The Morning Eclipse

Tuesday, December 19, 2006

The Era of Free Cellphone is Coming

At the WEB 2.0 conference, Google CEO Eric Schmidt announces that cell phones shall cost nothing. Subsidies for these phones will rise as more advertising is channeled through mobile phones.

Taking a cue from the uber advanced Japanese mobile phone market, cell phones will one day be free! In Japan, there's already the 1 Yen mobile phone. This is roughly 50 centavos.

For free cellphones to exist in the Philippines, there are some factors that have to be in place.

1. There has to be more competition in the market.

Since the entrance of Sun Cellular to the market, it has been loud and industry-shaking. It has provided unlimited calls and unlimited text promotions. As a response, Globe and Smart has been dropping their text messaging rates and has also spinned off their own unlimited text and calls promos.

Right now, a text message costs between 50 to 70 centavos and I believe their is pressure to go even further down. Hopefully as more younger and hungrier telcos introduce plans to the market, they will be compelled to heavily subsidize phones and just focus on content (news, movie scheds, chismis) and service (text messaging, video feeds, calls) earnings. This is the only way to go for these baby telcos if they want to grab market share, controlled 80% by Globe and Smart, and at least get some resemblance of volume.

2. We have to increase further the penetration rate from 38% to 80%.

"Globe estimates that excluding subscribers with multiple SIMs brings down the actual penetration rate to 38% from 45%, which means the industry is perhaps another two years away from the expected peak penetration rate of 50%," the analyst noted.

- From BusinessWorld Research. Aritcle GLOBE TELECOM INC. from Stock Pick column. Dated December 4, 2006.

Selling ads through mobile phones is still a novel idea in the Philippines and to do this you'll have to have a big big subscriber base. The 38% penetration rate, roughly around 15.2 million Filipinos,is already respectable but not yet good enough. Aside from the usual services, pushing advertising is a good strategy. However, their reach must be wide and across the spectrum. Remember, not all people will want ads being sent to their phones and not everyone will read text ads. Mobile phone companies then, like newspapers, will have to use their subscriber count in order to justify for pricey advertising rates.

3. Telcos must heavily push for the use of 3G services.

If a company wants to fully subsidize phones, they'll have to earn bigger margins. By tapping the top 15% of the population and pushing for the lucrative 3G services like tv-on-demand or video phoning, companies will be able to charge around 10 to 40 pesos per service. Multiply these prices over 2.3 million users and you'll get earnings of 23 million pesos per day- just from the 3G services. 2.3 million is the 15% of 15.2 million subscriber market. With this kind of projections, telecom companies will have enough cash to sell phones at a lost.

Wait! Don't get your hopes up yet. The free cell phones that will be offered are the basic bare-bones flavors. These phones will only be good for calling and basic text messaging with limited memory. Perhaps a comeback of the Nokia 3210 or the presently affordable Nokia 1100 will be the initial free models.

Paid-for-mobile units will still be here, especially the higher end ones. Remember, companies like Nokia and Motorola market their phones as fashion accessories and not as communication tools. Nokia's Vertu line and the pricey Nokia 8800 (pictured above) are all minimalist in design and yet exude the same fashion statement as a Louis Vuitton bag. These kinds of phones, made from titanium and embedded with diamonds, will survive the free phone rush and will still sell madly to the ultra-rich crowd.

The way to go then for these telecom companies is still to tap the price sensitive Filipinos. They have gotten rich by offering 1 peso text messaging and why not get another boost by offering free phones. I do not see 3G services being as successful as text messaging but this sector will help prop up margins high enough to subsidize phones that will deliver services to the primary market.

Success is 1% inspiration and 99% perspiration. Never tire.


Saturday, December 16, 2006

Japan better be careful

The Japanese Parliament recently passed a law upgrading the Defense Agency to a full ministry. This initiative is a bold move pushed by Prime Minister Abe and still he has further plans to patriotize the Japanese education curriculum. Japan is steadily moving away from its long time pacifist stand.

During World War II, imperial Japan has invaded and oppressed Korea, China and the rest of Southeast Asia. A very militaristic Japan was aggressive and hungry. This new Japan that is coming out is looking more and more hawkish.

Some proponents of the move have argued that Japan is merely taking up its role in the world's politics. Being the second biggest economy, Japan has a role to play in this very uncertain world.

This maybe true and I agree that Japan definitely has a role to play. The more powers playing geopolitics the better it is for small countries like us. The whole world will benefit with a more multilateral world as against the era of American lone hegemony.

However, Japan can still continue on its rise without rewriting history. One of the greatest weakness of Japan is its desire to keep on issuing construed versions of World War II. They keep on denying the Rape of Nanking and other atrocities they have done in their past imperial conquests.

It is said that victors write history but with Japan's newly revived economy and advanced military, they're now in a position to challenge that notion. Japan doesn't need the approval of its neighbors. It neither needs their money nor their protection. This is a difficult fix especially with an awaken China. Japan has just to thread this carefully.

Success is 1% inspiration and 99% perspiration. Never tire.


Wednesday, December 13, 2006


Success is 1% inspiration and 99% perspiration. Never tire.


Tuesday, December 12, 2006

Microfinance is a Sound Business Strategy

In defense of microfinance, I'd like to correct the notion that it is unsound and only works as a semi-charity activity. In the Jonas Gonats "Banker for the Poor" article (, the author cites that lending to the poor is too risky and disserves the bank's shareholders.

This is untrue. For these reasons:
1) Lending to the poor is not a trust issue. It is pure business. As regular banks can only get around 12% to 15% per annum returns on their loans, microfinance offers 20% to 60% per annum returns- and this is being conservative!

2) It is risky but the returns will compensate for that. Take the popular 5/6 loans of the local "bombays". If it isn't that profitable, these mobile bankers will stop to exist.

5/6 works like this. For every 5 Pesos you loan, you have to pay 6 Pesos. You pay everyday but you have to close your loan in 40 to 60 days. Sounds affordable right but if you compute it in a per annum basis, you'll see that the return is actually 120% conservatively.

3) There are ways to minimize microfinance risks. One is through peer pressure. The way microfinance institutions lend out money is through peer pressure groups. These groups continue to get access to credit as long as their credit standing as a whole is good. This is where the pressure begins.

Let's say in a group there is Farmer A, Farmer B and Farmer C like in Bangladesh. They each get a loan of 1000 pesos to buy necessities while waiting for this season's harvest. If for some reason Farmer C suddenly stops paying his loan, Farmer A and Farmer B will have to shoulder the cost. If Farmer A and Farmer B decline to pay, there credit line will stop. They can't borrow anymore. How can they stomach this as they don't have any income source for the next three months. They will now pressure their friend/ neighbor Farmer C. As Farmer C is known to the local community, he will be ostracized and scolded for burdening his peers. This will then force Farmer C to return and continue paying his loan.

4) Another way of minimizing risks is by niche marketing. Russian as other European banks have discovered that women are more diligent in paying their dues. They are also easier to scare. This is why these banks now have subsidiaries that cater to women alone. This is also the niche Mr. Yunus' Grameen Bank has targeted with 97% of whom are women.

5) Mr. Yunus' Bangladesh operation is not a break-even operation. Its repayment rate is 90%, meaning its Non-performing loan (NPL) ratio is just a low of 10%. This is a big difference with the Philippine bankers NPL ratio of 12.7%. ( Take note that the Philippine bankers' NPL ratio is low only because of the Special Purpose Vehicle (SPV) Act, while Mr. Yunus succeeded in having a low NPL ratio of 10% without any SPV Act.

Special Purpose Vehicle Act is a special law meant to unload banks of non-performing loans aka bad debts. There is an entity called SPV. It is a company that buys non-performing loans from banks. They handle collection of the loan. They get a cut for doing this service. Banks like this SPV because they immediately remove some of the bad loans that appear on their balance sheets. Better balance sheets mean better confidence from investors. Don't forget that the bad loans don't just disappear. They are transferred to another entity. Until they get paid, the actual NPL of a bank will be high. To learn more of how an SPV works read

6) Mr. Yunus has been targeting the rural poor and not the urban poor. This means his customers are the farmers and village vendors. Small entrepreneurs and not loafers.

These microfinance facilites are unsecured but they provide one of the vital necessities the poor need: access to credit. The poor does not mean they do not have income, they just have seasonal droughts as their livelihoods are seasonal.

There are a lot of creative ways to tap this unseen market. Mr. Yunus just showed us a few of the popular ways.

I therefore believe that microfinance is a good business strategy. It is not charity as my arguments have shown. It is viable and can be proven with statistics and balance sheets. Lastly, it is profitable enough to absorb the risks of giving out unsecured loans.

Success is 1% inspiration and 99% perspiration. Never tire.


Thursday, December 07, 2006

There is a new Maynilad at last

What a great relief to hear that the government has at last awarded the Maynilad contract to a new consortium. The winning bidder is DMCI-MPIC consortium. Metro Pacific Investment Corp (MPIC) is the majority shareholder of PLDT. The other and losing bidder is Ayala's Manila Water.

The previous owner of Maynilad is the Lopez Family, owner of ABS-CBN and Meralco. It's so funny that they lost money in a monopoly and to think they already have experience with Meralco. Any economist will jump for joy when they own a monopoly. It's just plain simple to run such a business. The challenges faced by this company are no excuse for Lopez. Manila Water just did fine handling their end of the Metro. In fact Manila Water is now earning.

Now with the coming of Metro Pacific I hope the service improves on the west end. With a 25 billion peso price tag, these guys better manage it well!

Success is 1% inspiration and 99% perspiration. Never tire.


Wednesday, December 06, 2006

49.xx to 1 USD is here to stay

After speculating that the US dollar will regain its strength later this year last October, i have come to the conclusion that the Peso will stay in its current level for some time.

Why? Well for these reasons:

1. The US economy is still slowing down. Note that the Southeast Asia's currencies have all appreaciated against the US dollar. We are not alone.

2. Interest rates are not going down. This then means we can still get better returns by depositing in Peso accounts. More people will want to convert to Peso.

3. Strong dollar inflows from our beloved OFWs.


1. Get into 6 month or 1 year Peso time deposits.

2. You may buy the retail treasury bonds of the government priced at an affordable 5000 pesos each. You can ask your bank if they are selling this.

Success is 1% inspiration and 99% perspiration. Never tire.


Railroading for the cha cha is wrong!

Last night, administration congressmen have started to disable one by one the safeguards for a transparent and fair charter change. They rewrote Rule 105 which originally states that any charter change proposal should go through the same process as any bill.

The new version of rule 105 will mean any congressman can propose cha-cha and the House to vote on it overnight. The next day we find out we already have a constituent assembly with elections postponed by 6 months.

What a lie to the general public they are doing! This is a breach of public trust. Administration congressmen should heed the words of the opposition and start making the process transparent and fair.


ABS-CBN is fixing its image

Incidentally, DZMM the radio arm of ABS sounds very pro-opposition. This is a 180 degree turn from the time Mrs. Fernando Poe lambasted ABS CBN news anchor Karen Davila for presenting bias news reporting during the elections.

Kudos for the new ABS CBN then. They'll have to work hard to clean up the tarnished image. GMA news network has been gaining ground ever since then.


Tyranny of numbers

I just wanted to note that the opposition congressmen have already consigned to defeat in the administration's cha-cha initiative. When Cong. Alan Cayetano talks, he reiterates that they are fighting for a transparent and fair process- take note, they are not promising that they'll block Cha-cha!

Let's all prepare for the upcoming noisy battles at the halls of Congress.


Short-cutting the Cha-cha train

I recently read that there's a short cut for the cha-cha to pass through the senate and the judiciary. It sounds like a conspiracy theory but still worth reading.

It goes like this.

1. Administration congressmen will pass a resolution/ bill convening the constituent assembly. They will invite the Senate but if senators don't come, it will not matter.

2. Once they get the 195 votes, they will send this to Comelec. Comelec, under these cha-cha provisions will have to suspend the may 2006 elections.

3. The Senate meanwhile will question this move at the Supreme Court. The Supreme Court with Chief Justice Panganiban set to retire today 1159pm and assumming President Arroyo will delay appointing a successor, will be tied equally on the cha-cha. This is assumming they vote the same way as on the issue of the People's initiative.

With a dead-locked Supreme court, the Administration will have its way towards Cha-cha bypassing the Senate and delaying the Judiciary from intervening.

Maybe Philippines is just an unlucky country...

Practice makes perfect.