The Market Monitor Minding the Nation's Business
The rivalry in the already tight telecommunications market is expected to become fierce, as a third player—after giants Philippine Long Distance Co. and Globe Telecom—is expected to join the fray soon.
Telstra, Australia’s biggest phone and Internet provider is in the final stages of negotiations with San Miguel Corp. (SMC) to launch the country’s third mobile network, according to the Sydney Morning Herald.
Telstra Chief Executive Andy Penn told investors in October the company would spend up to $1 billion for a 40-percent stake in the joint venture.
The publication quoted a report from the independent analyst firm Creator Tech issuing a warning that the push into the Philippines could become an expensive mistake, costing the joint venture up to $5 billion if construction is hit by cost overruns and delays.
Major shareholders are also expressing doubts over whether it is the right move, it added.
But Creator Tech co-founder Steve Mackay said the high profit margins being enjoyed by Globe Telecom and PLDT meant it made sense for Telstra to be interested in the Philippines.
“The business case for 4G in the Philippines, where both of the incumbents are making profit margins that nobody else is making, is a no-brainer and I can absolutely see why they’d do it,” he said. “But what are the costs, what are the risks to the costs and why doesn’t Telstra seem to be disclosing any of those?” One of the biggest advantages of Telstra working with San Miguel is the latter’s control over the 700 megahertz MHz mobile spectrum, which is the electronic airspace needed for all broadcast technologies, and a jewel that both PLDT and Globe are now working to get a share of.
Mackay believes San Miguel’s right over the spectrum was worth between $930 million and $2.78 billion.
“Telstra’s 40-percent share of this equals $507 million to $1.52 billion,” the Creator Tech report said. “San Miguel may choose to gift the spectrum to the joint venture at below-market value or ‘mate’s rates’, although based on public statements, we see no commercial reason why they would do this.
“The total cost, including IT infrastructure and backhaul, but excluding spectrum, could be in the region of $3.5 billion,” the report said.
Telstra said the Creator Tech report was “speculative reporting” and that its position remained unchanged from previous comments.
“At this stage, no deal has been reached and there is no certainty one will be,” the company said in a statement. “If and when a deal is to proceed, we would disclose the appropriate amount of detail to our shareholders.”
Both Globe and PLDT had asked regulator National Telecommunications Commission (NTC) to reassign part of SMC’s 700MHz holding in a more equitable way.
The two telcos said the spectrum should be shared with them to improve their Internet service, which local users complain to be among the slowest in the world.
Globe said it is imperative for the NTC to ensure that the 700[MHz] band is made open to other telco players to address concerns over the state of Internet services in the Philippines amid the rising demand for data connectivity.
But SMC President Ramon S. Ang said SMC has no plans of sharing the spectrum with the two telcos.
“Between the two of them [PLDT and Globe], they have almost 300MHz of LTE frequencies. Why do they need more? They have all the frequencies, all the technology. All they have to do is fine-tune what they have,” Ang said.
NTC had already stated that for the frequency band to be reallocated, the spectrum should be recalled from SMC and reassigned.
But for that to happen, a good reason is needed to recall the spectrum, such as if SMC has not been used or the holder has not been paying the required fees.
SMC, however, has not been remiss in its payments to the government and has acquired permits to purchase mobile network equipment, thus, the right to the spectrum stays it, even if it does not have any working telecommunications network as of now.
SMC acquired the rights to nearly the entire 700-MHz band via its Wi Tribe and High Telecommunication units
The 700 MHz band (698-806 MHz band) had been previously allocated for the use of analog broadcast TV. The arrival of digital broadcasting technology (with its more efficient use of radio spectrum) has made it possible to reallocate broadcast spectrum for the use of mobile phone services.
Studies showed that economic benefits from using the 700 MHz band for mobile broadband far exceed those from broadcasting. In a 2012 report, the Boston Consulting Group and the GSMA said that by 2020, the digital dividend for the Asia Pacific region could be worth almost US$1 trillion in additional GDP,” the report said.
Discussions for this spectrum reallocation in the International Telecommunications Union (ITU) – often referred to as “the digital dividend” – gained momentum in the mid-2000s as mobile data traffic grew rapidly, powered by increasingly more powerful mobile data technologies.
A year after the ITU decision, on November 25, 2008, Smart Communications filed its application for 700 MHz frequency bands. It followed up this application with letters dated March 2, 2009; May 2, 2011; August 10, 2011; February 10, 2012; and March 12, 2012.