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Duterte could break up the telecom monopoly

The foreign and local oligarchs controlling the virtual telecom monopoly in the country — made up of Philippine Long Distance Telephone Co. (PLDT) and Globe Telecom — probably would have sleepless nights after President Duterte warned them the other day that if they don’t improve their services, they’ll bring in competitors from China.

If that happens, it will be devastating for PLDT (and its cell phone unit, Smart) and Globe. It would result in the end of its virtual monopoly, which would be a boon to cell phone and internet users, as well as for the economy in a country that remains the laggard in the region in terms of its telecom efficiency and infrastructure.

The world’s biggest telecom firm now, after overtaking the American Verizon last year, is China Mobile Ltd., while the tenth largest is China Telecom. These could undoubtedly bring a lot of resources into the Philippines to dismantle the local monopoly.

And it would be so easy for Duterte to get these companies into the country. Why?

Because both are state firms, their biggest stockholder being the government itself of the People’s Republic of China.

China would certainly jump on Duterte’s offer, in order to get closer to the country that has been antagonistic to it since it had been the US surrogate under past administrations, especially with regard to the South China dispute. Being state firms, the Chinese leadership would simply order either of the state firms to enter the country’s telecom industry one day, and the next day its executive and technicians will be here.

Not only that, it’s a fantastic business proposal for Chinese telecom firms: with our 100-million population, we’re a coveted market, being the 12th largest market for cellphones in the world.

And guess what are the large cellphone manufacturers in the world?

The Chinese firms, Huawei, ZTE, Oppo and Xiaomi, whose combined sales are more than all the revenues of Samsung, Apple and Nokia. The cellphones, and even smartphones of these companies, are now priced at a third or even a fourth of the cost of Samsung and Apple, which means, since the upper-class here is so small, these phones could overwhelm the Philippine market in a very short time. Already, industry sources say that Huawei, ZTE and Oppo’s cellphones — the cheapest now in the market —are accounting for 60 percent of new sales of cellphones in the Philippines.
telecom20161010With Duterte’s support, the entry of Chinese firms into the country won’t suffer the sorry fate of the attempt of the Australian firm Telstra and San Miguel to break PLDT and Globe’s duopoly. Telstra actually had already made substantial investment in Metro Manila for its entry, building cell sites which, when the company gave up in March, already covered 40 percent of the region. Telstra had also already employed 1,500 employees.

Worryingly “too cold”
Telstra, sources said, felt the government was worryingly “too cold” to its entry. Telstra was even told that the oligarchs owning PLDT and Globe Telecom were very close to then President Aquino, and so was his candidate for the presidency, Mar Roxas, who they were told would win the May elections because of its huge campaign finances and its control of government. Telstra allegedly was told that cases would be filed in court that could, at the very least, delay its entry for years. “What foreign company wouldn’t be scared with such threats, and a President supporting its rivals?,” a foreign consultant privy to Telstra’s attempt in entering the Philippines said.

Duterte’s unexpected rise to power has totally changed the game, especially as he has been at best apathetic, and at worst, antagonistic to the oligarchs. “I hate oligarchs,” he said in one of his speeches. Sources claimed that the telecom oligarchs’ attempts, through various third parties, to have an audience with Duterte have been rebuffed, in stark contrast to their first-name-basis relationship with Aquino.

The entry of a third telco in the country could take the form of China Mobile or China Telecom taking a 40 stake in the firm, in order to comply with the Constitutional limit on foreign investment in public utilities — despite PLDT and Globe Telecom’s violation of it. The government could take a 20-30 percent stake through equity by the Social Security System, the Government Service Insurance System, or by the Development Bank of the Philippines.

San Miguel, since it still owns the crucial, and valuable 700-megahertz spectrum, a frequency that would give a spectacular boost to the cellphone company that is authorized to use it, could be the biggest Filipino investor in the firm, taking up a 20 to 30 percent stake. That, however, depends on whether the May sale of its spectrum to PLDT and Globe is stopped by the Philippine Competition Commission (PCC), which appears likely to, so that Globe in panic filed a case against its intervention in the Court of Appeals.

The government’s entry into the telecom industry isn’t at all inappropriate, nor even unusual. Except for Thailand (because of Thaksin’s sale of the biggest telco to Singtel, which was one factor that led to the successful coup in 2006 that toppled him), all Asian nations’ telecom industries — from Japan to Vietnam — are dominated by state firms, with foreign firms allowed in the past decade to enter the industry but may take only small market shares. (Cf. Chapter 2 of my book “Colossal Deception: How Foreign Firms Control Our Telecom Sector”)*

But Duterte’s threat to get Chinese telcos to enter our telecom sector and give PLDT and Globe a run for their money isn’t the only worry for PLDT and Globe oligarchs. Duterte is the first President – ever since the two firms got to be controlled by foreigners – who is not their friend, who appears even to be antagonistic to them not just because they are among the oligarchs he says he hates, but that he is becoming mad at their poor service.

And Duterte has the legal, easy means for them to eat out of his hand. This is to order the Securities and Exchange Commission to simply implement the Supreme Court decision in 2011 and 2012 that would have ruled them as violating the 40 percent Constitutional limit on foreign equity in public utilities.

That on Wednesday.
The second slowest in Asia
Duterte certainly has a strong basis to claim that the PLDT-Globe duopoly has been providing lousy service, if we use as measures the country’s average internet speed and the percentage of users with internet speeds of above 4 Mbps.

We have the second lowest average internet speed in Asia-Pacific, according to the latest first-quarter 2016 report of the Massachusetts-based Akamai Technologies, a leader in the internet industry (see table). Our internet average speed is 3.5 Mbps., below the global average of 5 Mbps. That puts our global rank at 113 among 137 nations. A war-ravaged country like Vietnam and a poor country like Sri Lanka have faster internet speeds, at 5 and 5.4 Mbps, respectively

Indonesia, the country of Anthoni Salim, PLDT’s biggest controlling stockholder, has a faster speed of 4.5 Mbps. Singapore, the country of Singtel, Globe Telecom’s biggest stockholder, has a rocket speed — compared to ours, that is — 16.5 Mbps.

The picture is worse if we use the percentage of users having speeds of more than 4 Mbps: We’re on the bottom rung in Asia, with only 18 percent of users having that speed, way below the global average of 63 percent. I find it shocking that the comparable figure for Vietnam is 55 percent and for Sri Lanka, 71 percent. How could that happen?

What’s that again, Dr. Bernardo Villegas, and the neoliberals of the Foundation for Economic Freedom – that foreign investors ensure efficiency in an industry?

Or was it just a fluke that the biggest telco, PLDT, has been scrimping on its capital investment since it suffered a P5 billion loss in 2015 by investing in 2014 a whopping P20 billion in a 10 percent stake in internet site-maker Rocket Internet, which later tanked in the stock market with a huge drop in its share price.