MOST industry observers expected the news, but the announcement on Monday that the discussions between local conglomerate San Miguel Corp. and Australian telecom provider Telstra had formally ended was a disappointment to almost everyone.
Everyone, that is, but the management and shareholders of established telecom giants Globe and PLDT. Their stocks soared on the news that the threat of a third competitor in the Philippines’ promising but grossly underserved market would not be materializing in the near future after all.
Although the two companies have been circumspect in offering details of their failed negotiations, the proposed joint venture between SMC and Telstra reportedly fell through because Telstra assessed the risks as being unacceptable. As the proposed minority owner of the joint venture, the Australian company – who would have been providing most of the initial funding for the development of a new broadband network, an investment that was estimated to be $1 billion – was said to have demanded stronger safeguards, which they did not get, to make recovery of their initial investment more certain.
If that is indeed what happened, it is no mystery why Telstra would seek some insurance. Even the news that Telstra and SMC were in talks brought a vicious reaction from the incumbents, with both PLDT and Globe vowing in surprisingly direct language to block the prospective competitor’s entry by any legal means available. That aggressive defense of what they consider their “turf” was unseemly and only served to convince even more of the public of the necessity to broaden choices in telecom services.
The disappointment of Filipino consumers over the failure of SMC and Telstra to reach a deal had very little, if anything, to do with either company. What is anxiously desired by the market is not telecom services by SMC, Telstra, or anyone else in particular, but simply that another option becomes available. The high cost and poor performance of internet and cellular telephone services in the Philippines are quickly becoming an identifying characteristic of the country in foreign media and business analyses, and are attributed—certainly among people here, and increasingly by outside observers—as being entirely due to the existence of the present duopoly, whose players are not compelled by either market forces or sensible regulation to provide anything more than very low-value products and services.
We hope that the disappointed reaction to the end of speculations about the SMC-Telstra deal will have a couple positive outcomes. First, it should serve as a signal to other would-be telecom providers that there is indeed a lucrative market waiting to be tapped here in the Philippines. Second, it should serve as a clear signal to policymakers and the existing telcos that uncompetitive, expensive services are not acceptable, are only being tolerated because there is no alternative at present, and will not be considered to be “improving” until an alternative is available.