A lot of people have been crossing their fingers and hoping that a new and significant player will enter and compete in the telecoms industry in the Philippines. Sometime in August, that wish somehow found a familiar name: Telstra. Excitement and speculations abound with mostly positive online sentiment towards Telstra, an indication that consumers aren’t very satisfied with the current level of service of the existing players.
To those unfamiliar with the name, Telstra is the dominant telecom provider in Australia. It has almost the same historical background as PLDT, having been majority owned by the Australian government until it was privatized and became publicly listed in the ASX.
Telstra’s top executive has been quoted that they are keen on investing in the Philippines and looking for a partner in a joint venture as a mobile service provider. The statement only fueled speculations that the company is serious at becoming a third major player in the Philippines.
The San Miguel link
One of the biggest barriers for many foreign companies to invest or expand in the Philippines is the restrictions on foreign ownership especially in industries like public utilities and media.
According to the Philippine Constitution, foreign companies are prohibited from owning more than 40 percent of businesses and real properties in the Philippines. This mean any foreign investors who want to become a dominant player in the country is limited to only a minority control and has to have 60 percent of the ownership linked to Filipino partners.
This is where San Miguel Corporation (SMC) comes in. Being the largest publicly listed company in Southeast Asia, the beverage and packaging company has a lot of capital to put up the biggest challenger in the wireless services business since the Gokongwei’s put up Sun Cellular in 2003.
San Miguel also has experience as an internet service provider (ISP) when it launched Wi-Tribe via Liberty Telecoms back in 2010 after partnering with Qatar Telecoms (QTel). But that business didn’t prosper much as Wi-Tribe suffered some losses and has been undergoing rehabilitation since 2013. San Miguel is still looking to revive that business this 2016, an indication that it is very serious in the telco space. Aside from that, it also owns Eastern Telecoms, which provides internet and data services.
SMC also has an ace up its sleeves. It controls a huge chunk of the much-coveted 700MHz frequency band (90MHz of the total 100MHz band, while the remaining 10MHz assigned to New Century Inc.). Wi-Tribe Telecoms uses 80MHz of the 90MHz assigned to SMC.
The 700MHz band is a key frequency that could address the high growth of demand in mobile data. Wireless signal is more effective at this frequency as it can cover wider areas with fewer infrastructure and can better penetrate thick walls and buildings compared to higher frequency bands currently being used by Globe and PLDT.
The US$1-billion investment
Telstra’s CEO has indicated that they are willing to shell out as much as $1 billion (P47 billion) as part of their 40 percent share in the venture. That leaves another $1.5 billion (P70.5 billion) for San Miguel to complete the other 60 percent majority stake. That’s already a sizable capital to build a solid infrastructure. Compare that to the $800 million that Digitel/Sun Cellular invested in building their infrastructure and we should see a much bigger network from Telstra/SMC.
On top of that, Telstra owns a huge network of international gateways and submarine cables across Asia-Pacific. One of which is the EAC-C2C (formerly Pacnet, which was acquired by Telstra in April 2015) that lands in Cavite and Batangas, then goes all the way from Singapore up to Japan. It also co-owns APCN-2 with Singtel, Verizon, AT&T, and many others, which has a landing base in Batangas.
This puts Telstra at the same footing as dominant players like PLDT which provides most of the international bandwidth to domestic ISPs in the Philippines. We can then expect that there will be enough bandwidth and it will be either cheaper or more competitive.
To close the gap, SMC will provide the domestic backbone to connect almost all of the 7,107 islands of the Philippines. SMC has already done that when it put up Wi-Tribe many years ago. It’s only a matter of expanding the network to cover most of the cities and municipalities across the archipelago in order to provide better and wider coverage.
So, what do we get?
The SMC-Telstra joint venture will probably create a strong third player in the wireless service industry. That includes voice, SMS, and mobile data services that will directly compete against Smart/Sun and Globe.
Even before talks between SMC and Telstra have begun, SMC is already preparing to launch BellTel (Bell Telecommunications) as a mobile network operator as early as first quarter of 2016. SMC bought BellTel back in 2010 via its subsidiary Vega Telecoms. BellTel has been operating as an ISP in several key areas like the Makati CBD and some other Special Economic Zones.
If and when the Telstra partnership materializes, most of the investments will be probably poured into BellTel obviously positioned to directly compete against Smart and Globe.
It would be interesting to see Telstra bringing in their vast experience operating a 4G/LTE network in Australia. The telco giant is the first to operate a 4G service in the 700MHz in Australia, which makes sense since it’s the spectrum that SMC controls in the Philippines. Telstra uses LTE-CA or LTE-Advanced Carrier Aggregation to provide higher bandwidth for mobile data that could theoretically reach up to 100Mbps.
So, it’s a huge advantage to San Miguel if the joint venture with Telstra pushes through as the foreign partner provides the gaps, key infrastructure, and technological experience to become a really solid competitor in this space.
Nevertheless, SMC is really serious to pursue this path with or without Telstra. It has the experience, infrastructure, and the capital to do so.
Competition is always good for consumers so we look forward to a bigger, tighter race in the telco space in 2016.
This article was first published in our January-February 2016 issue.