022207: Smart suspends 3G investment

 

By Lenie Lectura

Reporter

THE Philippines is apparently not yet ready to take up 3G (third generation) mobile phone service, as can be gleaned from a decision of Smart Communications Inc. to suspend further investments indefinitely in its 3G network, citing sluggish acceptance by the market. Napoleon Nazareno, president of Smart and parent firm Philippine Long Distance Telephone Co., said, “Future investments will depend on the demand for 3G services. Right now, we have more than enough capacity. Why do we need to invest more if the infrastructure is already there and capacity is more than enough for now.”  They have so far invested $60 million that was used up in the third quarter last year. “We have not made additional investments since then.”  Earlier, Smart had programmed some P33 billion to further bankroll its 3G operation in the next six years on expectations of losses in the first two years and break-even only in the third year. However, considering the slow 3G subscriber take-up, losses may extend up to the fourth year of operations, according to the company’s report to the Board of Investments last year. The company has installed 1,200 base stations in major cities, enough to handle millions of 3G subscribers and in its five-year rollout plan; it plans to raise that to 1,611 cities and towns, ranging from 1st class to 6th class. The additional rollout is not in suspension. Smart has monitored some 400,000 3G-enabled handsets in their network. Out of that, half subscribe to the service. Nazareno said the slow subscription to 3G is in part due to the high price of 3G handsets. “The rate for 3G services such as video calling remains very affordable. It is even pegged at the same rate for local voice calls. So, the rate for 3G services is not the main factor why demand is not picking up. Handset price still remains the major factor,” he said. The cheapest 3G phone costs at least P12,000. He expects a better demand this year with the arrival of more affordable 3G phones mainly from LG Electronics of Korea, with the lowest price to be about P6,000. “LG was awarded last week during the annual GSMA (Global System for Mobile Communications Association) meeting in Barcelona, Spain as the preferential vendor for 3G handsets. Certainly, this will help stimulate demand for 3G services,” said Nazareno. Aside from affordable 3G phones, Nazareno said Smart will offer more content and applications to spur 3G usage. “The drop in the cost of handsets is one of the factors that will drive demand. With more applications at affordable rates, we hope that demand will pick up.” Nazareno conceded they entered “into 3G prematurely, given not only the price of the handsets but also the apparent trend of lack of a killer application in other parts of the world because the government wanted us in and because we were counting on the incentives.” Last year, tax incentives to 3G operators were recalled by the Board of Investments. Smart had appealed. “The impact of an income tax holiday on Smart’s 3G project would only occur in the medium term. The government will not have any actual forgone revenues in the short-term because of expected tax losses at least for the first two years of the 3G project,” Smart chief financial officer Anabelle Chua wrote BOI executive director for project assessment group Lucita Reyes. Smart also argued that the removal of the tax holidays for 3G is inconsistent with the 2005 Investment Priority Plan and Executive Order 226. “The BOI has no power to disqualify any domestic-oriented or market-seeking investment in the telco sector, or to create or impose new disqualifications that are not provided in the 2005 IPP, from [tax holiday] entitlement. For the BOI now to remove the incentive is obviously contrary to and inconsistent with the 2005 IPP and EO 226.” http://www.businessmirror.com.ph/02222007/headlines03.html