A LOT of hoopla attended last year’s talks between Australia’s Telstra and San Miguel Corporation (SMC) for a telecommunications joint venture in the Philippines.
The top executives of the two business giants were expansive in predicting that the joint venture would be offering mobile broadband within a year and a much better quality service than the two existing telcos in the country – Globe and Smart, a subsidiary of the Philippine Long Distance Telephone Co. (PLDT).
Well, it didn’t take long for the feet of SMC and Telstra executives to touch the ground. Telstra developed cold feet and aborted the joint venture. Oh yes, SMC for a while tried to tough it out and announced that it would enter the telco market without a foreign partner. Now shorn of the hoopla, SMC has accepted the reality that getting into the market is really that difficult.
San Miguel is one of the biggest corporations, if not the biggest, in the Philippines. Yet, it couldn’t venture into the market by its lonesome. SMC also had talks, aside from Telstra, with Qatar Telecom and Norway’s Telenor, but made no headway.
Finally, a wizened SMC stopped talking about its solo venture into the telco market and sold 700 megahertz of its unused frequencies for the joint use of Globe and Smart. Sure, SMC made billions from the sale but we can easily gloss over this profitable transaction. The fact is, SMC gave a significant public service in disposing of its idle sets so Globe and Smart could harness it to benefit consumers further.
This brings us to this primordial question: why have all these attempts at launching a third player failed in the Philippines? Some may claim that Globe and Smart have enough clout to prevent the entry of a new competitor. However, the fact is Globe and Smart don’t even have to lift a finger to dissuade potential rivals from coming in.
Business analysts say one of the main barriers that prevent a third player from coming in and successfully launch its service in the Philippines is the need for oodles of money. Take Telstra for instance. It planned to invest US$1.4 billion for a 40-percent stake in the joint venture with SMC, but even that large amount would not have been enough according to analysts.
Goldman Sachs analyst Raymond Tong last year estimated that the project could cost both parties US$3.5 billion over a three- to four-year period, more than double what Telstra had planned to invest.
Tong explained that the lack of mandatory infrastructure would force any new player to build its own mobile base stations and backhaul links – expensive propositions in a nation made up of more than 7,000 islands.
Fitch Ratings likewise said that a “large cash burn for the new entrant is likely in the initial period as it faces significant capital investment to build its network in the absence of infrastructure sharing.”
Independent analyst firm Creator Tech echoed the warning, saying the cost of the joint venture could even go up to US$5 billion if construction is hit by cost overruns and delays.
Building a network in the Philippines is very challenging, as Globe, PLDT, and even SMC would well know. Aside from the geographical difficulties posed by our archipelago, companies have to overcome flip-flopping government policies, bureaucracy and red tape, the high cost of permits and fees from local government units and so on.
While we are waiting for more players to come in, the government should really do its share in alleviating the plight of consumers looking for better telco service. But any number of players may not be a realistic solution due to the high cost of deployment and permitting process that government should address. What we really need is for government to do its part and invest in building a nationwide network.
The change promised by President Rodrigo Duterte should also include updated and upgraded laws, innovation in communications, and a sound national broadband plan.
These don’t need a lot of hoopla.