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Foreign firms generating super-profits from PH telecom duopoly

IN my column of October 30, I showed that one major reason why we have such poor telecoms in this country is because PLDT and Globe Telecom – the two firms making up the duopoly here – have been so greedy.

PLDT and Globe have been distributing almost all of their profits to their shareholders, leaving little left to use for infrastructure to improve their services, much less offer to lower the price of their services to consumers, which would reduce their margins. This is in stark contrast to what other Philippine conglomerates do, such as Henry Sy’s SM, San Miguel, and John Gokongwei’s JG Summit.

From 2005 to 2006, PLDT’s dividends have totaled $6.4 billion, while that of Globe Telecom $2.4 billion. That dwarfs the SM mall conglomerate’s $1.5 billion, San Miguel’s $1.2 billion, and JG Summit’s $215 million.

This is based on the corporate reports of these companies.

Could there be anything worse than that?

Yes. The bulk of these super-profits—defined in economics as income way beyond normal more often due to monopolies—are brought to Hong Kong, Singapore, Japan and to other rich countries of the world.

The Indonesian Salim and the Singaporean Prime Minister, ultimately, have command of our telecoms sector.

This is because the biggest owners of our two telcos are foreign, defying the Constitution’s 40 percent limit on such ownership in public utilities.

Indonesian Salim
First Pacific Co. Ltd., controlled by the Indonesian tycoon Anthoni Salim, owns 25.6 percent of PLDT while the Nippon Telegraph and Telephone Corp.’s (NTT) two affiliates own 20.3 percent. NTT has been for decades a state corporation, with the government of Japan still its biggest stockholder. Another 13.4 percent are owned by foreigners—the richest in the world—either through the local or New York stock exchanges.

Foreign ownership therefore of PLDT, the biggest telco in the country totals—based on its latest end-2016 report to the US Securities and Exchange Commission—59.3percent, way past the 40 percent limit prescribed by the Constitution.

Source: Company reports. Distribution based on ownership shares.

Globe Telecom on the other hand is owned 47 percent by the Singtel Group, for many decades the monopoly in Singapore’s telecoms. It is owned mainly by the Singapore government’s investment firm Temasek. It is therefore in the last instance the Singapore government that is the biggest stockholder of Globe, and its ultimate boss is none other than the head of that island state, who is Prime Minister Lee Hsien Loong, the eldest son of that country’s first prime minister Lee Kuan Yew.

Another 15 percent of Globe Telecom is held by foreign investors in the stock market.

Ayala Corp., owned by the crème de la crème of our elite—for reasons I really can’t fathom—is content to be playing second fiddle in a telecom firm in its own country. It holds only 30 percent of Globe’s common shares.

Foreign firms therefore own 62 percent of Globe, also way past the constitutional 40 percent limit. (To be more accurate though, Ayala itself is 36.5 percent owned by foreigners, which means that foreigners have an additional, indirect holdings in Globe of 11 percent, which would bring its foreign ownership to 73 percent.)

That First Pacific and Singtel are bringing out of the country their super-profits in the two telcos is confirmed in their annual reports.

First Pacific’s reports show that its income from PLDT from 2005 to 2016 totaled $2.1 billion. This is even bigger than its $1.6 billion income, if computed on the basis of its officially reported 25.6 percent ownership of the telco.

Quite significantly, this dwarfs First Pacific’s $1.4 billion income from its wholly owned, Jakarta-based company Indofood, the world’s biggest noodle maker, which is, as it were, the family jewel of the Salim conglomerate. Super-profits indeed.

Similarly, Singtel in its annual reports, claimed that its income from Globe Telecom totaled in the same period to US$1.6 billion, bigger than the US$1.1 billion it should be getting if its 47 percent shares were used in the computation.

Including the income of other smaller overseas investors in the stock market, the telco duopoly has been an unbelievably huge money-making machine for foreign companies, which remitted a total of $5.3 billion from 2005 to 2016.

Why could they make so much? Because the two make are a monopoly, and one that exploits a captive market and the limited natural resource that is the radio spectrum used for transmitting cellphone signals.

$500 million yearly
What does this $5.3 billion mean? It means in 12 years, foreign firms have been taking out of the country about $500 million every year, or half the average annual foreign direct investments into the country of $1 billion. These foreign companies have totally recovered the $1.5 billion they have invested in the telecom duopoly.

Imagine what our government could do if it were the main owner of our telcos, which is what most Asian countries have done.

Singtel for instance has been the main financier of the state investment company Temasek, which now has a portfolio of $200 billion and which jump-started many of that island state’s industries such as ship repair and shipbuilding, Singapore Airlines, steel mills, and even its bird parks.

These data I have shown, based on the companies’ own reports, should correct the naïve, even dumdum, view that foreign investments mean solely the inflow of capital into the country. These obviously aren’t grants or dole-outs, and involve an outflow.

As such, most Asian countries (except us) found it necessary, even crucial, for governments to determine whether such outflow is valid payment for the use of such capital from abroad—or for the technology they bring—and therefore should be allowed to operate in their territories.

Most foreign companies, like PLDT and Globe, also use for their investments the capital they raise from the local credit market, which readily extends to them the loans they ask for as these are guaranteed by their mother companies abroad. These have a crowding-out effect on local entrepreneurs. What bank, for instance, would not consider granting a loan to Globe if it is Singtel that is guaranteeing it?

For these reasons, practically all countries in the world have strong bureaucracies that determine if a particular foreign investment would be good for their countries or not. Without exception though, public utilities such as telecoms and power generation are reserved to their nationals, and not just because this kind of enterprises involve the immediate welfare of their citizens.

What has happened is that our leaders, most probably because of unbelievably huge financial gain, have allowed foreigners to exploit an extremely profitable public utility that leads to a monopoly.

We are practically the only country in Asia that allows foreigners to dominate such a strategic industry, whose telcos have provided us with the lousiest service in the region, and the most expensive.