BREAKING THE DUOPOLY
The Philippine Star
01/16/2018

Aside from roads and bridges under the government’s Build, Build, Build program, the other flagship infrastructure project of President Duterte deals with the highway of telecommunications.

While this may arguably be less important than other economic concerns, like bringing down power costs and ensuring a reliable supply of electricity, the continued slow speed of the Internet is a popular issue, and would gain the President more pogi points if plans push through.

Towards the end of 2017, Malacanang released a statement about the entry of China Telecom in the country’s telecommunications industry by the first quarter of 2018.

It was a surprise move, not just because we as Filipinos are so used to acutely measured moves by our bureaucracy that normally would involve years to accomplish, but also because it was something that went against basic principles of open market economics – and more importantly, the Philippine Constitution.

Can the President really just name a company from the blue to take on such an important economic role, even if this was admittedly “a political decision” meant to strengthen ties with the Chinese government?


Wishful thinking

But even before kowtowing to Presidential “prerogatives,” getting a third telco up and running in barely four months is wishful thinking. As things are turning out now, the bidding process is just about to start.

Perhaps a third player may formally be approved before the Holy Week as per the schedule set by the Department of Information and Communications Technology (DICT), but this new company that is intended to bust the PLDT-Smart and Globe duopoly will definitely not be able to start running by the second quarter of the year.

Even if this involves the “appointed” China Telecoms, it will need to hammer out a binding contract with its preferred Filipino partner before it can operate in the domestic telecommunications industry.

Given the 60-40 equity requirement for Filipino-foreign ownership in a public utility firm, ensuring adequate financing for the venture would be a big hurdle, especially for the Filipino side of the partnership.

If we’re looking at P500 billion over five years to be spent without seeing any decent returns for most part of the time, will the groups of Buddy Zamora, which acquired PT&T, or Manny Villar, which recently received its telecommunications franchise from Congress, be able to survive?

We all know what happened to the Gokongwei Group’s Sun Cellular and the San Miguel Corp. conglomerate’s telecommunications bid. After years of trying really hard, these two business behemoths both eventually decided to sell out lock, stock and barrel.


Speculations

Given the President’s agreement with Chinese government regarding China Telecoms before the yearend, does this mean that exploratory talks between Zamora’s PT&T and South Korea’s LG Corp. to become the country’s third telco is just for show?

Aside from LG and China Telecom, the Presidential Communications Operations Office tattled of two other interested foreign telco players – a Taiwanese company whose identity remained unnamed as of press time, and Japanese compay KDDI. Is this also a part of the show?

We now have a surfeit of interested foreign investors who will be looking for local partners that have the rights to operate telecommunication licenses and preferably with the capability to muster enough capital for the expected big spending ahead.

The situation is undeniably fluid given the tight deadlines and the President’s hand. This should keep the business landscape – and media –lively for the next few weeks.


Fears

Aside from the legal and regulatory hurdles that face bidders and prospective winners, the issue of national security has been raised a number of times.

The Palace has become adept at brushing off cybersecurity concerns, saying broadly that this is being addressed. Exactly how this will be done, given China’s more superior technology knowledge, remains vaguely answered.

Fears on the security of the country’s Internet and telecommunication systems have become more pronounced given the Philippines’ recent history of squabbling with China, the most recent being the territorial dispute over islands on the West Philippine Sea.

The previous administration of President Benigno Aquino III had filed a case before the United Nations over the country’s maritime rights over the Mischief Reef, which the Chinese had occupied since 1995. The U.N. ruled in favor of the Philippines, but has been largely ignored by China.

This has spawned a level of mistrust, one that the Duterte administration is trying to bridge through the warming up of official channels.


Two critical highways – power and telecommunication

The concern of many on the issue of national security is not without basis. Allowing China to be a major player in telecommunication will give the Chinese access and possible control on two critical highways of Philippine economy – the power and communication.

 
China, through the State Grid Corporation of China, has a significant stake in the National Grid Corporation of the Philippines, a privately owned corporation that is in charge of operating, maintaining, and developing the country’s power
grid.

The grid controls the supply and demand of power by determining the power mix with its selection of power plants that are allowed to supply power to the country’s different grids.


Mere big pronouncements

Perhaps the biggest worry is the extent of Chinese commitment to the Philippines. After all the big pronouncements of new investments by Chinese companies in the Philippines, nothing much has really been seen.

The Duterte government may have been buttering up China these last months, but real, concrete results still need to be concretized. In the case of the President’s rush to break the duopoly of PLDT-Smart and Globe, China may not be the answer – and definitely not any time soon.


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