smart seems to have learned from its complacency in the first half of the decade,
resulting in loss of market share, and ultimately, in loss of market leadership. Smart had failed to
invest in mobile technology, infrastructure, and systems, and had not been adaptive when the
market shifted from classic services to mobile data. The aggressive strategy is necessary in
defending and regaining market share. The strategy of Smart is aligned with the other elements
of the McKinsey 7s model.

7.1.2. Structure
Smart is a large company with around 6,299 employees. The company provides mobile
services nationwide and operates an expansive distribution network.
Smart has well-defined functional structure consisting of specialized departments such as
those shown in Figure 51. The structure is also hierarchical with different levels of management
within and outside each department. It is aligned with its size as a large organization.
Figure 51
PLDT and Smart Organizational Chart, 2018
Source: PLDT, n.d.
With a hierarchical structure, managers in Smart are given authority to influence and
control subordinates. Through performance evaluation, employees are given feedback to allow
them to align individual goals to the goals of the company. The structure allows the company
stability in managing resources, and effectiveness in pursuing strategies.
With a functional structure, employees of Smart are efficient and productive as they are
assigned specific roles within specialized departments. They have deep knowledge and expertise
in their fields and have learned best practices through experience. They have a strong
contribution to process improvement initiatives within their departments. The structure provides
the company efficiency in employee’s performance of duties.
On the other hand, the functional structure resulted in poor coordination among the
different departments in Smart. Divisions are focused on their goals that may be in conflict with
the goals of other divisions. Moreover, the structure makes it difficult to pursue value-adding
endeavors such as working on minor cross-functional projects to promote seamless and
integrated processes. For example, an insight found by employees in the customer service
department during interaction with customers may not reach the marketing department as it may
take additional work to coordinate findings. The added work may be outside employees’ roles
and responsibilities.
The structure of Smart also requires proper assignment of clear and well-defined roles
and responsibilities. This characteristic makes the organization rigid. Smart is not quick to act
on cross-functional issues and opportunities not clearly falling under the jurisdiction of a specific
functional area. The structure limits Smart in producing innovative cross-functional solutions.
Overall, the well-defined, hierarchical, and functional structure is in line with Smart in
driving the organization in pursuing strategies. The inherent weakness of its structure is poor
coordination among the different functional areas, limiting cross-functional innovation.
7.1.3. Systems
The business system of Smart, like its company structure, is clear and well-defined.
Employees, being organized hierarchically and functionally, perform business transactions
within defined roles and responsibilities.
Decision-making in Smart is delegated through different levels of management.
Business transactions for example would require different levels of approval depending on the
amount of the transaction. Control measures are set. The highest amount would require the
approval of around ten levels of finance managers. Controlling allows Smart to allocate
resources effectively, to help realize the company’s goals and objectives.
The roles and responsibilities of employees are explicitly defined. Managers discuss these
with employees not only during the onboarding process, but every year, individual goals are set
and are agreed upon for each employee. Individual goals must be aligned with the goals of the
company. Monitoring and performance evaluation are done to ensure employees act as
expected.
Significant portion of business transactions in Smart is digital. Mobile service usage of
customers is monitored and billed accordingly. Though the company maintains inventories
including mobile phones and gadgets, mobile services and account management mostly involve
use of digital information. Smart adopted enterprise systems to handle most business
transactions. Employees are trained to use these systems and most tasks are supported and are
limited by systems used. For example, customer service representatives may only respond to
customer inquiries with the information and functionality available in the system. It may be
impossible for employees to act outside those not supported by the system. Employees are given
access only to functional areas in the digital system related to their role. The digital system is a
means for Smart to define and limit what employees can do.
Smart implemented a unified Enterprise Resource Planning(ERP) system for its
operations. This system uses a single database for the different functional areas such as finance,
inventory management, and customer service among others. It allows employees to use real-
time information. For example, a sales agent can know if certain devices are available, in what
color, in what location they are stored, and how long it will take for devices to be delivered to the
store. Managers can make decisions based on real-time data. Smart also developed internal
mobile systems enabling employees to coordinate and respond to requests using their mobile
devices. The digital system of Smart enables responsiveness and efficiency.

Smart aims to enhance further its digital systems with a Managed Transformation
Agreement with Amdocs amounting to USD 300 million (PLDT, 2018). The project aims to
introduce AI, machine learning, analytics, and robotics in its operations.
The system of Smart is clear and well-defined. Decision-making is delegated and is based
on employee’s roles and responsibilities. Digital systems both support and limit employees’
activities. Most employees cannot perform activities outside supported system functionalities.
The system allows Smart to allocate resources effectively to meet goals and objectives. Overall,
the system of Smart is aligned with the organizational structure and strategy.
7.1.4. Style
The structure and system of Smart fostered a rigid, corporate, traditional, and even
bureaucratic style. On the other hand, Smart also shows some level of youthfulness, high
energy, and vibrancy.
In Smart, employees have clear and well-defined roles and responsibilities, making them
output-driven, and process oriented. Activities outside individual roles are often not encouraged.
The system tools of Smart indirectly defines and limits the activities employees can do
contributing to the rigid, corporate, and bureaucratic style of Smart. The style allows employees
to perform their job well while limiting them in seeking innovative, cross-functional, and out-of-
the-box solutions.
The style of Smart had been instilled in the company during its three-decade long
operation. It gives emphasis on following directions and not so much on providing feedback.
Managers bear the inherent pressure of compliance and delivery of subordinates. There is lack
of open communication marked by insistence of meeting deadlines no matter the circumstances,
and in some cases, there is intimidation to get things done.
One the other hand, Smart exudes some degree of youthfulness and energetic vibe. The
company adorns its lobby and canteen with vibrant colors of green and blue and installs booths
during marketing events. The company organizes sportsfest and other team building events to
promote work-life balance. Advertisements of Smart include young endorsers to entice the
predominantly young and tech-savvy subscribers of mobile services. “Live the Smart Life” is
about embracing a digital lifestyle by integrating digital communications services in one’s day-
to-day activities.
A modern style may fit Smart better than a traditional style. Smart is a digital company,
and mobile telecommunications is a vibrant and evolving industry offering lots of opportunities.
Mobile telecommunications may have been slow and predictable as it took around 6-10 years to
develop new technology but the shift to mobile data and the use of IP-based technologies, on top
of rapidly advancing IT, changes is expected to be faster and potentially disruptive. To be able
to grab the opportunities of advanced digital technology, Smart should adopt a modern style,
more agile and more adaptive to changes in the environment. A modern style is curious and
explorative, risk-taking, flexible and agile, and fosters collaboration and open communication.
Smart is aware of this, and the management actively promotes the modern approach by
championing the values of a) delivering awesome customer experience, b) collaborating to win,
c) fast is better than perfect, and d) humility to listen, among other values. Moreover, a modern
approach will attract and motivate the younger generation who will soon dominate the
workforce. Millennials and Gen Zs are competitive, daring, and are motivated by purpose more
than paycheck. A modern approach is an exciting way to create value to the company.
A modern approach may require the company to relax performance metrics (“fast is
better than perfect”) and encourage feedback ('' humility to listen”). Creation of a dedicated
cross-functional, project-based teams with flat structure may hit several targets in this area.
The traditional approach of Smart may be aligned to “business as usual” activities but is
not aligned in responding to the opportunities provided by advances in digital technology. A

modern approach will be more aligned in creating valuable, innovative, and cross-functional
solutions utilizing advanced digital technologies.
7.1.5. Staff
The staff of Smart is in a difficult situation as the company is instituting reforms to
reorient the staff to new values and culture. There is some confusion and pressure among the
staff to behave in a certain way not in line or not supported by the current structure, systems, and
style of Smart.
Staff members of Smart are highly skilled, and experts in their fields. They are
knowledgeable of the systems and tools needed to perform their tasks. They are accustomed to
the corporate culture of Smart and are result-driven and process-oriented. They are dedicated to
their work and have complete understanding of their specific roles and responsibilities. They are
competent and are willing to make sacrifices from time to time. They are highly efficient and
reasonably motivated.
Figure 52 shows the attrition rate of tenured employees in Smart at 5.81% and 0.22% is
at the lower end of the industry labor turnover rate (PSA, 2019). Compensation and benefits in
Smart are at par with industry average
Figure 52
Attrition Rate of Smart, 2018
Source: PLDT, 2018

The manpower reduction program (MRP) was being implemented over the past several
years to reduce cost. The company considered changes in technology, increasing competition,
and shifting market preferences as the main reason for the initiative. The MRP contributes to
agitation in the workforce. Attrition rate is low for employees aged 30 and above but high for
ages less than 30. If a person wants to build a secure and stable job, Smart may not be the best
place as the company is actively reducing its workforce. It will take an exceptionally high
positive attitude to go above and beyond one’s roles and responsibilities to pursue value-adding
activities when the company is asking tenured employees to leave, even if the company is
providing attractive redundancy packages.
Smart wants its staff to be collaborative, agile, and innovative. It also values “taking care
of its people '', and “malasakit” or being concerned with the welfare of others, values that may be
in conflict with the MRP initiative. To promote collaboration, agility, and innovation, Smart is
replacing its workforce with young people. It lauds its ability to attract millennials and Gen Zs
and values the 70% of its workforce consisting of Gen Ys and Gen Zs. The young generation are
expected to be more tech-savvy and adaptable especially to technological changes. The
confusion and frustration arise from Smart’s expectation on employee behavior not supported by
the company’s structure, system, and style. With a functional structure, collaboration is stifled;
with hierarchical structure, open communication is discouraged; and with a traditional style,
exploration and risk-taking is suppressed. The result is the lack of innovation, especially those
involving cross-functional solutions. Moreover, the attrition rate for younger employees is higher
than the industry average. Replacing the staff alone will not create a collaborative, agile, and
innovative workforce, Smart must align other elements as well.

7.1.6. Skills
As discussed in the McKinsey 7s - Style and Staff section, the staff of Smart is high-
skilled, output-driven and process-oriented. They are experts in their fields and knowledgeable
of the systems tools they use in performing their duties. Smart hires experienced employees and
top graduates. As a main player in mobile telecommunications, it can attract high achievers.
There is a culture of high performance in Smart. Smart implements a rewards and
recognition program and salary structure at par with prevailing market benchmarks. Smart offers
performance-driven incentives such as the Short-term Incentive Plan for rank and file employees
and managers, and the Transformative Incentive Plan to leaders. It also provides training
including classroom workshops attended by 23,010 graduates, e-learning courses, of which
41,840 were accomplished, on-boarding programs and certification training on specific skills
such as change management, leadership formation, team development, and strategic planning
among others.
Skills are important in Smart. It outsourced its IT skills for its modernization program
when it entered into a seven-year Managed Transformation Agreement with Amdocs for a total
of USD 300 million (PLDT, 2018). With a more advanced and more complex system, skills for
digital technologies will be even more important in Smart. Systems provide the company
efficiency, but it will be needing high skills for maintenance and enhancement.
The MRP increases savings but it may also demotivate some employees. The top
performers who are highly marketable, may leave the company as job security and stability are
threatened. The MRP being implemented for several years now should not be dragged for so
long. In 2019, PLDT offered a higher severance package to candidates making the program more
effective.
With the continuous hiring of qualified fresh graduates and experienced resources, and
continuous training of employees, Smart can maintain a high-skilled, competitive workforce.
Skills are aligned with Smart’s success.
7.1.7. Shared Values
Smart is striving to tweak its organizational model by promoting a new set of shared
values. Other organizational elements had to be changed as they do not support the newfound
shared values, a challenging endeavor as most of these elements are hard to change. Company
culture for example, according to Denning(2011), is hard to change because the element is
comprised of interlocking set of goals, roles, processes, values, communications practices,
attitudes and assumptions that are hard to change individually.
For 2018, Smart promotes the following values:
● “Deliver awesome customer experiences”
● “Take care of our people”
● “Collaborate to win”
● “Fast is better than perfect”
● “Malasakit”
● “Humility to listen and learn”
These values are aligned to the success of Smart. They address some of organizational
weaknesses including a) the lack of collaboration, b) the lack of innovation, and c) the lack of
open communication. These values are important because they are the key in maximizing
opportunities in advanced digital technologies. Creating awesome customer experience, another
value, is the core of the business. On the other hand, “malasakit” or concern in the welfare of
others is the challenge the company has for itself in its dilemma of needing to reduce its
workforce. These shared values are the key in building a competitive company in the current
condition of the mobile telecommunications industry.
7.1.8. Conclusion
In the McKinsey 7s model of Smart, around half of the elements are aligned. These
include strategy, skills and shared values. Table 38 lists some recommended characteristics for
each element to be aligned.
Shared values are the key in molding a new 7s model of Smart. To support collaboration
and innovation, the structure should be a combination of hierarchical, functional, and some flat,
cross-functional, and project-based teams. The select teams with flat structure will still provide
the members with clear, well-defined roles and responsibilities, and will enable them to involve
cross-functional departments in pursuing integrated, end-to-end solutions.
The system should allow some degree of flexibility. Employees should be provided with
the freedom to choose tools or channels to use for communication and collaboration when
working cross-functional issues and solutions., This will support agility in the organization.
The style and staff should be modern. The staff should be open-minded and foster open
communication. They are not just focused on specific work output but are focused on value
especially in creating “awesome” customer experience. Smart should find new ways to measure
performance to encourage collaboration and innovation. The staff should, to some degree, trade
excellence in work output with exploration of new solutions to old problems.

Table 38
Elements in McKinsey 7s
7s Element Aligned Existing Characteristic Recommended

? Characteristics
Strategy Yes Aggressive, Competitive Aggressive, Competitive
Structure No Hierarchical, Functional Hierarchical, Functional, with

some flat, cross-functional,
and project-based teams
System No Rigid Flexible
Style No Traditional Modern
Staff No Traditional Modern
Skills Yes High-skilled High-skilled
Shared Values Yes Customer-focused, care, Customer-focused, care,

collaboration, agility, collaboration, agility,
innovation, and open innovation, and open
communication communication
Figure 53
McKinsey 7s Model of Smart with Aligned Elements
The McKinsey 7s model with aligned elements is shown in Figure 53. This aligned
model is the key in achieving agility and innovation necessary in maximizing opportunities
brought by advanced digital technologies.

7.2. Organizational Diagnosis
7.2.1. Internal Management Audit
Table 39
Internal Management Audit of Smart
Audit Question Assessment Evidence

1. Are strategic management Statement of business strategies shows the
Yes
concepts used by Smart? company uses strategic management concepts.
2. Are the goals and objectives Objectives include reduced cost and increased
of Smart well communicated Yes network capacity and performance. They are
and measurable? measurable and well-communicated.
Sometimes, managers do not have the experience in
3. Do managers at all levels in
No implementing advanced technologies in IT
Smart plan effectively?
resulting to poor planning
Many managers delegate authority well but
4. Do managers in Smart micromanagement and intimidation are evident.
No
delegate authority well? Retrenchment may be pressuring managers to
deliver results.
As discussed in the McKinsey 7s Structure section,
5. Is the organization structure the company needs to create teams with flat, cross-
No
of Smart appropriate? functional structure in order to maximize
opportunities in advanced digital technologies.
6. Are job descriptions and
Yes Jobs descriptions and specifications are clear.
specifications in Smart clear?
Some employees are not proud of the company’s
reputation of poor mobile internet services.
Retrenchment is discouraging. High attrition rate
among young employees is observed. The
7. Do employees in Smart
No traditional culture is in conflict with the company’s
have high morale?
shared value of agility, collaboration, and
innovation that may bring confusion and frustration
to employees. Many employees do not have high
morale.
8. Is employee turnover, as The overall attrition rate of 17.86% is high
well as absenteeism low in No compared to industry standards. It is highest among
Smart? young professionals under 30 years old.
9. Is Smart’s reward and Smart’s reward system, especially with top

Yes
control mechanisms effective? performers, is effective.
7.2.2. Marketing Audit
Table 40
Marketing Audit of Smart
Audit Question Answer Evidence

Market is segmented effectively according to
1. Are the markets segmented the type of services including premium postpaid,
Yes
effectively? regular postpaid, mainstream prepaid, and value-
sensitive prepaid
With a market share of more than 40%, Smart is

2. Is Smart positioned well among
Yes positioned well as one of the largest mobile
competitors?
telecommunications providers in the Philippines
3. Has the market share of Smart The market share of Smart followed a downward
No
been increasing? trend since 2013 (Lizares, 2018)
Table 41 shows the nationwide distribution
network of Smart. Moreover, an over-the-air
4. Are channels of distribution reloading system allows Smart to distribute
reliable and cost-effective at No mobile credits digitally or online. However,
present? distribution of postpaid services is not as
effective as its rival, Globe, as stores are divided
into Smart and Sun shops.
The firm has an expansive nationwide
distribution network where products and services
are made available to consumers. Distributors
5. Does Smart have an effective
Yes are capable of maintaining the Smart brand. The
sales organization?
marketing team is effective and capable;
however, marketing resources are divided
between the Smart and Sun brands.
The firm conducts market research and offers
6. Does Smart conduct market innovative product and services proven to
Yes
research? capture the market distinct to a low-income
country like the Philippines
As discussed in Industry Performance Analysis -
Network Quality and Performance and in
Competitive Profile Matrix - Network Quality
and Coverage section , mobile services of Smart
7. Are product quality and
No are better than its rival, Globe, but lags oEast
customer services of Smart good?
Asian countries, and the world. Customer
service of rival networks is more automated
having a customer service hotline with
automated response to queries.
8. Are Smart’s products and With price discrimination and sachet marketing,
Yes
services priced appropriately? Smart can prices mobile services appropriately,
encouraging usage among low-income users

while gaining profits.Smart also cater to high-
income subscribers with its premium and regular
postpaid services.
As discussed in the Competitive Profile Matrix -
Advertising, Promotion, and Distribution
9. Does Smart have an effective
section, Smart is effective in this area but is less
promotion, advertising, and Yes
effective than its rival, Globe. Among the cited
publicity strategy?
reasons include bloated brand portfolio, and
ineffective use of advertising budget.
10. Are marketing planning and Marketing planning and budgeting are done by
Yes
budgeting effective at Smart? experienced professionals in the marketing field.
11. Do Smart‘s marketing
managers have adequate Smart hires and retains experienced
Yes
experience and training on professionals in the marketing field.
marketing?
Table 41
Smart Nationwide Distribution Network, 2018
Total Distribution Network
19 Exclusive regional distributors
105 Exclusive provincial distributor
107 Key account partners, 25 of which are exclusives
1.4 million Retailers of Smart and Sun combined
115 Branches of Smart Stores
91 Branches of Sun Shops
46 Partner-owned Smart and Sun branded stores

Source: PLDT, 2018
7.2.3. Finance Audit
Table 42
Finance Audit of Smart
Finance or Accounting Audit Assessment Evidence

Though Smart (PLDT) is highly leveraged
1. Where is Smart financially
with total debt to EBITDA ratio of 2.75, it is
strong as indicated by the
highly profitable with an EBITDA margin of
financial ratio analysis?
42%.
The cash flow to capital expenditure ratio is
1.25 even when CAPEX/revenue is at 30%
2. Can Smart raise needed short
Yes showing even at elevated capital expenditure,
term capital?
the firm can raise short term capital. Refer to
Financial Ratio Analysis in this section.
Smart(PLDT) is financially flexible and has a
3. Can Smart raise needed long-
debt to EBITDA ratio of 2.75 showing the
term capital through debt and/or Yes
company is highly profitable to cover
equity?
necessary long-term capital.
Highest expense of Smart(PLDT) is capital
4. Does Smart have enough expenditure. The CF/CAPEX ratio of 1.25
Yes
working capital? shows the firm having enough working
capital in relation to expenditure.
Smart adheres to debt covenants. Capital
5. Are capital budgeting policies budgeting policies are reasonable because
Yes
at Smart reasonable? debt as a source of capital is justified by the
company’s high profitability.
Smart’s financial managers are experts in
6. Are Smart’s financial managers
their fields They are also knowledgeable of
experienced and well trained in Yes
the system tools, and unified ERP used in
finance?
financial management and reporting
Table 43
Financial Ratio Analysis, 2016-2018
Smart Globe
Category Financial Ratios
2018 2017 2016 Ave. Ave.
Liquidity Current Ratio 0.52 0.53 0.47 0.51 0.86
Net Debt to
1.10 1.30 1.33 1.24 2.05
Leverage Equity Ratio
Ratio Net Debt to
1.93 2.09 2.35 2.12 1.68
EBITDA Ratio
Profit Margin 12% 8% 12% 11% 11%
EBITDA Margin 42% 44% 39% 42% 40%

Profitability
Return on Assets 4% 3% 4% 4% 8%
Return on Equity 17% 13% 18% 16% 25%

The financial ratios of Smart shown in Table 43 indicates 1) Smart has very low liquidity,
2) it is highly leveraged, and 3) it is highly profitable. Leverage ratio is discussed in the
Competitive Profile Matrix - Financial Flexibility section.
The current ratio of Smart is 0.51 should mean the company is not able to generate the
needed capital to finance short-term liabilities, but this is not the case. Telecommunications is
capital intensive. The nature of the business requires mobile operators to invest in fixed assets to
generate income. Cash and liquidity are not the priority of Smart. Moreover, liquid assets are
considered as the most unprofitable of all assets. Smart uses its liquid assets immediately for
capital expenditure or debt financing resulting in low liquidity. The low liquidity of Smart
shows good financial management. Globe’s higher liquidity may be positive, but it also means it
is not using its liquid assets to invest in needed infrastructure.
The average net debt to equity ratio of 1.24 means most assets are financed by debt rather
than by shareholders’ equity. This means the company is taking advantage of debt to increase
profitability. This ratio is positive as the company remains profitable. The net debt to EBITDA
ratio shows it will take 2.12 years for Smart to pay for its net debt. This ratio shows high
performance as it takes a short time to repay borrowings. The ratios of Globe show it relies more
on debt rather than on shareholder’s equity compared to Smart, and it takes shorter time for
Globe to repay its net debt compared to Smart. Globe has better leverage ratios than Smart.
Profitability ratios show Smart and Globe are both highly profitable. This validates the
ability of both companies to raise short-term capital even with low liquidity ratios. The three-
year average EBITDA margin of 42% shows the capital-intensive nature of mobile
telecommunications where the company generates high profit that will be then used to service
debt and are reduced by depreciation in the income statement. The profit margin of 11% shows
high profitability. These financial indicators are also compared with industry benchmark values
discussed in the Industry Financial Performance section. These show mobile providers in the
Philippines are highly profitable. ROA and ROE also show high profitability. Ratios show Globe
as being more effective in the use of capital. The higher ROA of Globe can be contributed by the
preference for debt in financing capital expenditure.

7.2.4. Operations Audit
Table 44
Operations Audit of Smart
Finished goods include smartphone units, SIM

1. Are supplies of finished cards, and other wireless communication devices.
goods reliable and reasonable Yes Supplies are reliable and reasonable and are always
at Smart? available in retail stores and other distribution
channels.
2. Are Smart’s office, Offices, warehouse facilities, and equipment are in
warehouse facilities and Yes good condition. Goods are protected and are kept
equipment in good condition? safe.
Sometimes, the company sells mobile devices at a
very cheap price to minimize risk of total
3. Are inventory-control obsolescence of goods, but overall, the company
policies and procedures Yes inventory-control is effective. Provision for
effective at Smart? inventory obsolescence has not been avoided due to
network materials affected by modernization of
facilities.
Quality control policies and procedures are
4. Are quality control policies effective. From warehouses to consumers, quality
and procedures effective at Yes checks are performed to monitor and document the
Smart? state of quality at different points of the sales
process.
Facilities and resources are strategically located as
Smart constantly works on reducing consumption
5. Are resources and facilities
and emission of fuel and other energy sources.
in Smart located Yes
Inventory distribution is efficient and goods are
strategically?
ensured to be always available to consumers within
reasonable periods.
Over-the-air reloading of mobile credits
significantly reduced cost of distribution. Unified
ERP system provides synchronized real-time
6. Does Smart have information about customer accounts, inventory,
Yes
technological competencies? and finances among others. Smart is embarking on
a 3-7 years digital transformation journey to
develop AI, machine learning, robotic automation,
and data analytics capabilities.
7.2.5. Research and Development Audit
Table 45
Research and Development Audit of Smart Communications, Inc.

Vision Investment Holdings Pte. Ltd (VIH) is the
subsidiary for digital innovations of PLDT and Smart,
developing solutions for emerging markets in digital
1. Does Smart have
financial services, accesses including sponsored data,
R&D facilities? Are they Yes
data-in-sachets, digital marketing solutions, and
adequate?
incubation of other new technologies. It is adequate as
PLDT and Smart can continuously develop new digital
products and services through this subsidiary.
For mobile telecommunications technology, Smart
2. If outside R&D partners with international enterprises like Huawei,
providers are used, are Yes Nokia, and Ericsson. They are cost-effective as Smart
they cost-effective? leverage on its bargaining power reinforced by its
partnership with NTT Docomo
The organization’s R&D personnel are well qualified
and were able to produce some innovative products and
3. Are Smart’s R&D
Yes services. As the company continues to work on its
personnel well qualified?
digital platforms, it develops skills and competencies of
its workforce.
Smart outsourced mobile telecommunications
4. Are the R&D technology development to its partners Huawei, Nokia,
resources in Smart Yes and Ericsson. The allocation of funds to VIH is
allocated effectively? effective as the company can produce outputs from its
endeavors.
Though there are several areas where Smart can
5. Are the computer
enhance its system, the management information and
systems and management Yes
computer system of Smart is adequate and its able to
information adequate?
support operations for its millions of subscribers
R&D and other functional areas such as Marketing and
6. Is communication Customer Service are not well-integrated resulting in
between R&D and other ineffective communication. Findings in the other units
No
organizational units in are not readily being forwarded to R&D as few
Smart effective? resources are assigned with roles involving
coordination with R&D.
Smart’s 4G LTE services is technologically competitive
7. Are present products
among the available products in the market but is less
of Smart technologically Yes
competitive than 5G now being offered as fixed
competitive?
wireless service of its rival, Globe
7.2.6. Management Information Systems Audit
Table 46
Management Information Systems Audit of Smart
1. Do all the managers in Smart Managers use information systems to make

make decisions using Yes decisions, from simple Excel files to unified
information systems? ERP systems.
The appointment of a Chief Information

2. Is there a chief information
Yes Security Officer (CISO) is a key development in
officer position in Smart?
2018.
At the most, data in the information system is
3. Are data in the information
updated quarterly and monthly. Data in the
system of Smart updated Yes
unified ERP system is real-time and is updated
regularly?
in every transaction.
With the unified ERP system, managers in most
4. Do managers from all
functional areas contribute to the information
functional areas of Smart
Yes system, making sure existing data is accurate
contribute input to the
and with integrity. Data is shared, real-time,
information system?
across different functional areas.
5. Are there effective
Users are provided with access only to
passwords for entry into the Yes
functional areas relevant to their roles
Smart’s information system?
Smart and Globe partnered both with Amdocs to
build information systems specialized from
6. Are strategists of Smart
telecommunications. Many information systems
familiar with information Yes
are common to telecommunications companies.
systems of rival companies?
Strategists of Smart are familiar with the
information systems of Globe.
Overall, the information system is user-friendly.
7. Is the information system of
Yes Users need to take functional training to ensure
Smart user-friendly?
reports are valid and are accurate.
Smart is a digital company with millions of
8. Do all users of the
subscribers. Users understand digital
information system in Smart
information systems are the only way they could
understand the competitive Yes
generate reports about their operations. Some
advantages information can
users even request certain features to be added
provide companies?
to their tools to help them with their work.
9. Are computer training
Training workshops are provided to users of the
workshops being provided in
Yes information system. Users also participate in
Smart for users of the
testing their systems.
information system?

10. Is the Smart's information
Smart embark on modernization and digital
system content and user-
Yes transformation to improve its information
friendliness continually being
systems.
improved?
7.3. Porter’s Generic Strategy
Smart uses both cost leadership and differentiation strategy.
Cost leadership is used among the value-sensitive and mainstream prepaid brands. The
company offers its products and services in “sachet” for as low as Php 10. Prepaid services cater
to the low-income market segment, and are accessible and available through retailers nationwide
including neighborhood sundry stores.
Differentiation strategy is used through premium and regular postpaid brands. ARPU in
these services are around eight to ten times more than prepaid services as brands cater to the
middle to high-income market segment. Smart operates stores showcasing the different mobile
devices that come with postpaid services. These include flagship models of leading smartphone
brands such as Samsung and iPhone.

7.4. Value Chain Analysis
Figure 54
The Extended Value Chain Model
Source: McPhee, W. and Wheeler, D., 2006 as cited in Odhiambo, 2010
7.4.1. Primary Activities
7.4.1.1. Supply Chain Management
Physical goods include smartphones and other mobile devices, SIM cards, and mobile
prepaid credit cards among others.
Smart uses multiple vendors to minimize dependency on single vendor. As a large
company, it has bargaining power over suppliers. Smart orders millions of products for its
customers. Products are non-perishable though smartphones and other digital devices might
undergo obsolescence. Smartphones have a lifespan of 3 to 7 years depending on the model.
Smart maintains close coordination with smartphone brands to manage its inventory and
minimize the risk of obsolescence. Smart is a recognized brand and is able to carry leading
smartphone brands such as Samsung and iPhone. Smart capitalizes on its nationwide coverage
and its brand to be first in the race of introducing flagship models of leading smartphone brands.
The ability to be the first in the country to launch flagship models excites the market and
encourages sales in postpaid services, it also enhances brand equity as the company will be
associated with new, innovative, and fun mobile devices.
Smart balances the availability of product to customers with the costs of warehousing and
risks of obsolescence.
7.4.1.2. Inbound Logistics
Smart needs to store products in its warehouses to ensure inventory is monitored, quality
of goods are checked, and products are available to customers. Most smartphone bands ship their
products from abroad. The company maintains proper coordination with smartphone suppliers.
It is also important to effectively forecast demands for certain smartphone models based on
trends and market analysis. When uncertainty in product demand is identified, Smart leverages
on its nationwide distribution network of more than 200 stores to pass on the risks to suppliers
for unsold mobile phones.
Smart carries several smartphone brands for the different segments. For the mass market,
it offers some models of Oppo, Starmobile, and Alcatel. For the middle to high-end market, it
offers popular models of Samsung and iPhone. In case of high-demand products, the company
maintains close coordination with suppliers to ensure products are available to customers in the
earliest possible time.
7.4.1.3. Operations
Many parts of the operations concerning the consumption of mobile services are
automated. From loading of prepaid mobile credits and subscription to mobile services packages,
to billing or monthly refresh of mobile postpaid credits, operations are digital and automated.
The operations staff monitor its network infrastructure. Network infrastructure is
partially automated. The use of multiple vendors to build the network resulted in complexities.
The company has a system to check if telecommunications equipment is up and running, but it
has limited control on how equipment behaves in case of increased data traffic. There are system
limitations in Smart in managing mobile terminals connected to the network. The system cannot
limit mobile data usage. Smart compensates for this by not offering unlimited data packages. It
is therefore not burdened with spikes in data usage from unlimited surfing. The prorated billing
creates stability and predictability of data traffic.
Smart operates more than 200 stores nationwide for its sales, marketing, and customer
service with focus on postpaid services.
Customer agents handle technical and billing concerns in stores or over the phone using
toll-free numbers. Customer support is available 24/7 or from 9:00-7:00PM depending on the
concern. Many concerns are automated such as blocking of lost phones, checking balances and
internet usage, and checking available products and services among others. But many concerns
are not yet provided with automated responses creating dependency on customer agents. The
company may reduce costs in this area by automating responses for some customer concerns.
7.4.1.4. Outbound Logistics
Products are delivered to customers through Smart stores, Sun shops and authorized
retailers. Smart and Sun operates 200 stores nationwide to cater to middle- and upper-class
segments with a differentiated mobile service. The modern and energetic vibe of the stores
creates an “awesome” experience in unboxing mobile devices from leading smartphone brands.
It also allows subscribers to experience a human touch in resolving concerns.
SIM cards and prepaid mobile credit cards are more readily available than postpaid
services. They are available through the expansive distribution network of Smart including
neighborhood sundry stores or “sari-sari” stores. Smart devised the over-the-air reloading
system and taught entrepreneurial sari-sari store owners to load prepaid credits using their
mobile phones. This reduces the frequency of physical delivery of goods and reduces the cost of
distribution.
For low-end and mainstream prepaid users, Smart makes products and services highly
available through its wide distribution network. For high-end users of postpaid and premium
postpaid services, Smart creates an “awesome” customer experience by creating high-end and
modern stores.
7.4.1.5. Marketing and Sales
In 2016, the Sun Cellular postpaid service was transferred from DMPI to Smart so the
latter can maximize the use of customer information from Sun’s postpaid customer database.
Customer information is important in marketing. Prepaid services do not require users to supply
their personal information; nonetheless, Smart can still generate some marketing insight from it
in terms of the general patterns in the use of mobile services.
Smart does not have advanced analytics capability and it's now developing it in its
modernization program with Amdocs.
Smart is also conservative in involving real consumers in its marketing effort. While
Globe maintains a community of 200,000 volunteers in developing products and services, Smart
has less prominent marketing activities, none involving significant numbers of real consumer
volunteers. Smart lagged in market adaptability; nonetheless, products and services of Smart and
Globe are similarly competitive.
As discussed in the Outbound Logistics section, for mainstream and mass-market, Smart
makes it products and services low-cost and widely available. Smart makes use of its wide
distribution network of millions of retail stores so users can readily avail services. The emerging
popularity of online banking, enabling online reloading of prepaid mobile credits, increases the
accessibility of services while minimizing cost of distribution. On top of its over-the-air
reloading system, the company initiated “pasaload” for users to easily share prepaid mobile
credits. Though less popularly known, Smart prepaid credits are also available for sale online
using credit cards.

For the high-end market, it creates an “awesome” experience by operating new, modern,
and engaging stores. In these stores, customers can avail postpaid services with devices from
leading smartphone brands. Unboxing expensive phones in Smart stores creates value in terms
of experience as Smart stores are secure, well-lit, engaging, and have a happy vibe. Smart
Signature, with its gold logo, is a symbol of luxury to some degree, and is in-line with the
branding of leading smartphone brands such Samsung and iPhone. In Smart stores, postpaid
users experience differentiated mobile service as they will be accommodated by customer agents
in addressing concerns and queries.
Online platforms, telesales, and social media are emerging channels for marketing. Smart
maintains social media accounts leveraging on the network of its followers to gain exposure
among connections. Smart is also advertising online in popular social media channels like
YouTube and Facebook.
Smart marketing campaigns target the young market of mobile users to ensure
effectiveness. The median age of the Philippines is 24 years, by targeting the young with lively,
youthful, and energetic promotional campaigns, Smart can secure its position in the market.
Smart entices mobile users to “Live Smart” , a digital lifestyle incorporating mobile services in
day-to-day activities. By promoting a digital lifestyle, Smart increases the frequency of
consumption of mobile services.
7.4.1.6. Product Use
Previously, a prepaid user cannot use a mobile package while there is existing
subscription to mobile packages. Now, Smart allows users to subscribe to mobile packages even
if the previous subscription has not been fully consumed. This allows the continuous
consumption of mobile services. The system must be able to support new products and services.
Digital systems are important in the use of mobile services because it is the only way Smart is
able serve its millions of users.

Services are more readily available and consumable to postpaid subscribers. Subscriber
pay services on a monthly basis. Prepaid users must execute several steps to load mobile credits
and to subscribe to certain mobile services. Smart tried to introduce a minimal reduction of these
steps by simplifying options. A user can simply dial *143# to display the service menu and select
the first option to avail the most popular service without browsing through the rest of the menu.
Through reduction of steps, mobile services are made more accessible and more readily
consumable.
7.4.1.7. Service
Smart responds to the many inquiries of its subscribers. Customer services of the
company are not fully integrated and automated. Customer agents are still burdened by
repetitive and manual tasks. Its rival, Globe, provides wider options in their telesales hotlines,
making responses readily available without engaging with customers agents. This approach will
increase responsiveness, increase customer satisfaction and reduce costs. Moreover, some
customer service options are not available 24/7. Finally, if network and system performance,
especially in network quality and billing goes well, the company will not have to rely too much
on customer service.
7.4.2. Supporting Activities
7.4.2.1. Firm Infrastructure
The network infrastructure of Smart is the core of the business. Smart leverages on the
vast fiber optic backbone infrastructure of PLDT to provide superior network performance.
Smart has been weighed down by its legacy system, restraining the company in adopting
advanced mobile technology. Equipment needed to be written-off as obsolete, and the rest of the
equipment , for example those using 3G and early 4G technologies needs to be made compatible
with the 4G LTE technology. Smart partnered with three mobile equipment vendors namely,
Huawei, Nokia, and Ericsson. The mix of old and advanced technologies in the network, and the
mix of mobile equipment vendors made it difficult for Smart to create an integrated 4G LTE
network. Moreover, the industry now is again shifting to a more advanced mobile technology,
5G, that had to be integrated again to the existing network. Unlike its rival, Globe, Smart is not
offering commercial 5G services. Globe implemented the single-vendor strategy in establishing
its network infrastructure. Smart incurred complexities and additional costs in integrating the
different technologies and equipment used in its network. Smart should in the future work on
eliminating complexities and create a more flexible network to easily integrate and adopt
advanced mobile technology.
Tower sharing, considered in this study as a threat, is also an opportunity in reducing cost
and increasing coverage. It is difficult to put up communications towers in the Philippines
because of bureaucracy as mobile providers need to secure various business permits. Through
tower sharing, cost and time-to-market is reduced. Smart showed initial reluctance to participate
in this initiative, but later showed some degree of cooperation. Tower sharing is planned to be
implemented in the remaining unserved and underserved areas in the country thereby increasing
coverage.
7.4.2.2. External Networks
The government mandated the lowering of interconnection fee for voice calls and SMS.
This resulted in lower revenues from “classic” mobile services but also lower interconnection
costs. Being superior in network infrastructure, Smart may be at the losing end as it will share its
network infrastructure capacity to other networks, including the new entrant at reduced costs.
7.4.2.3. Human Resource Management
Mobile telecommunications is moderately labor intensive. Smart employs around 6,299
people nationwide. It relies on its people to operate the business, especially in the areas of
marketing and sales, account management, network monitoring and maintenance, financial
management, IT, and customer service. High skills and high performance are required in these
areas. Being in a digital business, Smart should be able to operate with lean workforce. Today,
the company has not fully realized the many benefits of automation in running a digital business.
In the area of customer service, automation will reduce cost and increase customer satisfaction.
IT and systems support the workforce of Smart. The Smart brand, being a leader in mobile
telecommunication, can attract top performing graduate students and experienced professionals.
7.4.3. Technology Development
Smart is not heavy on research and development especially in mobile technology as it
does not have the scale. The company relies on strategic partners, and partners in mobile
technology. It partnered with multiple vendors including Huawei, Nokia and Ericsson in
establishing its network infrastructure. Though Smart benefits from multiple options in mobile
technology, it had trouble in integrating equipment from different vendors. It outsourced its
digital transformation initiative to Amdocs to develop automation and data analytics capabilities.
The in-house innovation department is handled by Vision Investment Holdings Pte. Ltd (VIH), a
subsidiary of PLDT developing digital platforms like e-wallets and other digital platforms.
Due to economies of scale, Smart is not heavy on technology development and has relied
on its partners. This reduces its overall bargaining power over technology developers while also
reducing expenses in R&D and technology development. The main role of Smart is to source
advanced digital technologies.
7.4.4. Procurement
Smart leverages on its buying capacity to bargain during procurement activities. It can
demand low price and high quality as it is able to order in bulk. Smart establishes relationships
with multiple vendors and aims to contribute to their success so the company could maintain
plenty of options for its procurement activities.
8. Internal Factor Evaluation
8.1. Internal Strengths
8.1.1. Strength 1: Strong network infrastructure
A high network speed and availability is important in gaining subscribers and
maintaining continued use of services. It is one of the critical factors considered by a subscriber
when switching to other networks.
Rating: Major Strength (4)
In the past, Smart lagged behind Globe in 4G network availability but as a result of the
aggressive expansion of its 4G LTE network in recent years, Smart not only has better speed and
latency than its competitor but is now at par with Globe in 4G network availability. On top of its
expansive wireless network, Smart has access to PLDT’s broad fiber optic backbone, ensuring
enough capacity for its customers increased demand for mobile data services. This factor is a
major strength(4) of Smart.
8.1.2. Strength 2: Competitive product and service offerings and pricing
The right products and the right price allow telecommunications companies to strike a
balance between profit margin and network usage. High price can become a usage barrier to the
predominantly low-income market in the Philippines while low price might trigger price wars
and reduce the company’s profitability. On the other hand, competitive product offerings and
prices cater to the different segments and enables the company to sustain profitability.
Rating: Major Strength (4)
Most of the products and services of Smart and Globe are similar, but Globe’s product
offerings are slightly superior because it provides more price points to choose from including
higher data bundles and unlimited data. Nonetheless, Smart’s products and services are
competitive as the company employed sachet marketing, bundling, and price discrimination.
The company is able to capture and retain most of its customers, and profit from the
monetization of its services. This factor is a major strength (4) of Smart.
8.1.3. Strength 3: Financial flexibility
Financial flexibility shows the ability of the company to sustain yearly investment in
network and systems infrastructure especially when there are emerging technologies that are
potentially disruptive Financial flexibility is necessary in providing resources to support
strategic initiatives that steers companies in the right direction. Mobile providers in the
Philippines need to continuously expand and enhance networks as new technologies emerge.
Rating: Minor Strength (3)
Though PLDT and Smart generate the highest revenue in the industry, it is also highly
leveraged resulting in reduced degree of financial flexibility. Nonetheless, Smart generates
enough revenue to profit and to cover the high capital expenditure needed in expanding its
network to accommodate the growing demands for mobile internet. PLDT generates more
revenue than the Globe Group but the latter posts a higher EBITDA, and EBITDA margin. This
factor is a minor strength of Smart.
8.1.4. Strength 4: Strong subscriber base

At the relatively low level of ARPU, volume is needed to profit from the high capital
expenditure needed in rolling out network infrastructure. Also, a strong subscriber base
facilitates the analysis of user-generated data used in identifying consumer behavioral patterns in
the use of mobile services. Analysis could be used in creating superior products and services.
Smart cornered 44.9% of the mobile subscription market. This market share is high
compared to benchmark values; however, Globe is more superior with a market share of 55%.
Moreover, Globe sustained an upward trend in mobile subscriber market share in recent years.
This factor is a minor strength (3) of Smart.
8.1.5. Strength 5: Strategic Partnership
Weight of Importance:8%
Strategic partnership allows local mobile providers to learn from their offshore partners
who are mostly operating in developed countries. It facilitates knowledge-sharing, increasing
efficiency and eliminating major risks in strategy formulation and implementation. It also allows
the telecommunications providers to act together to increase bargaining power over mobile
technology suppliers.
Smart is partnered with Singtel. Though Singtel is a leading telecommunications
provider in Singapore, it is not a leader in mobile technology, especially in emerging
technologies like 5G. Nonetheless, Smart and Singtel developed synergy to effectively source
advanced technologies in mobile telecommunications, and to implement best practices in running
the business. Strategic partnership is a minor strength (3) of Smart.
8.1.6. Strength 6: Brand Equity
Brand equity is the value of the brand. Consumers buy from brands they perceive as
valuable. It takes time to develop brand equity by consistently providing consumers with
valuable products and services and by constantly exposing them with contents associating the
brand to positive things. Brand awareness paves the way for consumers to gain information
about value offerings. Brand also allows mobile providers to carry similarly high-value products
like flagship models of leading smartphones brands.
Smart was able to establish valuable brands including Smart postpaid and prepaid, TNT,
and even Sun Cellular. These brands cater to millions of subscribers and cornered a significant
portion of the mobile subscriber market share. Consumers from the market segments of
postpaid, mainstream prepaid and value-sensitive prepaid services identify with these brands.
Through its three-decade long operation, Smart was able to establish high brand awareness. It is
perceived as a leading brand in mobile telecommunications offering the highest quality of
mobile services in the country. On the other hand., the Sun brand is weakening as it suffered
from alarming loss in subscribers both in prepaid and postpaid services. The brand is known for
its unlimited voice calls and text offerings. As Smart and Globe offer unlimited packages, the
value proposition of the Sun brand is now diminished. Brand equity is a minor strength (3) of
Smart.
8.2. Internal Weaknesses
8.2.1. Weakness 1: Fragmented brand portfolio and weakening Sun brands
It entails resources to maintain brands. The purpose of brands is to create an identity to
carry a set of products in serving a distinct market segment. It is important to keep the right
number of brands to avoid dividing marketing resources and losing economies of scale.
Rating: Major Weakness (1)
The brand portfolio of Smart is fragmented as it carries multiple brands for the same
product categories. For postpaid services, it carries Smart and Sun postpaid; for value-sensitive
prepaid market, it carries Sun prepaid and TNT.
Marketing and other resources are divided among the brands. Half of the total stores of
Smart are Sun Shops, each brand now operates half the number of stores operated by its rival,
Globe. Smart, Sun and TNT launch their own promotional campaigns. Each brand is being
handled separately even in other functional areas like finance, IT, and customer service.
The Sun cellular brand is weakening marked by high churn rate and high loss of
subscribers over the last three years even when the company provided extra focus on customer
service including 24/7 customer support. The brand’s value proposition of unlimited voice calls
and text messaging is no longer attractive as both the Smart and Globe brands offer these
unlimited services. Sun Cellular is offering the same services as Smart. The two brands only
differ in smartphone brands carried as part of postpaid services as the former offers low-end
devices such as Alcatel.
The fragmented brand portfolio and weakening Sun brand is a major weakness of
Smart(1).
8.2.2. Weakness 2: Slow market adaptability.
Importance: 11%
Market adaptability ensures mobile providers do not fall short in serving current market
demands. Mobile subscriber market is saturated, providers must defend their market share by
making sure services are competitive. When the market shifted to prepaid, and when it shifted to
mobile data, the first player to serve the market became the market leader. A shifting market
creates movement in mobile subscription as gaps in the value of services becomes more
apparent.
Rating: Minor Weakness (2)
Smart has shown poor market adaptability when it failed to cater to the emerging demand
in mobile data. Smart was able through aggressive rollout of 4G LTE network infrastructure.
Nonetheless, Smart is still showing poor market adaptability., with its slow adoption of emerging
technologies in mobile telecommunications including 5G and IP-based services.
8.2.3. Weakness 3: Poor customer service
For mature organizations offering reliable services, customer support should not have
much impact. As discussed in the Customer Service as Success Factor section, this factor is not
one of the important deciding factors when switching to other networks. Nonetheless, customer
service is a way for getting customer feedback ,and for addressing customer concerns .
Subscribers who go through customer service are those who experienced disappointment from
failure of services to meet expectations, are therefore vulnerable and are likely to discontinue
service. The quality of customer service has a direct correlation to churn rate.
Smart has a higher churn rate in recent years compared to its rival, Globe. In 2018, Smart
focused on improving its customer service for the Sun brand as it is showing an alarming churn
rate compared to the other Smart brands. The customer service metrics is focused on the
productivity of customer agents and may not be effective in gauging the ability to keep
customers. Response to queries is not as fast as competitors. Most of Smart's customer service
system is not automated and agents are not provided with cross-functional system tools to
respond to the variety of customer queries. This factor is a minor weakness of Smart.
8.2.4. Weakness 4: Inferior IT and systems, and digital platforms
IT and systems are important in serving millions of subscribers. The digital nature of
mobile telecommunications should allow providers to use automation to a high degree. A fully
automated IT and systems will reduce costs, enhance responsiveness of systems and increase
customer satisfaction.
Digital platforms are IP-based or OTT applications. Internet protocol is the new realm of
mobile communications and is now becoming the preferred way in using mobile services . One
example of OTTs are e-wallets being offered by mobile providers including Smart. E-wallet is a
mobile application facilitating transfer of digital credits online to be used in purchasing items
from registered merchants. It is also a marketing tool in gaining customer information as the
application requires customers to supply valid personal information such as name, age, and
gender among others. Digital platform is a way for mobile providers to continue offering mobile
services in the realm of internet protocol.
Smart was not able to develop a fully automated IT and systems because it focused on its
unified ERP system where subsystems for different functional areas of the PLDT, Smart, DMPI
and e-PLDT are integrated. The company also partnered with multiple vendors in establishing
its network infrastructure resulting in complexities in integrating equipment not readily
compatible. Integration is further burdened by the mix of technologies in the network designed to
operate under different network architecture. Inferior IT and systems, and digital platforms
become evident in the lack of automation in customer service, lack of market acceptance of its
digital platforms, and late adoption of mobile technology. This is a major weakness of Smart.
8.3. Conclusion
Table 47
Internal Factor Evaluation Matrix
Importance Weighted
Internal Factors Rating
Weight Score
Strengths
1. Strong network infrastructure 13% 4 0.52
2. Competitive product offerings and pricing 12% 4 0.48
3. Financial flexibility 11% 3 0.33
4. Large subscriber base 10% 3 0.30
5. Strategic partnership 8% 3 0.24
6. Brand Equity 8% 3 0.24
Subtotal 62% 2.11
Weaknesses
1. Fragmented brand portfolio and weakening
0.12
Sun brand 12% 1
2. Slow market adaptability 11% 2 0.22
3. Poor customer service 8% 2 0.16
4. Inferior IT and systems, and digital platforms 7% 2 0.14
Subtotal 38% 2 0.64
Total 100% 2.75

Note. 1 -major weakness; 2 -minor weakness; 3 -major strength; 4 -minor strength
The IFE shows Smart developed above average internal strengths and capabilities.
8.3.1. STRATEGY FORMULATION
8.4. Strengths, Weaknesses, Opportunities, Threats (SWOT) Matrix
Table 48
SWOT Matrix
SWOT Matrix
Strengths Weaknesses
1. Strong Network Infrastructure 1. Fragmented brand portfolio and weakening
2. Competitive product offerings and Sun brand
pricing 2. Slow market adaptability
3. Financially Flexible 3. Poor customer service
4. Large subscriber base 4. Inferior IT and systems, and digital
5. Strategic partnership platforms
6. Brand Equity
Opportunities Threats
1. Growing demand for mobile internet 1. Participation of third telco
services 2. Continuous erosion of revenues from classic
2. Increase demand for OTT services mobile services
3. Advances in digital technology 3. Pressure to adopt 5G
4. Decreasing prices in mobile equipment 4. Tower sharing
5. Increased spending in communications 5. Mobile Number Portability (MNP) law
The following are the proposed SO strategies:
SO-1. Continuously increase network capacity to cater to increasing demands for mobile
data. Use a good mix of mobile technology to maximize capacity while managing costs.
(O1, O2, O4, S1, S2, S3, S4, S5, S6)
SO-2. Continuously offer OTT application services such as online video and social
media application services to habituate consumers and increase demand for mobile data.
Partner with OTT service providers to share profits. (O2, S1, S2, S4, S5)
SO-3. Adopt IT technologies in areas with high ROI to achieve higher operational
efficiency while enhancing the ability to support millions of subscribers. Use AI, data
analytics, and automation tools to improve products and services. (O3, S3, S5)
SO-4. In developing network infrastructure, focus on flexibility and the ability to
integrate equipment and technologies into the system. Sustain yearly investment in
infrastructure instead of incurring big investment at one time. (O4, S1, S3)
SO-5. Maximize consumer spending through price discrimination and offering wide
range of products and services suitable for customers with different spending habits and
capabilities. (O5, S1, S2, S3, S4, S5, S6)
The following are proposed ST strategies:
ST-1. Continue improving products and services by (1) creating enough network
capacity for growing demands in mobile data, and (2) ensuring products are reasonably
priced. (T1, T2, S1, S2, S3, S4, S5).
ST-2. Cooperate in the tower-sharing initiative to cover unserved and underserved areas.
Focus on strengthening brand equity to enable the company to maximize tower-sharing
in the future. (T4, S3, S6)
ST-3. Focus on integrating 5G into the system while the market is developing. (T3, S3,
S5)
The following are proposed WO strategies:
WO-1. Streamline brand portfolio by divesting the Sun brand. Smart will be able to focus
on improving the products and services, and distribution of Smart and TNT brands. A
lean brand portfolio will unite resources to improve market adaptability, customer
service, and will improve agility of IT and systems. (O1, O2, W1, W2, W3, W4)
WO-2. Employ digital transformation to achieve a high level of automation in IT &
systems. Employ data analytics to improve products and services (O3, W4)
The following are proposed WT strategies:

WT-1. Streamline brand portfolio so the company can unify resources to develop
competitive products and services, improved distribution, and strengthen the Smart
brands. (T1, T2, W1, W2, W3, W4).
WT-2. Focus on creating efficiency to address loss in revenue (T2, W1, W4)
WT-3. Employ digital transformation to achieve high-level automation and operational
efficiency.
The strategies identified using SWOT are aligned as the following strategies:
● Market penetration strategies :
○ Continue offering generous OTT inclusions to promote habituation and increase
demand for mobile data
○ Cooperate with the tower-sharing initiative to provide coverage to unserved and
underserved areas
● Product development strategies:
○ Increase network capacity to maintain quality of connection amidst the surge of
data traffic. Utilize a mix of various mobile technologies manage both fixed and
operational costs
○ Employ digital transformation to achieve high level of automation and improve
product and services including customer service while reducing costs
○ Strengthen the Smart brands
○ Strengthen integrity and cybersecurity resilience of networks and systems
● Divestiture
○ Streamline brand portfolio by divesting the Sun brand

8.5. Strategic Positioning and Action Evaluation (SPACE) Matrix
The SPACE matrix shown in Figure 55 suggests the mobile telecommunications industry
is neutral in its stability position. Stability is elevated by high entry barriers and eroded by
advancement and subsequent obsolescence of technology, changing customer preferences and
increasing competition. Financial position is high because of high revenue, income and capital
expenditure. Competitive position is very high as a top player. Industry position is below
average because of saturated mobile subscription market and increasing competition while high
demand in mobile data is offset by declining revenues from classic services.
Table 49
SPACE Matrix
Internal Strategy Position External Strategy Position

Competitive Position (CP) Industry Position(IP)
-1 Network Infrastructure 3 Competition
-2 Products and services 3 Market saturation
X = 1.70 -2 Subscriber base 6 Mobile data
-2 Partnerships 2 Classic services
-2 Brand equity
Ave: -1.80 Ave: 3.50
Stability Position (SP) Financial Position (FP)
-1 High entry barrier 7 Revenue and NIAT
-4 Some mobile tech adv 6 CF/CAPEX
Y = 1.50
Changing customer
-6 3 Total Debt to EBITDA
preference
-5 Increasing competition 6 CAPEX/Revenue
Ave: -4.00 Ave: 5.50
Figure 55
SPACE Matrix
The SPACE matrix offers practical strategies:
● Pursue mobile data using competitive strengths (market penetration, product
development)
● Using financial capability, Smart use related or unrelated diversification
● Execute all means to maintain and gain market share (e.g. backward, forward, horizontal
integration, market penetration, market development, and product development)

8.6. Boston Consulting Group (BCG) Matrix
Mobile data with a 45% share in service revenues has now taken over as the primary
source of revenue. On the other hand, voice and SMS revenues had been declining in the past
five years. The shift to mobile data is primarily caused by improving technology allowing
customers to use OTT services to replace voice and SMS.
Figure 56
BCG Matrix
As shown in Figure 56, BGC identifies voice and SMS as belonging to “cash cows”
while data belongs to “star”. For “cash cows”, BGC recommends product development,
diversification, retrenchment and divestiture. For “stars”, BGC recommends backward, forward,
or horizontal integration, market penetration, market development, and product development.

8.7. Internal-External (IE) Matrix
Figure 57
IE Matrix
Note: IFE = 2.64, EFE = 2.07
IFE shows Smart as belonging to the fifth quadrant. In this place, the recommended
strategy is “maintain and hold” including market penetration and market development.
8.8. Grand Strategy Matrix
Figure 58
Grand Strategy Matrix
The Grand Strategy Matrix shows Smart having a strong competitive position in a rapid
market growth for mobile data. The recommended strategies are market development, market
penetration, product development, forward integration, backward integration, horizontal
integration, and related diversification.

8.9. GE-McKinsey
Figure 59
GE-McKinsey
8.10. Summary of Strategies
Summary of strategies show the most recommended strategies as market penetration and
market development. Second is product development. Integration strategies also surfaced in
most tools though horizontal, backward, and forward integration are difficult to achieve in the
mobile telecommunications industry. Diversification strategies are also recommended, with an
emphasis on related diversification.

Table 50
Summary of Strategies
SWOT SPACE BGC IEM GSM Total

Integration Strategies
1 Forward Integration 1 1 1 3
2 Backward Integration 1 1 1 3
3 Horizontal Integration 1 1 1 3
Intensive Strategies
4 Market Penetration 1 1 1 1 1 5
5 Market Development 1 1 1 1 4
6 Product Development 1 1 1 1 4
Diversification Strategies
7 Related Diversification 1 1 2
8 Unrelated Diversification 1 1
Defensive Strategies
9 Retrenchment 0
10 Divestiture 1 1
11 Liquidation 0
8.11. Quantitative Strategic Planning Matrix (QSPM)
The following are the strategies evaluated using the QSPM:
● Product development (PD)
○ Increase network capacity
○ Digital transformation to increase efficiency and reduce costs
○ Improve customer service
○ Strengthen Smart and TNT brands
● Market penetration in served areas (MP)
○ Continue offering generous OTT inclusion such video streaming and social media
application services
○ Cooperate in the tower-sharing initiative to expand network to underserved and
underserved areas
● Divestiture (D)
○ Divest the Sun brand to streamline brand portfolio
Table 51
QSPM Matrix
1 (PD) 3 (MP) 4 (D)

Weight
AS TAS AS TAS AS TAS
Strengths
3 0.39 4 0.52 1 0.13

1. Strong Network Infrastructure 13%
2. Competitive product offerings and
2 0.24 4 0.48 3 0.36
pricing 12%
3. Financially Flexible 11% 4 0.44 2 0.22 3 0.33
4. Large subscriber base 10% 4 0.40 3 0.30 2 0.20
5. Strategic partnership 8% - - - - - -
6. Brand Equity 8% 2 0.16 4 0.32 3 0.24
1.63 1.84 1.26
Weaknesses
1 (PD) 3 (MP) 4 (D)

Weight
AS TAS AS TAS AS TAS
1. Fragmented brand portfolio and
3 0.36 2 0.24 4 0.48
weakening Sun brand 12%
2. Slow market adaptability 11% - - - - - -
3. Poor customer service 8% - - - - - -
4. Inferior IT and systems, and digital
- - - - - -
platforms 7%
38% 0.36 0.24 0.48
Opportunities
1. Growing demand for mobile internet
3 0.42 4 0.56 2 0.28
services 14%
2. Increase demand for OTT services 12% 3 0.36 4 0.48 2 0.24
3. Advances in digital technology 10% 3 0.30 2 0.20 4 0.40
4. Decreasing prices in mobile equipment 8% 4 0.32 2 0.16 3 0.24
5. Increased spending in communications 6% 2 0.12 4 0.24 3 0.18
50% 1.52 1.64 1.34
Threats
1. Participation of third telco 14% 3 0.42 2 0.28 4 0.56
2. Continuous erosion of revenues from
2 0.24 4 0.48 3 0.36
classic mobile services 12%
3. Pressure to adopt 5G 10% - - - - - -
4. Tower sharing 8% - - - - - -
5. Mobile Number Portability (MNP) law 6% 3 0.24 2 0.16 4 0.32
50% 0.90 0.92 1.24
Total 200% 4.41 4.64 4.32
Note. AS is Attractiveness Score, TAS is Total Attractiveness Scores

Note. 1 = not attractive, 2 = somewhat attractive, 3 = reasonably attractive, 4 = highly attractive
The QSPM result shows the Market Penetration strategy capitalizing on the company’s
strengths the most in exploiting opportunities. Smart should continue offering generous OTT
service inclusion in its data packages to create demand.
Divestiture improves weaknesses the most, followed by Product Development. Both
strategies are also the key in avoiding threats. Divestiture, with the resulting simplification of the
organization, supports Product Development.

Overall, QSPM shows Smart having strengths to exploit opportunities. Divestiture and
Product Development are ways to improve weaknesses to avoid threats.
8.12. Conclusion
Cost Leadership is the Path to Differentiation
Smart employs two strategies, cost leadership and differentiation.
Cost leadership is important as the market for mobile telecommunications is
predominantly low income marked by the 95% of total subscriber market share concerned by
prepaid services, and 55% of total subscriber market share cornered by value-sensitive prepaid
services. In order to provide the minimal acceptable mobile services nationwide while
maintaining profitability, Smart should cater to the low-income market through cost leadership.
Differentiation is also valuable because subscribers in the postpaid category spend eight
to 10 times more than the prepaid market contributing more to revenues. Smart offers postpaid
and premium postpaid to cater to the middle and upper class. Postpaid services are hassle-free,
allowing subscribers to pay a fixed monthly fee. Smart operates Smart and Sun stores in strategic
locations to cater to postpaid subscribers. The company also carries high-end smartphone brands
such as Samsung and iPhone.
Differentiation requires above average services. Cost leadership ensures profitability in
operating nationwide mobile telecommunications services. Without cost leadership, mobile
providers cannot provide high-quality, differentiated services in mobile telecommunications.

Focus on Long-term Customer Retention.
With the Mobile Number Portability(MNP) Law, Smart should focus now on the long-
term retention of subscribers. There is already a low switching cost in mobile
telecommunication, the MNP will reduce further the switching barrier. Engaging in short-term
market penetration strategies would result in fleeting success in gaining subscriber market share
as customers are enabled to choose the network providing the best value. The key is to develop
competencies sustainably supporting market penetration through cost leadership.
Market Penetration Capitalizes on Strength to Exploit Opportunities
The QSPM result shows market penetration enables Smart to use its strength from
superior network infrastructure and competitive products and services to cater to the
opportunities of increasing demand for mobile internet and OTT services. The susceptibility of
the market in these services will allow Smart to gain market share in mobile internet and in total
mobile subscriber.
Divestiture and Product Development Improves Weakness and Avoid Threats
As discussed, Smart should pursue strategies in cost leadership. Divestiture will simplify
the organization and unify resources. Product Development uses opportunities in advanced
digital technologies to optimize operations and support cost leadership. Our strategies will use
advanced technologies focused on supporting cost leadership.
Differentiation is the Future of Smart
Low-cost prepaid services are inconvenient because it requires users to execute several
steps in order to avail mobile services. Mobile services are not readily consumable which may
stifle consumption. With the continuous growth of the economy, subscribers will gain more
spending capacity for communication services. Moreover, with advanced digital technologies
used for automation, much of the manual processes in the distribution and consumption of
mobile products and services may be eliminated. The result is automated, convenient, and
differentiated mobile services. Smart should prepare itself in catering to more postpaid
subscribers.
9. OBJECTIVES, STRATEGY RECOMMENDATION, AND ACTION PLANS
9.1. Strategic and Financial Objectives
To be the leading wireless communications provider in the Philippines by 2022, Smart
will pursue market penetration strategy in the mobile data market, and it will develop cost
leadership capabilities to sustain growth in market share both in subscriber and service revenue.
Smart will reclaim 7% of the mobile subscriber market share and increase efficiency ratio
by 5% by 2022.
9.2. Strategic Positioning / Perceptual Mapping
The perceptual shows the different brands of Smart, Globe, Dito, and Sun Cellular. Sun
Cellular postpaid brand is carried by Smart while Sun Cellular prepaid brand is carried by DMPI,
both companies are subsidiaries of PLDT.
As shown in Figure 60, all Globe brands are perceived as offering reliable network
connection, while the Sun brand and Dito brand offers less reliable network connection. As
shown in Figure 61, Smart and Globe brands are perceived as between mainstream and luxurious
brands, Sun cellular and Dito brands are mainstream brands, while TM and TNT are value-
sensitive brands. The lower and upper mainstream brands offer products and services with
plentiful inclusions while value-sensitive brands offer meager inclusions.

Figure 60
Perceptual Map (Network Reliability vs Price)
Figure 61
Perceptual Map (Branding vs Product Offering Inclusions)

9.3. Recommended Business Strategies
9.3.1. Strategy 1. Market penetration by offering generous OTT inclusions in data
packages
Smart will leverage on its superior network infrastructure in gaining subscriber market
share. By offering generous OTT inclusions in data packages such as Fee 1GB YouTube Every
day, or Free 1GB Facebook Every day, users will be habituated to the use of OTT and mobile
data services. This strategy will emphasize the network performance gap of Smart and its rival,
Globe. It will exploit the susceptibility of mobile data users to the existing low quality of
connection , the Philippines being one of the countries with the lowest mobile video experience
rating in the world.
This strategy will have the most immediate effect among other strategies. It is the key in
achieving the 7% increase in mobile subscriber market share. On the other hand, it may increase
operating cost relative to revenue. The increase consumption in mobile data may increase ARPU,
offsetting expected decrease in revenue from classic mobile services.
9.3.2. Strategy 2. Divest Sun Cellular brand to achieve operational efficiency
Sun cellular is a weakening brand of Smart. When PLDT bought Digitel, carrier of the
Sun Cellular brand, it made a commitment to NTC to retain the unlimited call and text offerings
of Sun. The value proposition is no longer attractive because Globe and Smart now offers
unlimited calls to the same network, and unlimited texts to all networks.
Sun prepaid and postpaid subscribers make up a mere 4.2% of the mobile subscription
market. It has been in the market since 2003. Moreover, subscription is hemorrhaging with a
double digit decrease in subscribers in 2018. Sun has 91 branches while Smart has 115. Sun runs
its own advertisements and promotions. There are many costs in managing the Sun brand.
Moreover, the Sun brand is poorly positioned. Smart and Sun have similar product offerings.
Smart postpaid had already taken up the high-value postpaid market, Smart prepaid covers the
mainstream prepaid market, and TNT covers the value-sensitive prepaid market.
The strategy to streamline Smart’s brand portfolio is priority as it supports the other
strategies. Retiring Sun will bring the following benefits:
● Critical resources are freed up and will be used to support other Smart brands
● Management, processes and system can be simplified as provisions for the Sun
brand are eliminated
● Touchpoints are increased for the Smart brand
● Simplification will allow more agility to respond to changes
● Strengthened positioning of the Smart brands
9.3.3. Strategy 3. Use Advanced digital technologies for smart capital spending and
autonomous network management.
Network analytics employs emerging technologies in data analytics and machine learning
to identify patterns in network traffic in order to identify specific gaps where equipment needs to
be deployed. Equipment is the highest cost in mobile telecommunications. Network Analytics
ensures effective use of capital.
Software Define Network Architecture is the use of software to manage equipment in the
network. The combination of SDNA and network analytics enables the automatic management
of networks. Network components automatically react to changes in data traffic. Increased
utilization of individual network components leads to reduced cost of equipment.
This strategy will result in an initial increase in capital expenditure and decrease in
succeeding annual capital expenditure and depreciation as less equipment is needed to achieve
the desired network capacity.

9.3.4. Strategy 4. Use advanced digital technologies to automate back office
processes and customer service.
As discussed, around 20-30 processes contribute to 45% of operational costs. Smart
already uses a unified ERP system for most of its process. By applying automation tools such as
machine learning and AI, employees are supported, and productivity is increased. By reducing
manual tasks, employees may be assigned to more valuable positions.
One area suitable for automation is customer service. Most of this is not yet automated.
By deploying chatbots, Smart will improve its response rate while reducing costs. Customers
who go through customer service are disgruntled consumers who are susceptible to switching to
other networks. By providing the right, and timely, response, the company will improve its churn
rate.
9.3.5. Analysis
Table 52
Impact of Strategies on Subscription, Monthly ARPU, and Service Revenue
2016 2017 2018 2019e 2020f 2021f 2022f
Philippine 125,560,000 118,980,000 134,590,000 169,763,294 144,298,800 147,906,270 151,603,927

Total Mobile Subscriber
Smart Subscriber Base 62,763,209 58,293,908 60,499,017 72,404,920 69,306,099 72,142,936 75,097,768
Smart Subscriber Market

49.99% 48.99% 44.95% 42.65% 48.03% 48.78% 49.54%
Share
Philippine
Total Mobile 180,000 182,000 188,000 197,400 205,296 213,508 222,048
Service Revenue
Smart Total Mobile Service
96,497 84,439 81,096 86,267 93,708 100,770 106,747
Revenue
Smart Mobile Service
Revenue 53.61% 46.40% 43.14% 43.70% 45.65% 47.20% 48.07%
Market Share
Mobile subscriber base:
Prepaid 59,952,941 55,776,646 58,178,978 69,965,738 67153007 69839127 72632692
Smart 21,643,963 20,433,351 20,532,174 25,240,171 28028492 29149631 30315617
TNT 29,845,509 28,807,964 31,893,641 37,619,726 39124515 40689496 42317075
Sun 8,463,469 6,535,331 5,753,163 7,105,841 0 0 0

2016 2017 2018 2019e 2020f 2021f 2022f
Postpaid 2,810,268 2,517,262 2,320,039 2,439,182 2153092 2303809 2465075
Smart 1,383,830 1,388,090 1,424,115 1,485,550 2153092 2303809 2465075
Sun 1,426,438 1,129,172 895,924 953,632 0 0 0
Total mobile subscribers 62,763,209 58,293,908 60,499,017 72,404,920 69306099 72142936 75097768
Mobile subscriber churn

rate
Prepaid
Smart 7.60% 6.70% 7.40%
TNT 6.30% 6.80% 6.30%
Sun 8.80% 7.70% 5.80%
Postpaid
Smart 4.80% 2.30% 2.10%
Sun 6.40% 3.50% 3.30%
Monthly Net ARPU

(in Php)
Prepaid
Smart 107 108 118 119 120 122 123
TNT 76 74 71 67 68 68 69
Sun 83 82 81 75 0 0 0
Postpaid
Smart 951 972 819 806 822 839 855
Sun 437 418 401 414 0 0 0
Mobile Service Revenue

(in millions Php)
By service type
Prepaid 67,304 59,862 59,914 64,010 70,812 75,898 79,724
Postpaid 28,052 23,188 19,591 20,634 21,241 23,183 25,302
Inbound roaming and

1,141 1,389 1,591 1623 1655 1688 1722
others
Total mobile services 96,497 84,439 81,096 86,267 93,708 100,770 106,747
By brand:
Prepaid 67,880 59,664 60,602 64,010 70,812 75,898 79,724
Smart 29,736 27,011 28,492 31,766 39,676 42,527 44,670
TNT 29,124 26,093 26,630 26,617 31,135 33,372 35,054
Sun 9,020 6,559 5,480 5,628 0 0 0
Postpaid 30,254 23,603 19,772 20,634 21,241 23,183 25,302

2016 2017 2018 2019e 2020f 2021f 2022f
Smart 20,530 17,486 15,116 15,518 21,241 23,183 25,302
Sun 9,724 6,117 4,656 5,117 0 0 0
Inbound roaming and

1,141 1,389 1,591 1623 1655 1688 1722
others
Total mobile services 99,276 84,656 81,965 86,267 93,708 100,770 106,747
By mobile service
Data 25,517 26,281 38,350 51773 64716 75070 81076
Voice 37,094 30,724 28,052 23844 20983 19304 18339
SMS 32,745 26,045 13,103 9172 6879 5847 5555
Inbound roaming and

1,141 1,389 1,591 1432 1432 1432 1432
others
Total mobile services 96,497 84,439 81,096 86221 94009 101654 106402
Source: PLDT, 2016-2018; assumptions of the author

10. STRATEGY IMPLEMENTATION
10.1. Strategy Map
Figure 62
Strategy Map
10.2. Action Plans and Programs
10.3. Financial Projections and Overall Evaluation of Strategies
10.3.1. Action Plans and Programs
Figure 63
Gantt chart of Action Plans
Year 1 Year 2 Year 3

Activities
Mont
4-6 7-9 10-12 13-15 16-18 19-21 22-24 25-27 28-30 31-33 34-36
h 1-3
Migration of accounts
Retirement of the Sun brand

Reorganization and Retraining of
Employees
Retrenchment of employees
Conversion and Closing of Sun

shops
Removal of the Sun brand

accounts from system
Relinquish or use frequency

allocation
Use of unified resources to
advertise, promote and distribute
Smart and TNT products and
services
Develop system for smart capital

PHASE 1 PHASE 2 PHASE 3 PHASE 4 PHASE 5 PHASE 6
spending using network analytics
Continue roll out of network

PHASE 1 PHASE 2 PHASE 3 PHASE 4
infrastructure
Develop system for autonomous

network management
Implement high ROI automation

of back office processes
Enhance customer support tools PHASE 1 PHASE 2 PHASE 3

Table 53
Summary of Action Plans and Programs
Responsible
Action Expected Output
Person/Team
Strategy No. Market Penetration
Offer generous OTT
inclusions in mobile Not much changes are need as Smart are
already offering competitive products and Marketing Team
data packages for
services with generous OTT inclusion
prepaid
Strategy No. 2: Brand Portfolio Streamlining
Migration of All accounts are migrated as Smart prepaid or
Migration team
account postpaid
Sun brand is publicly announced as divested.
Retirement of the Management
All corporate requirements in divesting the
Sun Brand Committee
brand are accomplished.
Reorganization and
All Sun employees are assigned to their new Management
Retraining of
roles. Training is provided to the employees. Committee
Employees
Retrenchment of
Departments/
Employees All redundant positions are resolved.
Divisions
Removal of the Sun

IT & system is adjusted to retire functionalities
brand accounts from IT Management
related to the Sun brand
system
Selected Sun shops are converted into Smart
Closing and
shops. The rest of the shops are closed. Some Store Distribution
Conversion of Sun
locations are not strategic for the Smart as some Team
Shops
may have redundancies.
Frequencies are either returned or are used by
Relinquish or use Smart. These frequencies for 3G are not
Legal Team
frequency allocation competitive in the 4G LTE and future 5G
mobile data market.
Use of unified
resources to
Marketing
advertise, promote Smart is now able to use unified resources.
department
and distribute Smart
and TNT products
Responsible
Action Expected Output
Person/Team
and services
Strategy 3. Use Advanced digital technologies for smart capital spending and
autonomous network management
Develop system for

Systems
smart capital Gather requirements, develop system, then train
Modernization
spending using users
Team
network analytics
Use smart capital

Smart will continue to expand network
spending in Network expansion
infrastructure at a reduced cost using smart
continuous network team
capital spending.
expansion
Develop system for

Systems
autonomous Gather requirements, develop system, then train
Modernization
network users
Team
management
Strategy 4. Use advanced digital technologies to automate back office processes and
customer service
Phase 1. High priority features for customer
support are implemented. Prioritization allows
for maximization of ROI.
Phase 2. Features are evaluated and IT & systems

Enhance Customer
reprioritized. High priority features are department,
Support Tools
implemented. Customer Support
Phase 3. Features are evaluated and

reprioritized. High priority features are
implemented.
Gather requirements, develop systems, then

Implement high train users. Multi-phase ensures development of
Systems
ROI automation of automation tools is done in an iterative process
Modernization
back office ensuring users of tools can provide feed and the
Team
processes system is being developed according to their
needs.
10.3.2. List of Assumptions
Table 54
Assumptions in the Projected Income Statement
Account 2019 2020 2021 2022 Description
Depreciation 14% 5% 7% 7% Based on the usual 10 years useful life of new

assets and assumed that equipment purchased
this year will start depreciation the following year.
Cost of sales 1% -3% 8% 9% Same fluctuation as revenue is observed.
Rent 9% 4% 4% 4% Represents the usual escalation rate per year.
Professional and other 3% 3% 3% 3% Increase would represent annual increase of

service fees manpower costs and additional manpower to
address increasing number of transactions and
part will be from i
Repairs, maintenance and 3% -3% 11% 8% Will remain 9% of total revenue to manage well
others its expenses.
Compensation and 7% 7% 7% 7% Increases represent the annual increase of

employee benefits employees and additional manpower needed in
the operations.
Amortization of intangible -72% -10% -10% -10% Represents 10% decrease year on year as it will
assets continue to amortize the said asset.
Taxes and licenses 2% -3% 5% 5% Same fluctuation as revenue is observed.
Asset impairment -17% -1% 11% 12% Lower asset impairment is expected representing
3% year on year compared to 4% previous year.
Selling and promotions 18% -1% 11% 12% Based on 4% of revenue as it will manage the
selling and promotion maximizing the use of
different media.
Cost of service -89% 20% 15% 17% Represents 16% of Sale of cellular handsets and
subscriber's identification module (SIM) packs
Insurance and security -1% -2% 9% 11% Represents 0.95% of revenue

services
Communication, training 0% -1% 11% 12% Represents 0.75% of revenue

and travel
Financing costs - net 3% -30% -30% -30% Decreasing trend as the principal of interest
bearing loan is decreasing due to repayment.
Table 55
Assumptions in the Projected Balance Sheet
Property and Total investment of

Equipment 17.9 Bin 2020
(22,394) (17,915) (21,498) (17,198) 21.5B in 2021
27.2B in 2022
mainly represents acquisition and expansion of
its network to provide wider and more reliable
coverage. Also includes repurposing of Sun
Cellular assets.
Intangible assets -10% -10% -10% -10% Decrease of 10% would represent the
amortization of assets.
Prepayments current -5% -5% -5% -5% Decrease by 5% as the company would focus on
and noncurrent cash items.
Deferred income tax -5% -5% -5% -5% Decrease represents temporary tax differences
assets - net which become due.
Short term investment Increase of 1B year on year, to represent

diversification of cash.
Investment in 5% 5% 5% 5% Increase based on the annual increase of

employee benefit trust manpower benefit and additional employees.
Trade and other Retains average collection period of 50 days.

receivables- net
Inventories and 10% 10% 10% 10% Based on increase of cost of sales as these are
supplies items used to serve customers.
Prepayment -10% -10% -10% -10% Decrease by 10% as the company would focus
on cash items.
Retained earnings Will close net income for the year.

Interest-bearing Represent net payment of

financial liabilities 17.7 Bin 2020
-net of 1,722 (17,739) (12,418) (28,974) 12.42B in 2021
current portion 28.97B in 2022
as the Company would have enough cash to pay
its existing debt mainly due to increasing
operating cash flows.
Asset retirement 5% 5% 5% 5% Increase based on the annual increase of

obligation manpower benefit and additional employees.
Account payable 3% 3% 3% 3% Based on the increase of liabilities as it needs

additional suppliers to meet its increasing needs.
Accrued expenses and 10% 10% 10% 10% Based on the increase of liabilities as it needs
other current additional suppliers to meet its increasing needs.
liabilities
Unearned revenues 6% 9% 8% 5% Same fluctuation as revenue is observed.
10.3.3. Projected Income Statement
Table 56
3-year Projection of Income Statement of Smart, 2019-2022
2016 2017 2018 2019e 2020f 2021f 2022f
REVENUES
Service Revenues 83,666 82,698 77,867 79,424 77,042 84,746 93,220

Sale of cellular handsets and subscriber's
identification module (SIM) packs 3,310 4,572 6,928 7,967 9,561 10,955 13,694
86,976 87,270 84,795 87,392 86,602 95,701 106,914
Less share of other carriers 8,946 5,600 3,955 1,582 1,614 1,646 1,679
78,030 81,670 80,840 85,810 84,988 94,055 105,235
EXPENSES
Depreciation 15,620 34,148 22,468 25,667 26,911 28,703 30,852
Cost of sales 11,307 7,740 8,818 8,914 8,660 9,379 10,264

Rent 8,937 8,637 8,696 9,479 9,858 10,252 10,662
Professional and other service fees 5,613 9,822 8,497 8,752 9,014 9,285 9,563
2016 2017 2018 2019e 2020f 2021f 2022f

Repairs, maintenance and others 6,842 6,988 7,765 7,996 7,794 8,613 9,302
Compensation and employee benefits 5,846 6,124 6,603 7,065 7,560 8,089 8,655
Amortization of intangible assets 2,618 7,013 5,213 1,473 1,325 1,193 1,073
Taxes and licenses 2,023 2,025 3,245 3,310 3,211 3,371 3,540
Asset impairment 5,787 5,257 3,158 2,622 2,598 2,871 3,207
Selling and promotions 4,535 3,141 2,965 3,496 3,464 3,828 4,277
Cost of service - 499 1,120 127 153 175 205
Insurance and security services 961 847 842 830 814 890 989
Communication, training and travel 696 743 653 655 650 718 802
70,785 92,984 80,043 80,386 82,012 87,366 93,392
7,245 -11,314 797 5,423 2,976 6,688 11,843
OTHER INCOME (EXPENSES)

Gain on sale of investments 0 0 1,322
Income from consultancy 3,062 1,168 793
Interest income 223 267 620 620 620 620 620
Dividend income 19,758 16,827 422 422 422 422 422
Foreign exchange losses -1,674 -23 -521
Financing costs - net -2,363 -2,251 -1,868 -1,924 -1,347 -943 -660
Other income (expenses) -6,145 -171 -41 -41 -41 -41 -41
12,861 15,817 727 -923 -346 58 341
INCOME BEFORE INCOME TAX 20,106 4,503 1,524 4,500 2,630 6,747 12,184
BENEFIT FROM INCOME TAX 2,309 -3,844 -34 1,350 789 2,024 3,655
NET INCOME 17,797 8,347 1,558 3,150 1,841 4,723 8,529
Source: Smart, 2016-2018; assumptions by the author

10.3.4. Projected Statement of Financial Position
Table 57
3-year Projection of the Statement of Financial Position of Smart, 2016-2022
2016e 2017 2018 2019e 2020f 2021f 2022f
ASSETS
Noncurrent Assets
Property and Equipment 90,704 92,617 102,140 98,867 89,870 82,666 69,012
Investment in associate and
subsidiaries 17,594 16,313 14,976 14,976 14,976 14,976 14,976
Intangible assets 13,154 19,938 14,725 13,253 11,927 10,735 9,661

Available-for-sale financial
investments 72 81 - - - - -
Financial assets at fair value through

profit or loss - - 104 104 104 104 104
Investments in debt security - held-
to-maturity 254 150 -
Debt instrument at amortized cost - - 150 150 150 150 150
Prepayments - net of current portion 4,297 4,074 13,201 12,541 11,914 11,318 10,752
Deferred income tax assets - net 8,045 11,856 11,662 11,079 10,525 9,999 9,499
Contract assets - net of current
portion - - 789 789 789 789 789
Derivative financial assets -

net of current portion 87 55 57 57 57 57 57
Advances and other assets -

net of current portion 1,441 1,242 -
Other financial assets - net of current
asset - - 623 623 623 623 623
Total Noncurrent Assets 135,645 146,326 158,427 152,438 140,935 131,416 115,623
Current Assets
Cash and cash equivalents 10,741 8,709 20,531 28,914 28,590 33,479 31,866
Short term investment 516 75 968 1,968 2,968 3,968 4,968
Current portion of investment in

debt securities - held-to-maturity 26 - -
Investment in employee benefit trust 188 376 249 261 275 288 303
Trade and other receivables- net 17,087 17,491 11,648 11,971 11,863 13,110 14,646
Inventories and supplies 1,703 1,459 1,336 1,470 1,617 1,778 1,956
Current portion of contract assets 2,004 - 2,127 2,340 2,574 2,831 3,114
Current portion of prepayment 3,472 6,943 4,458 4,012 3,611 3,250 2,925
Current portion of other non-financial
assets - - 91
Total Current Assets 36,196 35,966 41,483 51,012 51,572 58,780 59,852
TOTAL ASSETS 171,841 182,292 199,910 203,449 192,507 190,196 175,475

2016e 2017 2018 2019e 2020f 2021f 2022f
EQUITY AND LIABILITIES
Equity
Common stock 2,732 2,732 2,732 2,732 2,732 2,732 2,732
Capital excess of par value 11,031 11,031 11,031 11,031 11,031 11,031 11,031
Total Paid-up Capital 13,763 13,763 13,763 13,763 13,763 13,763 13,763
Retained earnings 2,810 3,297 339 3,489 5,330 10,053 18,582
Perpetual notes 2,630 5,260 5,260 5,260 5,260 5,260 5,260

Subordinated shareholder's
advances 9,230 18,460 18,460 18,460 18,460 18,460 18,460
Other comprehensive loss -2 -160 -473 -473 -473 -473 -473
Total Equity 28,432 40,620 37,349 40,499 42,340 47,063 55,592
Noncurrent Liabilities
Interest-bearing financial liabilities

-net of current portion 53,554 54,652 57,409 59,131 41,392 28,974
Pension and other long-term

employee benefits 7- -
Asset retirement obligation 929 1,009 1,160 1,218 1,279 1,343 1,410
Contract liability - net of current
portion - - 6
Derivative financial liabilities -

net of current portion 9 8-
Other noncurrent liabilities 116 132 90 -
Total Noncurrent Liabilities 54,614 55,801 58,665 60,349 42,671 30,317 1,410
Current Liabilities
Account payable 39,282 39,232 49,254 50,732 52,254 53,821 55,436
Accrued expenses and

other current liabilities 28,422 32,194 35,690 39,259 43,185 47,503 52,254
Current portion of contract liabilities - - 23 - - - -
Unearned revenues 5,026 4,649 4,688 4,969 5,417 5,850 6,142
Current portion of interest-bearing

financial liabilities 8,572 7,736 8,587 7,587 6,587 5,587 4,587
Income tax payable - - -
Dividends payable 7,250 2,000 5,600

Current portion of derivative financial
liabilities 88 60 54 54 54 54 54
Total Current Liabilities 88,639 85,871 103,896 102,601 107,496 112,815 118,473
Total Liabilities 143,253 141,672 162,561 162,950 150,167 143,133 119,883
TOTAL EQUITY AND LIABILITIES 171,685 182,292 199,910 203,449 192,507 190,196 175,475
Table 58
3-year Financial Projection of Statement of Cash Flows of Smart Communications, Inc, FY
2019-2021
2016 2017 2018 2019e 2020f 2021f 2022f

Income before income tax 20,106 4,503 1,524 4,500 2,630 6,747 12,184
Adjustments for:
Depreciation 15,620 34,148 22,468 15,728 16,514 17,340 16,473
Amortization of intangible assets 2,618 7,013 5,213 1,473 1,325 1,193 1,073
Asset impairment 5,787 5,257 3,158 2,622 2,598 2,871 3,207
Interest on loans and related items - 2,128 2,053 1,734 1,924 1,347 943 660
net of capitalized interest
Foreign exchange losses - net 1,674 23 521
Impairment of subsidiaries and 5,550 726 480
associate
Pension costs 227 221 233 233 233 233 233
Incentive plans 331 47
Accretion of:
Financial liabilities 157 146 84
Assets retirement obligation 22 25 33
Loss (gain) on sale of property and 13 102 (14)
equipment
Dividend income (19,758) (16,827) (422)
Interest income (223) (267) (620) (620) (620) (620) (620)
Gain on sale of investment 0 0 (1,322) 0 0
Others (620) (788) (972) 1,922 8,169 11,493 17,254
Income before changes in assets and 33,301 36,666 32,145 27,781 32,196 40,199 50,464
liabilities
Decrease (increase) in:
Trade and other receivables (2,809) (6,967) 2,238 (323) 108 (1,246) (1,536)
Inventories and supplies (598) (142) 13 (134) (147) (162) (178)
Contract asset - - 540 (213) (234) (257) (283)
Current portion of prepayments (2,547) 106 (7,356) 446 401 361 325
Current portion of advances and other (4) (744) 677 (497) (959) (1,391) (1,795)
assets
Increase (decrease in):
Accounts payable 12,598 (9,723) 9,644 1,478 1,522 1,568 1,615
Accrued expenses and other current 4,451 2,846 3,410 3,569 3,926 4,318 4,750
liabilities
Contract liability - - (19)
Unearned revenues (176) (577) 38 281 447 433 292
Pension and other benefits (118) (675) (391)
Net cash flows generated from operations 44,098 20,790 40,939 32,388 37,261 43,823 53,655
Income taxes paid (4,046) (2,443) - (3,375) (1,973) (5,060) (9,138)
Net cash flows provided by operating 40,052 18,347 40,939 29,013 35,288 38,763 44,517
activities
CASH FLOWS FROM INVESTING
ACTIVITIES
Proceeds from:
Maturity of short-term investments 1,361 20,254 4,336
Disposal of investments in associate - - 3,527
and joint venture
Disposal of investments in notes - 400 599
receivable
Disposal of property and equipment 366 124 123
2016 2017 2018 2019e 2020f 2021f 2022f

Maturity of investments in debt 50 328 -
securities
Payments for:
Investments in associate (130) (100) (60)
Investments in subsidiaries (213) (390) (1,288)
Short-term investments (2,117) (18,463) (5,150) (1,000) (1,000) (1,000) (1,000)
Intangibles (14,962) - -
Acquisition of property and equipment (44,414) (23,630) (30,681) (22,394) (17,915) (21,498) (17,198)
Dividends received 23,584 14,829 2,018 422 422 422 422
Interest received 157 267 299 620 620 620 620
Decrease in advances and other assets (45) (64)
Interest paid - capitalized to property and (467) (642) (1,198)
equipment
Increase in advances and other noncurrent (1,504)
assets
Net cash flows used in investing activities (38,289) (7,068) (27,539) (22,352) (17,873) (21,456) (17,156)
CASH FLOWS FROM FINANCING

ACTIVITIES
Proceeds from availment of long-term debt 21,611 5,000 11,000 1,722
Collection from derivative liabilities 250 329
Proceeds from SSA 10,500 7,960 -
Proceeds from perpetual notes 5,260 -
Payments for:
Settlement of derivative liabilities (35)
Debt issuance costs (128) (33) (38)
Distribution charges from perpetual (191) (294)
notes
Distribution charges from SSA (479) (895)
Interest - net of capitalized portion (2,003) (2,096) (1,690)
Long-term debt (9,930) (17,784) (8,178) (17,739) (12,418) (28,974)
Cash dividends paid (26,000) (9,000) (2,000)
Net cash flows used in financing activities (5,985) (11,113) (1,766) 1,722 (17,739) (12,418) (28,974)
EFFECT OF FOREIGN EXCHANGE 56 (64) 188

RATE CHANGES ON CASH AND CASH
EQUIVALENTS
NET INCREASE IN CASH AND CASH (4,166) 102 11,822 8,383 (324) 4,890 (1,614)
EQUIVALENTS
CASH AND CASH EQUIVALENTS AT 12,773 8,607 8,709 20,531 28,914 28,590 33,479
BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS AT 8,607 8,709 20,531 28,914 28,590 33,479 31,866
END OF YEAR
10.4. STRATEGY EVALUATION, MONITORING, AND CONTROL
10.4.1. Balanced Scorecard
Table 59
Balanced Scorecard
Strategic
Specific Objectives Measurement Targets
Objectives
Financial
Increase by 7% CAGR
Increase revenues Increase revenues Revenue growth
from 2019 to 2022
Reduce costs Reduce expenses Increase efficiency
Increase efficiency
ratio
ratio by 5% by 2022
(expenses/revenue)
Customers
Increase Subscriber Increase Growth in Increase by 1% CAGR
base subscriber base subscriber base from 2019-2022
Increase customer Reduction
retention in churn rate 0.5%
Improve customer
Increase customer Customer
experience and
acquisition acquisition Increase by 1%
satisfaction
Increase customer Net Promoter Score
satisfaction (NPS) Increase by 1 point
Internal
Reduce network Average idle time per Decrease by 10
equipment idle time day minutes
Increase network Download speed Increase by 10 Mbps

download speed
Increase network upload Upload speed Increase by 2 Mbps

speed
Decrease network Latency rating Decrease by 60 ms

latency
Improve network
performance Increase mobile video Mobile video Increase by 5 points
Strategic
Specific Objectives Measurement Targets
Objectives
experience rating experience rating
Increase Team velocity Team velocity Increase by 4 hours

Increase System in deploying system per iterations
Agility enhancement
Learning and Growth

Improve technical skills Technical skills self- Improve by 1 point
rating (out of 5)
Enhance employee Improve soft skills Corporate Improve by 1 point
skills communications (out of 5)
skills self-rating
Improve collaboration Team building and 20 classroom

skills agile trainings workshops per year
Improve employee Employee Meet 80% of

Improve Employee engagement engagement survey employees are proud
Engagement results to be “Smart”
10.4.2. Business Continuity and Contingency Plan
Table 60
Business Continuity and Contingency Plan
Factors Proposed Action Plan

The Sun brand is trademarked and owned by PLDT. New
players will have to establish their own brands.
A new player will enter
the market to use the Sun Sun is allocated with GSM(17.5 MHz) and 3G(10 MHz).
brand or previously There are other frequencies falling within the same band but
owned company resources are not licensed to any mobile provider. Bands for GSM and
such as frequency 3G are not compatible for the latest technologies in wireless
allocation communications.
This is possible as what had happened in India when
Dito Telecommunity will Reliance Jio offered very low prices. Smart must compete
introduce ultra-low prices with the low prices up to the point where the company is still
in mobile services profitable. But as discussed, the key is sustainability in cost

leadership. Unsustainable, low prices will only succeed in
the short run. Proposed strategies avoid this threat.
Smart can use its income from operations and delay issuance
of dividends to sustain capital expenditure. The company can
temporarily suspend investments for a limited period. It can
also request financial assistance from its strategic partner,
Borrowing cost increases NTT Docomo up to what the law permits.
Part of the strategy in smart capital spending includes
making sure the network can integrate new mobile
technologies such as 5G. Compatibility is a major issue with
Smart because of the use of multiple vendors aggravated by
multiple technologies in its network. Ensuring flexibility of
Drastic shift of mobile network to expand using new mobile technologies should be
technology to 5G. a continuous, and ongoing endeavor.
This is addressed by our strategy in cost leadership. The goal
is for the company to be as efficient as possible, eliminating
Customer churn will unnecessary complexities. In this way, the company will be
continue as Globe able to offer the lowest rate in mobile service to the value-
improves network sensitive market of prepaid services. Smart simply must
performance and Dito focus on developing its strengths and competitive
gains market share advantages.
The use of Huawei equipment is done under the premise of
equipment being checked and cybersecurity backup
measures being put in place. Cybersecurity and data privacy
are of utmost importance. Unbiased experts should be hired
to double-check the system. In worst-case scenarios, Huawei
equipment just needs to be shut down and removed from the
Cybersecurity threats in system. Such action will have an impact on the Huawei
the use of Huawei brand that should deter it from involving itself from such a
equipment situation.
Employ tower-sharing in difficult areas. This will share risk
Terrorism attacks and of damaged equipment or infrastructure with shared-
natural disasters communication tower operators.
A fully automated system would require high skills. Smart
will ensure training materials are readily available, and
processes and technologies are fully documented. It will
ensure succession planning to quickly replenish lost
personnel. It will also be willing to spend more for rare,
critical talent such as SMEs in advanced mobile
Loss of Skills technologies.

Smart will establish close relationship with the government.
It will be open with its plans to serve the nation with the best
in mobile communications. It will show evidence how loss
New regulation will of profitability will hinder the company in providing
drastically decrease excellent mobile services. Nonetheless, the company will
profitability always be ready to comply with regulations.
The company established a legal department to handle
litigations. The company will always act according to law
Litigation and minimize itself from exposure to legal risks.
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APPENDICES
Appendix A. Glossary of Terms and Abbreviations
Abbreviation Meaning
DICT Department of Information and Communications Technology
CPCN Certificate of Public Convenience and Necessity
NTC National Telecommunications Commission
ARPU Average Revenue Per User
DMPI Digitel Mobile Philippines, Inc.
SIM Subscriber Identification Module
MNP Mobile Number Portability
Smart Smart Communications, Inc.
Globe Globe Telecom, Inc.
Dito Dito Telecommunity
PLDT Philippine Long Distance Telephone, Inc.
Udenna Udenna Corporation
China Telecom China Telecommunications, Inc.
OTT Over-the-top
CAGR Compound Annual Growth Rate
NIAT Net Income After Tax
ICT Information and Communications Technology
4G LTE 4th Generation Long-term Evolution
R&D Research and Development
TM Touch Mobile
ERP Enterprise Resource Planning

Appendix B. Global Comparison of Mobile Service Experience
Figure 64
OpenSignal Global Comparison of Overall Video Experience, 2018

Figure 65
OpenSignal Global Comparison of Overall Download Speed, 2018

Appendix C. Financial Analysis of Historical and Projected Financials of Smart
Table 61
Horizontal and Vertical Analysis of Statement of Final Position of Smart, FY 2016-2022
Horizontal Analysis
Vertical Analysis
% Change
2016 2017 2018 2019 2020 2021 % of Total Assets
2016e 2017 2018 2019 2020 2021 2022 2017 2018 2019 2020 2021 2022 2016 2017 2018 2019 2020 2021 2022
ASSETS
Noncurrent Assets
Property and Equipment 90,704 92,617 102,140 98,867 89,870 82,666 69,012 2% 10% -3% -9% -8% -17% 53% 51% 51% 49% 47% 43% 39%
Investment in associate and

17,594 16,313 14,976 14,976 14,976 14,976 14,976 -7% -8% 0% 0% 0% 0% 10% 9% 7% 7% 8% 8% 9%
subsidiaries
Intangible assets 13,154 19,938 14,725 13,253 11,927 10,735 9,661 52% -26% -10% -10% -10% -10% 8% 11% 7% 7% 6% 6% 6%
Available-for-sale financial
72 81 - - - - - 13% -100% 0% 0% 0% 0% 0% 0% 0%
investments
Financial assets at fair value
- - 104 104 104 104 104 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
through profit or loss
Investments in debt security -
254 150 - -41% -100% 0% 0% 0% 0% 0% 0% 0%
held-to-maturity
Debt instrument at amortized
- - 150 150 150 150 150 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
cost
Prepayments - net of current
4,297 4,074 13,201 12,541 11,914 11,318 10,752 -5% 224% -5% -5% -5% -5% 3% 2% 7% 6% 6% 6% 6%
portion
Deferred income tax assets - net 8,045 11,856 11,662 11,079 10,525 9,999 9,499 47% -2% -5% -5% -5% -5% 5% 7% 6% 5% 5% 5% 5%
Contract assets - net of current

- - 789 789 789 789 789 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
portion
Derivative financial assets -

87 55 57 57 57 57 57 -36% 4% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
net of current portion
Advances and other assets -

1,441 1,242 - -14% -100% 1% 1% 0% 0% 0% 0% 0%
Other financial assets - net of
- - 623 623 623 623 623 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
current asset
Total Noncurrent Assets 135,645 146,326 158,427 152,438 140,935 131,416 115,623 8% 8% -4% -8% -7% -12% 79% 80% 79% 75% 73% 69% 66%
Current Assets
Cash and cash equivalents 10,741 8,709 20,531 28,914 28,590 33,479 31,866 -19% 136% 41% -1% 17% -5% 6% 5% 10% 14% 15% 18% 18%
1191
Short term investment 516 75 968 1,968 2,968 3,968 4,968 -85% 103% 51% 34% 25% 0% 0% 0% 1% 2% 2% 3%
%
Current portion of investment in
26 - - -100% 0% 0% 0% 0% 0% 0% 0%
debt securities - held-to-maturity
Investment in employee benefit
188 376 249 261 275 288 303 100% -34% 5% 5% 5% 5% 0% 0% 0% 0% 0% 0% 0%
trust
Trade and other receivables- net 17,087 17,491 11,648 11,971 11,863 13,110 14,646 2% -33% 3% -1% 11% 12% 10% 10% 6% 6% 6% 7% 8%
Inventories and supplies 1,703 1,459 1,336 1,470 1,617 1,778 1,956 -14% -8% 10% 10% 10% 10% 1% 1% 1% 1% 1% 1% 1%
Current portion of contract

2,004 - 2,127 2,340 2,574 2,831 3,114 -100% 10% 10% 10% 10% 1% 0% 1% 1% 1% 1% 2%
assets
Current portion of prepayment 3,472 6,943 4,458 4,012 3,611 3,250 2,925 100% -36% -10% -10% -10% -10% 2% 4% 2% 2% 2% 2% 2%
Current portion of other non-

- - 91 -100% 0% 0% 0% 0% 0% 0% 0%
financial assets
Total Current Assets 36,196 35,966 41,483 51,012 51,572 58,780 59,852 -1% 15% 23% 1% 14% 2% 21% 20% 21% 25% 27% 31% 34%
TOTAL ASSETS 171,841 182,292 199,910 203,449 192,507 190,196 175,475 6% 10% 2% -5% -1% -8% 100%
EQUITY AND LIABILITIES
Equity
Common stock 2,732 2,732 2,732 2,732 2,732 2,732 2,732 0% 0% 0% 0% 0% 0% 2% 1% 1% 1% 1% 1% 2%

Capital excess of par value 11,031 11,031 11,031 11,031 11,031 11,031 11,031 0% 0% 0% 0% 0% 0% 6% 6% 6% 5% 6% 6% 6%
Total Paid-up Capital 13,763 13,763 13,763 13,763 13,763 13,763 13,763 0% 0% 0% 0% 0% 0% 8% 8% 7% 7% 7% 7% 8%
Retained earnings 2,810 3,297 339 3,489 5,330 10,053 18,582 17% -90% 929% 53% 89% 85% 2% 2% 0% 2% 3% 5% 11%
Perpetual notes 2,630 5,260 5,260 5,260 5,260 5,260 5,260 100% 0% 0% 0% 0% 0% 2% 3% 3% 3% 3% 3% 3%
Subordinated shareholder's
9,230 18,460 18,460 18,460 18,460 18,460 18,460 100% 0% 0% 0% 0% 0% 5% 10% 9% 9% 10% 10% 11%
advances
10567
Other comprehensive loss -2 -160 -473 -473 -473 -473 -473 196% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
%
Total Equity 28,432 40,620 37,349 40,499 42,340 47,063 55,592 43% -8% 8% 5% 11% 18% 17% 22% 19% 20% 22% 25% 32%
Noncurrent Liabilities
Interest-bearing financial
liabilities 53,554 54,652 57,409 59,131 41,392 28,974 2% 5% 3% -30% -30% -100% 31% 30% 29% 29% 22% 15% 0%
-net of current portion
Pension and other long-term
7 - - -100%
employee benefits
Asset retirement obligation 929 1,009 1,160 1,218 1,279 1,343 1,410 9% 15% 5% 5% 5% 5% 1% 1% 1% 1% 1% 1% 1%
Contract liability - net of current

- - 6 -100%
portion
Derivative financial liabilities -
9 8 - -11% -100%
Other noncurrent liabilities 116 132 90 - 14% -32% -100%
Total Noncurrent Liabilities 54,614 55,801 58,665 60,349 42,671 30,317 1,410 2% 5% 3% -29% -29% -95% 32% 31% 29% 30% 22% 16% 1%
Current Liabilities
Account payable 39,282 39,232 49,254 50,732 52,254 53,821 55,436 0% 26% 3% 3% 3% 3% 23% 22% 25% 25% 27% 28% 32%
Accrued expenses and

28,422 32,194 35,690 39,259 43,185 47,503 52,254 13% 11% 10% 10% 10% 10% 17% 18% 18% 19% 22% 25% 30%
other current liabilities
Current portion of contract

- - 23 - - - - -100%
liabilities
Unearned revenues 5,026 4,649 4,688 4,969 5,417 5,850 6,142 -7% 1% 6% 9% 8% 5% 3% 3% 2% 2% 3% 3% 4%
Current portion of interest-

bearing 8,572 7,736 8,587 7,587 6,587 5,587 4,587 -10% 11% -12% -13% -15% -18% 5% 4% 4% 4% 3% 3% 3%
financial liabilities
Income tax payable - - -
Dividends payable 7,250 2,000 5,600 -72% 180% -100%
Current portion of derivative

88 60 54 54 54 54 54 -31% -10% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
financial liabilities
Total Current Liabilities 88,639 85,871 103,896 102,601 107,496 112,815 118,473 -3% 21% -1% 5% 5% 5% 52% 47% 52% 50% 56% 59% 68%
Total Liabilities 143,253 141,672 162,561 162,950 150,167 143,133 119,883 -1% 15% 0% -8% -5% -16% 83% 78% 81% 80% 78% 75% 68%
TOTAL EQUITY AND

171,685 182,292 199,910 203,449 192,507 190,196 175,475 6% 10% 2% -5% -1% -8% 100%
LIABILITIES
Table 62
Horizontal Analysis of the Income Statement of Smart, FY 2016-2022
Horizontal Analysis
Vertical Analysis
% Change
% of Total Assets 2016 2017 2018 2019 2020 2021
2016 2017 2018 2019 2020 2021 2022 2016 2017 2018 2019 2020 2021 2022 2017 2018 2019 2020 2021 2022
REVENUES
Service Revenues 83,666 82,698 77,867 79,424 77,042 84,746 93,220 96% 95% 92% 91% 89% 89% 87% -1% -6% 6% 9% 8% 5%
Sale of cellular handsets

and subscriber's
identification module
(SIM) packs 3,310 4,572 6,928 7,967 9,561 10,955 13,694 4% 5% 8% 9% 11% 11% 13% 38% 52% 15% 20% 15% 25%
100% 100% 100% 100% 100% 100%

86,976 87,270 84,795 87,392 86,602 95,701 106,914 100% 0% -3% 3% -1% 11% 12%
Less share of other

carriers 8,946 5,600 3,955 1,582 1,614 1,646 1,679 10% 6% 5% 2% 2% 2% 2% -37% -29% -60% 2% 2% 2%
78,030 81,670 80,840 85,810 84,988 94,055 105,235 90% 94% 95% 98% 98% 98% 98% 5% -1% 6% -1% 11% 12%
EXPENSES
Depreciation 15,620 34,148 22,468 25,667 26,911 28,703 30,852 17.96% 39.13% 26.50% 29.37% 31.07% 29.99% 28.86% 119% -34% 14% 5% 7% 7%
Cost of sales 11,307 7,740 8,818 8,914 8,660 9,379 10,264 13.00% 8.87% 10.40% 10.20% 10.00% 9.80% 9.60% -32% 14% 1% -3% 8% 9%
Rent 8,937 8,637 8,696 9,479 9,858 10,252 10,662 10.28% 9.90% 10.26% 10.85% 11.38% 10.71% 9.97% -3% 1% 9% 4% 4% 4%
Professional and other

service fees 5,613 9,822 8,497 8,752 9,014 9,285 9,563 6.45% 11.25% 10.02% 10.01% 10.41% 9.70% 8.94% 75% -13% 3% 3% 3% 3%
Repairs, maintenance
and others 6,842 6,988 7,765 7,996 7,794 8,613 9,302 7.87% 8.01% 9.16% 9.15% 9.00% 9.00% 8.70% 2% 11% 3% -3% 11% 8%
Compensation and
employee benefits 5,846 6,124 6,603 7,065 7,560 8,089 8,655 6.72% 7.02% 7.79% 8.08% 8.73% 8.45% 8.10% 5% 8% 7% 7% 7% 7%
Amortization of
intangible assets 2,618 7,013 5,213 1,473 1,325 1,193 1,073 3.01% 8.04% 6.15% 1.68% 1.53% 1.25% 1.00% 168% -26% -72% -10% -10% -10%
Taxes and licenses 2,023 2,025 3,245 3,310 3,211 3,371 3,540 2.33% 2.32% 3.83% 3.79% 3.71% 3.52% 3.31% 0% 60% 2% -3% 5% 5%
Asset impairment 5,787 5,257 3,158 2,622 2,598 2,871 3,207 6.65% 6.02% 3.72% 3.00% 3.00% 3.00% 3.00% -9% -40% -17% -1% 11% 12%
Selling and promotions 4,535 3,141 2,965 3,496 3,464 3,828 4,277 5.21% 3.60% 3.50% 4.00% 4.00% 4.00% 4.00% -31% -6% 18% -1% 11% 12%
Cost of service - 499 1,120 127 153 175 205 0.57% 1.32% 0.15% 0.18% 0.18% 0.19% 124% -89% 20% 15% 17%
Insurance and security

services 961 847 842 830 814 890 989 1.10% 0.97% 0.99% 0.95% 0.94% 0.93% 0.93% -12% -1% -1% -2% 9% 11%
Communication, training
and travel 696 743 653 655 650 718 802 0.80% 0.85% 0.77% 0.75% 0.75% 0.75% 0.75% 7% -12% 0% -1% 11% 12%
70,785 92,984 80,043 80,386 82,012 87,366 93,392 81.38% 106.55% 94.40% 91.98% 94.70% 91.29% 87.35% 31% -14% 0% 2% 7% 7%
7,245 -11,314 797 5,423 2,976 6,688 11,843 8.33% -12.96% 0.94% 6.21% 3.44% 6.99% 11.08% -256% -107% 580% -45% 125% 77%
OTHER INCOME
(EXPENSES)
Gain on sale of
investments 0 0 1,322 0% 0% 2% 0% 0% 0% 0% -100%
Income from consultancy 3,062 1,168 793 4% 1% 1% 0% 0% 0% 0% -62% -32% -100%
Interest income 223 267 620 620 620 620 620 0% 0% 1% 1% 1% 1% 1% 20% 132% 0% 0% 0% 0%
Dividend income 19,758 16,827 422 422 422 422 422 23% 19% 0% 0% 0% 0% 0% -15% -97% 0% 0% 0% 0%
Foreign exchange losses -1,674 -23 -521 -2% 0% -1% 0% 0% 0% 0% -99% 2165% -100%
Financing costs - net -2,363 -2,251 -1,868 -1,924 -1,347 -943 -660 -3% -3% -2% -2% -2% -1% -1% -5% -17% 3% -30% -30% -30%
Other income
(expenses) -6,145 -171 -41 -41 -41 -41 -41 -7% 0% 0% 0% 0% 0% 0% -97% -76% 0% 0% 0% 0%
-
12,861 15,817 727 -923 -346 58 341 15% 18% 1% -1% 0% 0% 0% 23% -95% -227% -63% 117% 486%
INCOME BEFORE
INCOME TAX 20,106 4,503 1,524 4,500 2,630 6,747 12,184 23% 5% 2% 5% 3% 7% 11% -78% -66% 195% -42% 157% 81%
BENEFIT FROM
INCOME TAX 2,309 -3,844 -34 1,350 789 2,024 3,655 3% -4% 0% 2% 1% 2% 3% -266% -99% -4071% -42% 157% 81%
NET INCOME 17,797 8,347 1,558 3,150 1,841 4,723 8,529 20% 10% 2% 4% 2% 5% 8% -53% -81% 102% -42% 157% 81%
Table 63
Horizontal and Vertical Analysis of the Statement of Cash-flows, FY 2016-2022
Horizontal Analysis
Vertical Analysis
% Change
% of Total Assets 2016 2017 2018 2019 2020 2021
2016 2017 2018 2019 2020 2021 2022 2016 2017 2018 2019 2020 2021 2022 2017 2018 2019 2020 2021 2022
- - -
483 4415 812 138 755
Income before income tax 20,106 4,503 1,524 4,500 2,630 6,747 12,184 % % 13% 54% % % % -78% -66% 195% -42% 157% 81%
Adjustments for:
- - -
375 3347 190 188 5097 355 1021
Depreciation 15,620 34,148 22,468 15,728 16,514 17,340 16,473 % 8% % % % % % 119% -34% -30% 5% 5% -5%
-
6875 409
Amortization of intangible assets 2,618 7,013 5,213 1,473 1,325 1,193 1,073 -63% % 44% 18% % 24% -66% 168% -26% -72% -10% -10% -10%
- - -
139 5154 802 199
Asset impairment 5,787 5,257 3,158 2,622 2,598 2,871 3,207 % % 27% 31% % 59% % -9% -40% -17% -1% 11% 12%
-
Interest on loans and related 2013 416
items -net of capitalized interest 2,128 2,053 1,734 1,924 1,347 943 660 -51% % 15% 23% % 19% -41% -4% -16% 11% -30% -30% -30%
2165
Foreign exchange losses - net 1,674 23 521 -40% 23% 4% 0% 0% 0% 0% -99% % -100%
-
Impairment of subsidiaries and 133 712
associate 5,550 726 480 % % 4% 0% 0% 0% 0% -87% -34% -100%
217
Pension costs 227 221 233 233 233 233 233 -5% % 2% 3% -72% 5% -14% -3% 5% 0% 0% 0% 0%
325
Incentive plans 331 47 0% % 0% 0% 0% 0% 0% -86% -100%
Accretion of: 0% 0% 0% 0% 0% 0% 0%
143
Financial liabilities 157 146 84 -4% % 1% 0% 0% 0% 0% -7% -42% -100%
Assets retirement obligation 22 25 33 -1% 25% 0% 0% 0% 0% 0% 14% 32% -100%

Loss (gain) on sale of property 100
and equipment 13 102 -14 0% % 0% 0% 0% 0% 0% 685% -114% -100%
-
474 1649
Dividend income -19,758 -16,827 -422 % 7% -4% 0% 0% 0% 0% -15% -97% -100%
-
262 191
Interest income -223 -267 -620 -620 -620 -620 -620 5% % -5% -7% % -13% 38% 20% 132% 0% 0% 0% 0%
Gain on sale of investment 0 0 -1,322 0 0 0% 0% -11% 0% 0% 0% 0% -100%

- - -
773 2521 235 1069
Others -620 -788 -972 1,922 8,169 11,493 17,254 15% % -8% 23% % % % 27% 23% -298% 325% 41% 50%
- - -
Income before changes in assets 799 3594 272 331 9937 822 3127
and liabilities 33,301 36,666 32,145 27,781 32,196 40,199 50,464 % 7% % % % % % 10% -12% -14% 16% 25% 26%
Decrease (increase) in: 0% 0% 0% 0% 0% 0% 0%

- -
6830 1254
Trade and other receivables -2,809 -6,967 2,238 -323 108 -1,246 -1,536 67% % 19% -4% -33% -25% 95% 148% -132% -114% -133% % 23%
- -
139 1131
Inventories and supplies -598 -142 13 -134 -147 -162 -178 14% % 0% -2% 45% -3% 11% -76% -109% % 10% 10% 10%
Contract asset - - 540 -213 -234 -257 -283 5% -3% 72% -5% 18% -139% 10% 10% 10%
- -
104 124 7040
Current portion of prepayments -2,547 106 -7,356 446 401 361 325 61% % -62% 5% % 7% -20% -104% % -106% -10% -10% -10%
-
Current portion of advances and 729 296 111 18500
other assets -4 -744 677 -497 -959 -1,391 -1,795 0% % 6% -6% % -28% % % -191% -173% 93% 45% 29%
Increase (decrease in): 0% 0% 0% 0% 0% 0% 0%

- - - -
302 9532 470 100
Accounts payable 12,598 -9,723 9,644 1,478 1,522 1,568 1,615 % % 82% 18% % 32% % -177% -199% -85% 3% 3% 3%
- - -
Accrued expenses and other 107 2790 1212 294
current liabilities 4,451 2,846 3,410 3,569 3,926 4,318 4,750 % % 29% 43% % 88% % -36% 20% 5% 10% 10% 10%
Contract liability - - -19 0% 0% 0% 0% 0% -100%

- -
566 138
Unearned revenues -176 -577 38 281 447 433 292 4% % 0% 3% % 9% -18% 228% -107% 639% 59% -3% -33%
-
662
Pension and other benefits -118 -675 -391 3% % -3% 0% 0% 0% 0% 472% -42% -100%
- - -
Net cash flows generated from 1059 2038 346 386 1150 896 3324
operations 44,098 20,790 40,939 32,388 37,261 43,823 53,655 % 2% % % 0% % % -53% 97% -21% 15% 18% 22%
- -
2395 609 103 566
Income taxes paid -4,046 -2,443 - -3,375 -1,973 -5,060 -9,138 97% % -40% % % % -40% -42% 156% 81%
- - -
Net cash flows provided by 961 1798 346 346 1089 793 2758
operating activities 40,052 18,347 40,939 29,013 35,288 38,763 44,517 % 7% % % 1% % % -54% 123% -29% 22% 10% 15%
CASH FLOWS FROM
INVESTING ACTIVITIES 0% 0% 0% 0% 0% 0% 0%
Proceeds from: 0% 0% 0% 0% 0% 0% 0%
Maturity of short-term 1985 1388
investments 1,361 20,254 4,336 -33% 7% 37% 0% 0% 0% 0% % -79% -100%
Disposal of investments in
associate and joint venture - - 3,527 30% 0% 0% 0% 0% -100%
Disposal of investments in notes 392
receivable - 400 599 % 5% 0% 0% 0% 0% 50% -100%
Disposal of property and 122
equipment 366 124 123 -9% % 1% 0% 0% 0% 0% -66% -1% -100%
Maturity of investments in debt 322
securities 50 328 - -1% % 0% 0% 0% 0% 556%
Payments for: 0% 0% 0% 0% 0% 0% 0%
Investments in associate -130 -100 -60 3% -98% -1% 0% 0% 0% 0% -23% -40% -100%
-
382
Investments in subsidiaries -213 -390 -1,288 5% % -11% 0% 0% 0% 0% 83% 230% -100%
-
1810 309
Short-term investments -2,117 -18,463 -5,150 -1,000 -1,000 -1,000 -1,000 51% 1% -44% -12% % -20% 62% 772% -72% -81% 0% 0% 0%
359
Intangibles -14,962 - - % 0% 0% 0% 0%
- - - -
Acquisition of property and 1066 2316 260 267 5529 440 1066
equipment -44,414 -23,630 -30,681 -22,394 -17,915 -21,498 -17,198 % 7% % % % % % -47% 30% -27% -20% 20% -20%
- -
566 1453 130
Dividends received 23,584 14,829 2,018 422 422 422 422 % 8% 17% 5% % 9% -26% -37% -86% -79% 0% 0% 0%
-
262 191
Interest received 157 267 299 620 620 620 620 -4% % 3% 7% % 13% -38% 70% 12% 107% 0% 0% 0%
Decrease in advances and other
assets -45 -64 0% -44% -1% 0% 0% 0% 0% 42% -100%
-
Interest paid - capitalized to 629
property and equipment -467 -642 -1,198 11% % -10% 0% 0% 0% 0% 37% 87% -100%
Increase in advances and other

noncurrent assets -1,504 36% 0% 0% 0% 0% 0% 0% -100%
- - - -
Net cash flows used in investing 919 6929 233 267 5516 439 1063
activities -38,289 -7,068 -27,539 -22,352 -17,873 -21,456 -17,156 % % % % % % % -82% 290% -19% -20% 20% -20%
0% 0% 0% 0% 0% 0% 0%
CASH FLOWS FROM
FINANCING ACTIVITIES 0% 0% 0% 0% 0% 0% 0%
-
Proceeds from availment of long- 519 4902
term debt 21,611 5,000 11,000 1,722 % % 93% 21% 0% 0% 0% -77% 120% -84% -100%
Collection from derivative 245
liabilities 250 329 0% % 3% 0% 0% 0% 0% 32% -100%
-
252 7804
Proceeds from SSA 10,500 7,960 - % % 0% 0% 0% 0% -24%
5157
Proceeds from perpetual notes 5,260 - 0% % 0% 0% 0% 0%
Payments for: 0% 0% 0% 0% 0% 0% 0%
Setttlement of derivative liabilities -35 1% 0% 0% 0% 0% 0% 0% -100%

Debt issuance costs -128 -33 -38 3% -32% 0% 0% 0% 0% 0% -74% 15% -100%
-
Distribution charges from 187
perpetual notes -191 -294 0% % -2% 0% 0% 0% 0% 54% -100%
-
470
Distribution charges from SSA -479 -895 0% % -8% 0% 0% 0% 0% 87% -100%
-
Interest - net of capitalized 2055
portion -2,003 -2,096 -1,690 48% % -14% 0% 0% 0% 0% 5% -19% -100%
- -
238 1743 5475 254 1795
Long-term debt -9,930 -17,784 -8,178 -17,739 -12,418 -28,974 % 5% -69% 0% % % % 79% -54% -100% -30% 133%
-
624 8824
Cash dividends paid -26,000 -9,000 -2,000 % % -17% 0% 0% 0% 0% -65% -78% -100%
- - -
Net cash flows used in financing 144 1089 5475 254 1795 1130
activities -5,985 -11,113 -1,766 1,722 -17,739 -12,418 -28,974 % 5% -15% 21% % % % 86% -84% -198% % -30% 133%
0% 0% 0% 0% 0% 0% 0%
EFFECT OF FOREIGN
EXCHANGE RATE CHANGES
ON CASH AND CASH
EQUIVALENTS 56 -64 188 -1% -63% 2% 0% 0% 0% 0% -214% -394% -100%
-
NET INCREASE IN CASH AND 100 100 100 100 100 100 100 11490 1609
CASH EQUIVALENTS -4,166 102 11,822 8,383 -324 4,890 -1,614 % % % % % % % -102% % -29% -104% % -133%
CASH AND CASH - - -
EQUIVALENTS AT BEGINNING 307 8438 245 8924 585 2074
OF YEAR 12,773 8,607 8,709 20,531 28,914 28,590 33,479 % % 74% % % % % -33% 1% 136% 41% -1% 17%
CASH AND CASH - - -
EQUIVALENTS AT END OF 207 8538 174 345 8824 685 1974
YEAR 8,607 8,709 20,531 28,914 28,590 33,479 31,866 % % % % % % % 1% 136% 41% -1% 17% -5%
Appendix D. Scanned Copy of Actual Financial Statements of Smart, 2016-2018

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A Strategic Management Paper on Smart Communications, Inc

Thesis · March 2020

Miguel Jerone Ormita

The user has requested enhancement of the downloaded file.

Miguel Jerone M. Ormita

Ateneo Graduate School of Business

Hans Clifford O. Yao, Instructor

4.3.1.4. Financial performance 79

6.3. Conclusion 145

Figure 1. Global Mobile Broadband Coverage (3G or 4G Networks) 22

Figure 41. Mobile Service Revenues, 2016-2018 99

Table 1. Select Company Business Information about Smart 12

Table 23. Subscriber Base Weight of Importance and Rating 111

This is a strategic management paper on Smart Communications, Inc. (Smart).

in mobile subscriber and service revenue.

revenues from classic mobile services.

operational efficiency using advanced digital technologies.

projections, formulated a balanced scorecard, and identified a contingency plan in implementing

the crafted strategy for Smart.

Smart Communications, Inc. (Smart) is a wholly owned wireless communications and

2018, and home broadband and other services, contributing to 2%.

Philippines’ telecommunications industry. In February 1997, with a subscriber base of 360,000,

PLDT in March 2000.

introduced 5G in some cities in the Philippines.

Telecommunications Philippines, Inc. (Digitel), consequently acquiring 14.6 million of Sun

has prompted the government to act in increasing competition.

its leading position in mobile telecommunications in the coming years.

Select Company Business Information about Smart, 2018

Services Wireless communication

Mobile Service Revenues, Market Share Php 81,096 million, 44.9%

Total Mobile Subscribers, Market Share 60.5 million, 44.9%

Coverage 90% of towns and municipalities in the country

EBITDA, EBITDA margin 29,205 million Php, 34%

Brands Smart (Infinity, Signature, prepaid), Sun

Number of employees 6,299 employees

2. RESEARCH DESIGN AND METHODOLOGY

2.1. Internal Data (Primary Data)

reports, annual stakeholder presentations, and interviews.

2.2. External Data (Secondary Data)

entries, academic studies, government websites, government press releases, government

frameworks and tools used.

Summary of Strategic Management Frameworks Used

Framework Tools Activities Output

Structure, Conduct, and Performance (SCP)

Framework Tools Activities Output

3. Limitations of the Study

VISION, MISSION, AND VALUES

Smart current mission statement is “Empower Filipinos everywhere with customer-

Smart adheres to the following values:

● “Deliver awesome customer experiences”

● “Take care of our people”

● “Fast is better than perfect”

● “Humility to listen and learn”

3.1. Vision Statement Evaluation

Evaluation of Smart’s Current Vision Statement

Criteria Evident? Remarks

3.2. Mission Statement Evaluation

needs to provide a clearer definition of the 10 essential components in mission statement.

Evaluation of Smart’s Current Mission Statement

Criteria Evident? Remarks

Criteria Evident? Remarks

3.3. Proposed Vision Statement

The proposed vision statement is “To be the leader in wireless communication in