Telecoms expect thinner profit margin this year

Almost reaching the saturation point in the Philippine mobile market, telecom companies are up for thinner profit margin, while juggling to tighten further expenses to cover up the mounting operational cost.

An executive from a telecom giant company admitted that cellular phone companies starting this year, expects to reap smaller profits, bigger operational cost expenses, brought about by the stiffer competition in the mobile phone industry, coupled with the continued shooting up of world fuel prices.

While mobile phone users are expecting more value added services from the providers, the latter are now tightening their belts as they expect a different profit reward by the end of this year, and in the years to come.

"Companies that are efficient and cost effective are the ones expected to survive in the next few years, especially in the telecom industry," the source who sits as top executive of the country's telecom giant said.

However, he said that the "ballgame" now is cost efficiency and productivity for all industry players. The telecom companies are hardly hit not only because of brewing competition, but significantly, the development of technology is also eating them up.

In the International Direct Dialing (IDD) feature for instance for fixed line telecom, which has been contributing revenue of (more or less) about P7 billion in the last few years, is hardly affected by the fast development of technology, such as the Voice Over Internet Protocol (VoIP), electronic-mail, chat, and others.

The source said revenues of the IDD feature has been sliding in the last few years, and operators are expecting thinner revenues, or worst losses in this kind of feature.

Gone were the days when telecom companies were considered as the biggest revenue earners, and capable of "throwing their money around." Now, they are striving to sustain profitability, and cover up the increasing operational costs.

For mobile phone operators, which text messaging feature served as the lifeblood of the business, these companies are also paying more today in their system's operations because of weakening peso, coupled with expensive fuel cost.

He admitted that providers for mobile services may earn millions of pesos in daily revenue especially for text messaging service, but what they earn is just enough to pay off the system's cost.

Attractive promotions, such as giving free unlimited text service and cheaper call rates and offering other value added products in order to sustain subscriber base are also making companies struggle further financially.

"We have to stay up and compete head-on to sustain or (may) increase our subscriber base, otherwise, what we have may be snatched by other players," the source said.