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By Darwin G. Amojelar, Reporter
FACED with a June deadline to roll out its
network, one of four telecommunication companies with a license to
offer 3G (third generation) has bowed out of the business amid
lackluster demand for a service that had been touted as the
industry’s next growth driver.
To save it from financial hemorrhage, a group
led by former trade minister Roberto Ongpin last week withdrew from
the 3G business, with the sale of two companies that own
Connectivity Unlimited Resources Enterprise (CURE) to Smart
Communications Inc. for P419.54 million.
The wireless unit of Philippine Long Distance
Telephone Co. (PLDT) purchased PH Communications Holdings Corp. and
Francom Holdings Inc., both controlled by the Ongpin family with a
96.57-percent and 3.43-percent stake, respectively, in CURE.
Smart’s de facto acquisition of CURE brings
down to three the four-cornered rivalry in the 3G business. Indeed,
3G has yet to take off commercially years after a number of
companies fought tooth-and-nail to secure one of four coveted
licenses to offer the service.
The International Data Corp. in a study said
demand for 3G phones will increase this year, although adoption will
be faster in the devices space than in the services space.
CURE and Smart are two of four telecom companies
that earlier won licenses to offer 3G. The two other telcos are
Globe Telecom Inc. of the Ayala group and Digital Telecommunications
Philippines Inc. (Digitel) of the Gokongwei family.
Of the four licensees, only CURE and Digitel
have yet to roll out commercial 3G service.
Its failure to launch by June risks a revocation
of CURE’s license.
An industry source said that CURE’s failure to
get foreign partners who are competent in 3G pressed the company to
abandon its venture.
“It would really require a foreign partner
when you put up a network,” the source said.
Reports earlier pointed to a possible tie up
with Hong Kong billionaire Li Ka-Shing’s Hutchison Whampoa Ltd.,
but the supposed partnership fell through.
For Digitel, it had forged a joint venture
agreement with Telia of Sweden. NTT DoCoMo of Japan backs up Smart,
while Singapore Telecommunications maintains a stake in Globe.
CURE financial capability in doubt
The lack of a foreign partner meant that CURE
didn’t have deep pockets to finance the massive roll out required
for 3G.
Based on its five-year rollout plan, the company
set P11.55 billion in capital expenditures, with P3.85 billion
scheduled for the first year, P1.93 billion for the second, P2.48
billion for the third, P1.66 billion for the fourth, and P1.66
billion for the fifth.
CURE had planned to install an initial number of
280 base transceiver stations that will serve a preliminary market
niche of at least 200,000 subscribers in designated areas.
The company also committed itself to cover 95
percent of provincial cities and municipalities and 90 percent of
chartered cities.
But of the 280 base stations set for five years,
the company had only put up 30 sites that cover the cities of Makati,
Mandaluyong and Pasig, with secondary signal coverage in some areas
of the cities of Taguig, Pasay, Manila and Quezon.
On December 2006, CURE had activated its 3G
network with about 1,000 subscribers.
“The timing is quite good both for CURE and
for Smart to bring CURE into the next level,” Eric Recto, CURE
president and chief executive told The Manila Times.
“Competition for 3G is difficult,” he said,
adding that is why the company decided to sell.
In a filing with the National Telecommunications
Commission (NTC), CURE said it suffered a net loss of P234.91
million last year, widening from the P145.83 million in 2006.
Recto blamed the losses on weak demand for 3G
and higher expenses in putting up the network. CURE pays the NTC an
annual spectrum user fee of P65 million for the 3G service.
An NTC official told The Manila Times that the
sale only shows that CURE had no financial capability to operate 3G.
“They just enter, expecting potential investors,” the NTC
official said.
The NTC had allocated the 10-megahertz to
2100-megahertz band to CURE despite opposition from other applicants
that questioned its financial and technical ability to offer 3G.
The official said this is risky on the
part of the government because the regulator is giving a permit to a
company with no financial capability. “It’s worth to gamble
because of the flexibility of the technology. The frequency will be
used [for] other service[s],” the official said.
Timing good for Smart
Recto however denied speculation that the
company only sold its 3G frequency. “We’re not selling just
frequency. We sold the company,” he said, adding the company has
deployed 30 base stations and a billing system, developed software,
among others.
He said the launch of CURE’s 3G service this
month will validate the company’s outlook that the market for 3G
is much more robust and established.
“We found the offer of Smart to be timely,
attractive and very much in line with what we think CURE’s
ultimate position in the mobile-phone industry should be,” he
said, adding,
“I think the products that CURE will offer is
very much worth what Smart’s paid for.”
For Smart, the timing couldn’t have been
impeccable, as the country’s leading mobile phone service provided
has been asking the NTC for additional 3G frequencies.
Smart has been seeking the assignment of the 825
to 835 megahertz and 870 to 880 megahertz bandwidth. Its current
3G-frequency assignment falls within the 1920 to 1935 megahertz and
2110 to 2125 megahertz range.
Enrico L. Espańol, Smart department head for
legal and regulatory concerns, said the additional frequency band is
necessary to enable the company to offer a new and expanded range of
leading-edge and high-speed data services involving more complex
applications that require wider and bigger bandwidth and faster data
speeds.
Espańol said these bandwidth-hungry services
include interactive rich media generation of user content, medical
and hospital remote medical diagnosis and tele-radiology, business
functionalities, distance education or e-learning, e-government,
telemetry for machine-to-machine applications as well as ubiquitous
and pervasive wireless broadband or high speed Internet access.
Smart had set aside P33 billion for its planned
capital expenditure in six years.
It already offers 3G services in Metro Manila,
Cebu, Iloilo, Boracay, Baguio, Davao and in other key cities and
major towns in the country.
With the acquisition, Smart plans to inject
another P210 million in CURE by subscribing to new shares in the
company. The fresh capital will be used for working capital
purposes.
”CURE will provide Smart with a platform to
offer and provide differentiated 3G services for niche markets”
the PLDT unit said.
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