Testing the Water

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From June 29, Filipino mobile users will have an additional phone to choose from in the fast-growing smart phone category: electronics giant Apple's iPhone 3G. While few details of the deal have been announced, Apple is revising its strategy of long-term contracts in what could be a trial run for entry into low-income markets such as China.

iPhone Customers will have the choice of taking up a pre-pay contract, the first market in which Apple is offering this payment plan. The strategy is targeted at the country's 98% pre-pay users and the recent success of innovative pricing policies and products which have enabled the local mobile market to grow despite difficult economic conditions.

At the start of 2008, several industry insiders said that the Philippine mobile market was in for a tough year. On May 6, Delfin Gonzalez, chief financial officer of telecom operator, Globe Telecom, told investors that the company's projections for 2008 would have to be adjusted downward. "Judging from the current economic condition where prices of food, fuel and other basic services are soaring, growth for the telecom industry will be in the single digit rather than double digit range," he said.

Rating agencies echoed these concerns. A report released by Fitch Rating on March 3, 2008, argued that threats to the Philippine telecommunication industry ran deeper than cyclical trends such as inflation and currency appreciation. The report suggested that the market for core mobile services was rapidly reaching maturity. New products and services are unlikely to deliver significant earnings or offset the slowdown in new customers. These factors, the report argued, would lead to slower growth in the future.

While the first few months of 2008 supported such pessimistic projections, recent announcements have given some grounds for optimism. Globe CEO and President Gerardo Ablaza, recently announced that the company added nearly 1m new subscribers in the first three months of the year. In April alone the company registered 400,000 net additions. He added that if current conditions persist, the country's mobile penetration rate would reach 65-66% by the end of the year and 70% by the end of 2009, up from 57% in 2007.

In a press conference Napoleon Nazareno, president and CEO of mobile operator Smart Communications, added, "accelerating inflation rate has yet to affect the company's revenues, which continue to post significant growth."

The mobile industry's success in the face of rising inflation is due to its growing importance in the day-to-day lives of Filipinos and dominance of the telecom and information communications technology (ICT) industries. Fixed line penetration stands at 18.6%. Mobile phones are the primary means of accessing the internet given that computer ownership is below 10% and broadband penetration is even lower, at 4%.

Recent initiatives by Smart and Globe are aimed at accelerating this trend. Both companies have recently launched mobile banking services to allow customers to access their cash accounts through accredited local partners. Such initiatives could play a major role in improving the country's rural banking system, which lacks ATMs and local branches to service the population.

Tied to the rise of mobile banking are the remittance channels by which Filipino overseas workers -which number around 10m - send money back to the islands. Smart and Globe are looking to this market worth an estimated $15bn annually.

These funds play a prominent role in the economy and are often essential for day-to-day purchases. Transferring these funds through the mobile networks - rather than through banks or remittance agencies, has clear benefits to consumers.

Such developments have long term implications for the Filipino telecommunications industry. Many of these new products are aimed at the untapped rural market. Higher prices for agricultural goods and the country's economic expansion over the past several years have expanded rural consumers' wallets -increasing demand for banking and mobile services.

If successful, these services have the potential of making the mobile phone the primary platform for communication, internet, and banking. This would make the mobile phone indispensable in daily life - buffering the industry from economic downturns or inflation.

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