PLDT, Globe buy SMC telco for P69B

THE COUNTRY’S top two telecommunication firms have agreed to buy assets in the sector of conglomerate San Miguel Corp. (SMC) for nearly P69.1 billion in a joint deal that, they say, will significantly upgrade slow Internet services that have been a drag on one of Asia’s fastest-growing economies.

Philippine Long Distance Telephone Co. (PLDT) and Globe Telecom confirmed on Monday the mega deal in what could signal their continued duopoly in the telco sector.

Both telcos vowed that services—especially in terms of quality of Internet services—would improve with added frequencies from SMC-controlled companies, the main target of the acquisition.

In separate statements, PLDT and Globe said they would acquire subsidiaries of food-to-power group SMC, including a prized 700-megahertz frequency.

The transaction is valued at P69.1 billion ($1.48 billion), they said.

Each of them will acquire 50 percent of the SMC’s telco business just a few months after SMC’s attempts to seal a joint venture with Australia’s Telstra Corp. Ltd. collapsed.

The mega deal is subject to shareholder and regulatory approvals.

 Slowest in world

Internet connectivity in the Philippines is among the slowest in the world, according to data analytics firm Ookla, despite the country’s rapid economic growth. President-elect Rodrigo Duterte last week warned telco players to shape up or face the prospect of foreign competition.

In a media briefing, PLDT chair and CEO Manuel V. Pangilinan said subscribers would be able to feel the improved quality of services as early as “within the next six months.”

“We entered into this transaction as a solution to harmonize the spectrum assets in the country and immediately unlock the benefits of the underutilized frequencies,” Ernest L. Cu, Globe president and CEO, said in a statement.

“Ultimately, our goal is to provide our customers with a better experience on our mobile data and home broadband services progressively over the next 12 months,” he added.

Improved Internet?

In a separate statement, Pangilinan described the transaction as “a breakthrough opportunity, not only for the companies involved, but also for the industry and the country.”

“This will enable existing operators to provide significantly improved Internet and data services to the public and to our customers in the shortest possible time,” he added.

The 50-50 venture mainly involved acquiring SMC’s Vega Telecom Inc. for P52.08 billion and the assumption of about P17.02 billion in liabilities.

PLDT and Globe said the equity part of the deal for Vega, as well as companies New Century and eTelco, would be paid over a period of three years, with the first tranche done upon signing today.

Both telcos were mainly targeting the 700-MHz frequency of SMC, which held most of the spectrum.

PLDT said the additional spread would result in “wider coverage and more efficient network utilization.” This is expected to mainly benefit subscribers of PLDT’s Smart Communications, TNT and Sun as well as those of Globe Telecom.

As part of the deal, PLDT and Globe will also give up some of the acquired frequencies.

These will be partly in the 700MHz, 850 MHz, 2500 MHz and 3500 MHz, they said.

“These radio frequencies to be returned by subsidiaries of Vega Telecom to the NTC [National Telecommunications Commission] will be sufficient together with the radio frequencies already held by the NTC to allow for a third-party operator to enter the market,” PLDT said.

While the deals will reinforce the leading pair’s grip on the market, PLDT and Globe both said they would return certain radio frequencies to the government, allowing for a third competitor to enter the market.

Speaking at a news conference after the deal was announced, Ray Espinosa, PLDT’s head of regulatory affairs, said the agreement would not need the approval of Congress.

On Monday morning, PLDT shares were up 6.8 percent while Globe rose 4.2 percent. San Miguel shares were flat after having risen as much as 3.4 percent earlier.

While additional bandwidth will be good for the incumbent telecom players, sector watchers said, new entrants are seen facing steeper hurdles.

“It’s not that easy to come in,” Wilson Sy, director of Philequity Management Inc., told Reuters. His company handles more than P20 billion ($427 million) in assets.

“Capital expenditure is so huge … . Additional players will find it difficult versus those who are entrenched,” Sy said.

Capitulation?

Reacting to the PLDT-Globe venture, a militant party-list lawmaker said it was a capitulation of a third player in an oligopolistic market.

“It’s telling that a massive conglomerate like SMC was forced to raise the white flag in its attempt to enter the telco sector. The sale of broadband frequency to PLDT and Globe will further entrench their stranglehold on the market,” said ACT Teachers Rep. Antonio Tinio.

Without a strong government regulator, Tinio saw little incentive for PLDT and Globe to improve Internet speed and lower costs.

Former Akbayan Rep. Walden Bello said broadband space had nothing to do  with the problems faced by consumers on slow download speed and high costs.

“It’s not a technological problem. It’s a market control problem. SMC was not a serious player. But with its broadband frequency now with PLDT and Globe, it will strengthen oligopoly and make it more difficult for smaller local players to emerge,” Bello said. With reports from Gil C. Cabacungan and the wires