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Duterte govt requires 3rd telco to outperform Globe and Smart, or lose P26B bond

THAT statement isn’t mine nor from anonymous sources. It’s straight from the horse’s mouth, so to speak, from former Information and Communications acting secretary Eliseo Rio Jr. (a retired general), who shepherded the entry into the telecoms monopoly of a third telecommunications company.

Rio posted on his Facebook page the narrative below, which I found very informative in assessing the chances of a third telco breaking the virtual two-firm monopoly of the telecom industry.

The two firms pretend to be Filipino-controlled. The reality, veiled by the scheme of “nonvoting preferred shares” is that Singapore Telecommunications Ltd, owned by Singapore’s state investment arm Temasek Holdings, is the biggest stockholder of Globe Telecom Inc. while the Indonesian-controlled First Pacific Co. Ltd. controls Smart Communications Inc. 

DITO reports it’s on the way. Company materials
Third telco reports on progress. Company materials

At least the third telco, DITO Telecommunity Corp., is transparent in disclosing in all its corporate information that it is 60-percent owned by tycoon Dennis Uy’s Udenna Corp. and Chelsea Logistics while the remaining 40 percent is owned by China Telecommunications Corp., a Fortune Global 500 company and the world’s largest broadband internet network with nearly a billion users.

The Globe-Smart monopoly’s power had been demonstrated in the fact that attempts by two telcos to enter the industry had been easily smashed. These were by the late tycoon John Gokongwei’s Sun Cellular (crushed in 2012) and by San Miguel Corp. led by the intrepid Ramon Ang with the Australian-based Telstra (crushed in May 2016).

Several insiders of the two would-be third telco had told me that one reason they gave up was that they thought that President Aquino 3rd’s government would help them in some way to break the monopoly in order to improve internet services in the country, which already emerged at that time to be crucial to such industries as online commerce and business-process outsourcing. “We were fooled,” they said. “We eventually had to sell the facilities and human resources we already had in place.”

This time around, based on Rio’s narrative, government will be backing up the third telco.

Rio’s narrative starts here:
“Why does the Philippines have the lowest tower density in the region, when we were one of the first to roll out mobile networks way back in 1991, years ahead of Vietnam? How come Vietnam has now around 70,000 towers as against our 22,000 towers?

“Around 1991, PLDT Inc. started our mobile networks with first generation technology or 1G, which was only an analog voice service. When 2G came around in 1995, two new telecom companies, Globe and Smart, lorded it over with their GSM network because aside from voice service, their networks offered SMS or text messages.

“But unlike the rest of the world that used mainly the voice service, Filipinos became crazy with texting, and we became the texting capital of the world. We were sending around 1.4 billion text messages, or SMS, a day, and for this 2G technology, we did not require so many towers.

“In fact, we need only around 18,000 towers to send all those billions of text messages daily and this went on till the smartphones came. You notice also that all telcos that did not have the SMS service, including PLDT, folded up and were acquired by Globe and Smart.

“All other countries around us were using voice services much more than texting. And you need much more towers to provide voice services because the network has to dedicate a channel for calling parties until their call is finished.

“The utilization of towers is on real-time for voice services. Therefore, the more towers, the more subscribers can make a call. The more subscribers making a call, the more revenue the telcos make. Unlike SMS where a tower can accommodate millions of text messages, for SMS are queued and sent at a very fast rate. So, when the killer application was texting, there was no incentive in building more towers as around 18,000 towers are enough to carry the billions of text messages daily.

“When I became the National Telecommunications Commission head in 2001, Globe and Smart were already considered a duopoly. I allowed the entry of a third mobile network operator, Digitel’s Sun in 2002. I approved the introduction of Digitel’s innovative services like unlimited call and text within its network, which later was also adapted by Globe and Smart and much later became unlimited between networks on promotional basis.

“This actually brought the cost of mobile telecom services down. But the reputation that mobile network operators were raking in revenues much more than other companies because of texting, made them targets for revenue generation not only by local government units (LGUs), but the NPA and some unscrupulous officials.

“LGUs came up with so many permits and recurring annual fees, the more the better for their revenues. These fees were merely passed on by the telcos to their subscribers which made our telecom services more expensive than other countries.

“This is one reason why Sun did not survive long and sold itself to Smart/PLDT. Until around 2012, there were not much complaints from telcos on this “red-tape” because texting revenues were making them profitable even with the small number of towers they had.

“But when smartphones appeared in 2012, and internet content was replacing SMS as the killer application, these red tapes began to be felt when our mobile telcos started overhauling their networks to accommodate the 3G to 4G technology. More towers are needed to utilize these new technologies, because internet content requires real-time connectivity like voice services.

“Other countries using voice services since 2G already had the [required] number of towers to easily shift to 3G and 4G. In the Philippines, we were stuck with the number of towers that was good enough for SMS, but very much lacking for services that require broadband and real-time connectivity.

“Adding more towers got mired because of the so-called red tape starting 2013, such that by 2016, poor telecom services became an election issue that helped President Duterte win.

“When I became the Acting Secretary of the Department of Information and Communications Technology (DICT), I initiated the entry of a third telco as per instruction of the President, to improve our telecommunication service through strong competition. The selection process was in fact designed to award a winner that [could] really challenge Globe and Smart, by using the highest committed level of service (HCLOS).

“The awardee must show that it can commit a level of service higher than the incumbent telcos, projected for five years. And they must back up their commitment with a performance bond, the higher the amount, the more points earned in their favor.

“Because of this level of commitment backed up by a hefty performance bond, when the third player (DITO) was selected, both Globe and PLDT/Smart put in their biggest capex investments since they started operating more than 20 years ago, starting in 2018, [and] increasing those investments yearly in 2019 and 2020.

While they may deny it, they are preparing their networks for the competition that DITO will give them when it starts commercial operations in March 2021. This in fact greatly improved our telecommunication services.

“When the administration of President Duterte took over in 2016, our internet speed was just around 10 Mbps. Now it is around 22Mbps, and the third telco has not operated yet. DITO committed 27Mbps internet speed when it starts commercial operation in March 2021, or else it will lose its performance bond of P25.7 billion.

“DITO also committed that by the fifth year of its operation it will have a speed of 55Mbps. Unlike Globe and Smart that have been operating for more than 20 years now without any commitment, we forced the new player to commit a level of service that would make our telecommunication services at par with our more progressive neighbors. Globe and Smart will have to try to achieve this, for if they do not, they will lose competition to the new player.

Third telco
“This is why I am quite confident that our telecommunication services would improve, as it has already improved to some extent since 2018 when the selection process for the third telco began.

“In fact had this Covid pandemic happened two years ago, our telco services would have collapsed due to the sheer volume that our people accessed the internet, as these improvements weren’t in place then as [they are] now.

“To answer the dire lack of telecommunication infrastructure, wherein a third player will not succeed as Sun didn’t if this problem persists, I invited common towers and passive telecommunication infrastructure providers to invest here to fast-track this complaining roll-out.

“By 2019, these providers poured in almost P400 billion in committed investments as per record of BOI. In fact, this massive amount of investment made it possible for the Philippines to breach the P1trillion mark of committed investment for the first time in its history.

“So, all the investments needed to fast-track the roll-out in telecommunication infrastructure was there by 2019 (this was DICT’s contribution to the government’s “Build Build Build’ program, WITHOUT spending any government funds), but even the foreign providers started that they had rolled out 10 times faster in other countries, but were slowed down by red tape in our country.

Red tape
“So, this red-tape problem is real unlike what some quarters are saying that this is being made as an excuse by the telcos because they don’t want to invest more money in their infrastructure.

“Aside from the billions of pesos poured in by the telcos for infrastructure, non-telco companies that were instrumental in putting up thousands of towers and thousands of kilometers of fiber optic cables (FOC) in our neighboring countries like Vietnam, Cambodia, Malaysia and Thailand, are also complaining that they have not encountered so much red tape [in those countries] that is drastically slowing them down here in the Philippines.

“The ‘illegal’ red tape is not so much a problem as they encounter this also in other countries, they say. It is the ‘legal’ red tape, numerous permits that require so many signatures that is the problem.

“We do not lack investments, as these are already available, not coming from government but from the private ICT sector, to fast-track the installation of telecommunication infrastructure. These will provide jobs and new business models that will perk up our economy in this pandemic crisis. It will provide a badly needed service that will make the lives of our citizens more comfortable and progressive, that is, fast and low-cost connectivity to the internet in a new norm. The real problem is the red tape that only government can solve. The government does not need to put up any funds for telecommunication infrastructure.”

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