SMC sells telco assets to PLDT, Globe

INDUSTRY giants Philippine Long Distance Telephone Co. (PLDT) and Globe Telecom will jointly buy out the telecommunications assets of conglomerate San Miguel Corp. in a deal expected to cement their duopolistic hold on the local market amid the growing clamor for better Internet services.

The surprise development comes as SMC, a diversified conglomerate that planned to launch a rival service this year to compete in the industry’s hottest segment—mobile high-speed internet—was made to face hurdles on almost all fronts in its bid to become a viable third telco player.

Inquirer sources with knowledge of the deal said that PLDT, Globe and SMC have agreed in principle to what was expected to be a transaction worth a little more than $1 billion. An agreement is scheduled to be signed between the transacting parties this morning.

It is expected to be the biggest deal of its kind since PLDT restored the telco duopoly in 2011, when it acquired the Gokongwei family’s Digital Telecommunications Philippines Inc. (Digitel), which operates Sun Cellular. Digitel was the first to launch industry-changing unlimited texting and calling plans that affected the bottomline of Globe and Smart.

Officials of PLDT, Globe and SMC did not immediately respond to requests for comment.

Negotiations between buyers Globe and PLDT and the seller SMC began shortly after the latter’s foreign telecommunications partner Telstra Corp. Ltd. of Australia backed out of a proposed partnership amid fierce opposition from local rivals as well as skeptics in Australia. Without a foreign partner, SMC would be hard pressed to raise the debt component of the estimated $2-billion investment necessary for a startup telecommunications venture. This was due to the fact that banks that were part of the lending syndicate required the conglomerate to have a foreign technical partner as a precondition for the loan.

SMC’s telco investments were made years ago and are mainly held under unlisted Vega Telecom Inc., its annual report showed. Vega is the holding company for publicly traded Liberty Telecoms Holdings Inc., which holds most of the 700MHz along with High Frequency Telecommunications Inc., as well as Bell Telecommunication Philippines Inc. and Eastern Telecommunications Philippines Inc.

SMC’s prized assets include its high-band frequencies necessary to address capacity and its coveted 700 Megahertz spectrum, a type of low-band frequency noted for its ability to cover wide spaces and penetrate walls at lower costs. It also owns physical assets like cell sites, which PLDT and Globe said remained difficult to build because of bureaucratic red tape.

SMC owns almost all of the 700 MHz spectrum (694 MHz to 790 MHz), previously assigned for analog television broadcasting before it was shifted for telecommunications use as TV migrated to digital. SMC would have used this to carpet the country with a “better and cheaper” mobile Internet service.

So coveted was the asset that both PLDT and Globe last year launched a full-scale public relations campaign urging the government to give them their fair share of the 700MHz. When that did not work, both telcos in recent months floated the possibility of partnering with SMC.

With smartphone prices falling, customers are demanding more services and content that required data like movie and music streaming, instant messaging and social media. Network upgrades have failed to keep pace and PLDT and Globe  have been dodging heavy criticism for “slow and expensive” Internet services compared to the country’s regional peers.

With the impending transaction, PLDT and Globe, respectively backed by Japan’s NTT DoCoMo and Singapore Telecommunications, now have the necessary assets to improve and lower the cost of Internet in the Philippines and will no longer have an excuse for their poor service, which has been subject of congressional inquiries.

The factors that led to this event, however, underscored how difficult it was for new players to enter the country’s telco sector. The Fitch Group’s BMI Research said in a report last month that weak regulation in the country was a powerful disincentive for big foreign player seeking to compete here. Specifically, BMI said both PLDT and Globe “used their market dominance and the ineffective regulatory regime to comprehensively block all avenues for the proposed joint venture (between SMC and Telstra of Australia), highlighting the risk of doing business in the Philippines’ telecoms market.”