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Thursday, March 15, 2012

What the Sun and Smart merger means for the mobile phone industry in the Philippines

Its been several months since the sale of Sun to PLDT (Smart) was finally concluded. It took several months’ worth of court cases and protests and now it is final.
The protests came from Globe which was expected, while there were many complaints and misgivings aired from the private sector. Things ranging from the loss of the unlimited deals of Sun all the way to a monopoly in the mobile phone market.
So are any of these fears materializing?
Here are my views and this is coming from a person who has nearly the same exposure to all three networks. I pay for my Sun line just slightly more but Smart and Globe are about equal.

First it would seem that instead of the unlimited packages disappearing, they have actually proliferated. In fact, while Sun started this, it was Globe which followed suit. Smart soon adopted these unlimited schemes and even integrated them into a Sun and Smart package. It seems then that the consumer has nothing to fear on the mobile phone front. In fact, thanks to the popularity of Sun's unlimited packages, one can cover all the networks INCLUDING local landlines, for just under P2k a month. In fact, for 2.5k you can get unlimited Internet with Blackberry service! You also stand to get at least 3 free phones with that package! Bottom line is that the consumer is the winner here. Well either that, or the mobile phone companies were making a killing before and it is just now that the rates are beginning to become less oppressive. Draw your own conclusion :-)

What about a monopoly? From all indications, Globe is not about to fold up and die. Of course neither will Sun or Smart for that matter. The tech news articles in the Philippines are chock full of news regarding system upgrades etc, etc for all these networks so with all that capital expenditures, competition is very much alive and well.

In fact, I find all this movement in the mobile phone industry pretty entertaining and it is full of lessons for entrepreneurs.
Here's why:
Those who were around to see the first mobile phones arrive to our shores would recall that the market was composed initially of Piltel / Mobiline and Extelcom. During this time, the AMPS/NAMPS systems dominated the cellular industry. Phones consisted of bag phones or transportables and the ubiquitous brick (which I still have) mostly from Motorola. For years these two companies competed with one another and except for promotions here and there, they did not do much by way of technical innovation. In fact during all this time, phones needed to be programmed individually for them to work with the network. This gave rise to the problem of cloning, which was  remedied a  bit by network operators though cloning remained an issue.
Then all of a sudden Globe entered the market introducing the SIM based phones to the Philippine market. While anyone who watches espionage movies today knows that they are not immune from cloning either, it did provide greater security. Moreover, it gave the consumer a new found independence as far as handsets were concerned. This was because the sim concept allowed a user to move from one handset to another as long as the home network facilities were covered. Because of this and all the new choices, Globe quickly became a force to reckon with. The only problem was that the cost of admission was high and Globe earned the reputation of being a premium brand. It would be good for the image but not so good for the corporate bottom line. A fact which is proven by the transformation in the company over the years.
On the part of Extelcom, it was not able to adapt to the new technologies including SMS based ones so it began losing market share to Globe. It seemed that Globe would be taking over the market soon. This may have been the case had it not been for a new competitor called Smart. It flooded the market with inexpensive phones available under very cheap plans. Marketing focused on Smart being the price buster because their low rates were unheard off and the existing providers were all predicting the demise of Smart aside from picking on the network problems of the fledgling network.
However Smart endured and eventually, through network upgrades, they became THE force to reckon with. Because of the pricing of Smart, Globe was forced to bring down prices as well and so the mobile phone game of one-upmanship began in earnest. This was furthered boosted by the acquisition of Smart by PLDT. Through it all, the consumer was enjoying a new era of affordable phones, plans and technology. This would go on for several years with Smart slowly repositioning itself to compete on the high end with Globe via Smart Gold while keeping the value packages in their other lines. Unfortunately, because Globe was not dropping prices too much, Smart decided to slowly increase prices as well. Whereas before text messaging was free, it became a metered service despite the complaints from the consumer. Yes Virginia, once upon a time, SMS was totally free. But the explosion in the use of SMS services was just too tempting as a revenue source and this was the beginning of pay per use SMS.
So for several years again, Smart and Globe enjoyed their large profits from all these services and once again became complacent not knowing that a serious competitor was about to arrive.
So Sun Cellular appeared on the scene with super low rates and quickly grabbed market share from Globe and Smart. Their cellphones were unbelievably low and the call and text rates even lower. Sun quickly grabbed the middle class segment which was pretty much the largest one in the market. Their prices allowed even the lower class to avail of cell phone services. It would be one of the most successful entries in the market particularly when the Call and Text Unlimited services came out. Sure people still kept their Globe and Smart phones but they also kept a Sun phone which they used more and more to make calls and texts.
Sun quickly became a major force to reckon with and it was obvious that it was hitting the other players in their bottom line. Some commercials were bordering on unacceptable which showed the desperation. Perhaps because Smart and Globe knew the bottom line, they knew that Sun can afford these prices because of the broad market base. For some time, they tried marketing their products as higher end ones but pretty soon, it became clear that premium was beginning to mean nothing by way of the services people needed. Moreover, Sun also launched their Elite line which made the distinction moot. Eventually Globe and Smart had to bite the bullet and started reducing prices and offering better priced handsets.
Eventually, the other players began offering unlimited services like Sun, This was the biggest proof that Sun was now a threat to Globe and Smart.
So we fast forward to today where Globe and PLDT both attempted to acquire Sun with PLDT emerging victorious. Hopefully, the lessons of the past several decades would remain in the minds of all these companies so that they can find a balance between what their company needs to stay viable and providing the consumer with a package that is reasonable and does not involve predatory pricing.
That ultimately is the most eloquent statement about the Sun and PLDT merger. It is an implicit declaration that concern for the consumer should take the center stage if a corporation is to succeed. This is why the merger took place and why the new direction set by Sun is the path which the others are now following.

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