Allowing a Chinese company to provide telecommunications services in the Philippines will benefit consumers but major hurdles remain before this can be realized, a Fitch Group unit said.
The Duterte government’s plans to let a Chinese telco challenge PLDT, Inc. and Globe Telecom should serve as a “wake-up call for complacent duopolists,” BMI Research said in an analysis released on Thursday.
“Our view is that the introduction of a third operator is key to improving broadband service quality for consumers and businesses,” BMI said as it noted that the government had become directly involved in trying to liberalize the market.
The duopoly has attempted to respond, with Globe said to be continuing the rollout of LTE sites using the 700 megahertz band and PLDT “cautiously investing” in fiber and announcing plans to deploy Huawei’s SuperVector and G.Fast products to augment existing copper lines.
“Although PLDT’s investments are welcome, it will likely mostly focus on enhancing existing connections in metropolitan areas such as Manila,” BMI said.
“As such, the incumbents’ latest investments will merely enhance rather than expand the existing addressable market and will have little impact on our subscription-led forecasts,” it added.
This offers opportunities for a third player with regard to underserved markets.
BMI noted that despite the Duterte government’s offer, it remains “unclear which of China’s big three players —
China Unicom, China Telecom, and China Mobile — will be part of this venture.”
It also said that Globe and PLDT could move to block the entrance of a rival player.
“Legislative roadblocks are also possible — the Philippine Constitution limits foreign ownership of public utilities to 40 percent — and the incumbents could seek to derail the initiative through the courts,” BMI said.
“While Congress could propose changes, the Philippine government will likely want a local ﬁrm to be involved to a large degree. We view a joint venture — between a Chinese incumbent and recently reactivated PT&T — as a probable outcome,” it added.
Chinese investors will also be in a position to demand concessions such as tax breaks or exclusive use of a spectrum. Outside suppliers could also be locked out with an insistence on Chinese workers and Chinese-made equipment.
Corruption could also become an issue, BMI said, noting that an attempt to build a national broadband network during the Arroyo administration — via a $329.5-million deal with China’s ZTE — had failed amid allegations of price fixing.
“The Duterte government aims to curb corruption, but the decision to negotiate only with Chinese partners could yet mire the project in controversy,” the research firm added.
The Philippine Competition Commission, meanwhile, was urged to ensure that “the incumbents do not abuse their power to block the newcomer’s entry, avoiding a repeat of their takeover of putative third player San Miguel Corporation in 2016.”
Both telcos have said that competition was welcome and insist that their joint purchase of San Miguel’s telecommunications assets followed the government’s rules.
Amid continuing complaints over the state of internet services in the country, Malacanang on Monday announced that China had been offered the “privilege” to challenge the duopoly.
“During the bilateral talks between President [Rodrigo] Duterte and the Chinese Premier [Li Keqiang], the President offered to the People’s Republic of China the privilege to operate the third telecoms carrier in the country,” Presidential Spokesperson Harry Roque said in a press briefing.
In the analysis, BMI said that there was “a lot of room for regulatory improvement in a market where nearly 40 percent of its population does not have access to the Internet.”
“However, the regulators have proved themselves to be ineffective and continuous regulatory reform is unlikely given that the appetite for change could dissipate when Duterte’s time in office comes to an end in 2022,” it said.