San Miguel’s sale of telco business: Will consumers benefit?

Chrisee Dela Paz

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San Miguel’s sale of telco business: Will consumers benefit?
The Philippines' major telco rivals stand together, raising concerns about competition and consumer interest

MANILA, Philippines – San Miguel Corporation’s (SMC) move to dispose all its telecommunications assets to the Philippine Long Distance Telephone Company (PLDT) and Globe Telecom, Incorporated is not your typical corporate deal.

The 3 companies are all winners, after their stock prices went up.

But how about the consumers?

And what happens to healthy competition in an industry already controlled by 2 giants? 

Some independent researchers and the Philippine Competition Commission (PCC) said strong public clamor for faster, cheaper, and better quality Internet and mobile services could be set back by a lack of competition.

One analyst questioned how a big deal such as this escaped government oversight. Grace Mirandilla-Santos, a research fellow at regional information and communication technology (ICT) policy think-tank LIRNEasia, told Rappler: “I can’t believe that a sale this important, and concerning valuable spectrum, will happen without any form of government oversight.”

Santos, who is also the vice president for policy of Internet Society’s Philippine chapter, said the government should look into the implications of the acquisition on competition and the consumers.

“More market concentration has never led to a consumer win. It’s probably more efficient for the telcos, but whether the benefit would be reflected in better consumer service is a different case,” Santos added. 

The PLDT and Globe announced on Monday, May 30, that PLDT and Globe agreed to buy all of San Miguel’s telecommunication assets – including its treasured 700 megahertz (MHz) spectrum – for P69.1 billion.

San Miguel was supposed to launch a 3rd major telco player this year. (READ: Ramon Ang: We hope to open 3rd major telco by 2016)

Favorable for 3 parties

“It’s good for all companies, but better for PLDT and Globe. The 700 MHz can drive efficiency and better network capability. For SMC, it gets one time windfall,” Juanis Barredo, chief technical analyst of COL Financial Group, said in a text message. (READ: Telstra-San Miguel venture a bumpy, costly ride – think tank)

Alexander Adrian Tiu, senior equity analyst at AB Capital Securities Incorporated, echoed Barredo’s remarks, saying “SMC will earn extra cash and allow them to focus on their other subsidiaries; while for Globe and PLDT, there will be no more 3rd player which is advantageous for them.”

The acquisition deal comes two months after SMC announced the collapse of talks with Australian telecom Telstra Corporation for a 3rd player. (READ: The future of 700 MHz band remains unclear)

SMC said in a statement on Monday that “obvious commercial and legal risks of pursuing the venture alone far outweighed the potential rewards for the company and its stakeholders.”

The purchase will now give the two telcos access to more radio frequencies, including the 700 MHz. 

The 700-MHz spectrum is said to be San Miguel’s most valuable asset because of a potential launch of a third major telecommunications firm in the Philippines.

TEAM-UP. PLDT chief Manuel V. Pangilinan (L) laughs with PLDT legal counsel Ray Espinosa (R) on a comment on PLDT and Globe's marriage. Photo by Chrisee Dela Paz/Rappler

April Lynn Tan, research head at COL Financial Group, said in an e-mail that the frequency band is “more cost-effective and can provide faster internet speed given its wide coverage radius and greater indoor penetration.”

“The infrastructure spending required to operate in the said frequency is also much less, potentially allowing any group to provide superior data services at lower prices,” Tan added.

The research head of COL Financial said through the deal, PLDT and Globe will have access to the higher frequencies, allowing them to provide the same level of service as a potential 3rd entrant.

“The main source of competition will be other matter, such as distribution, branding, which both incumbents have an advantage given their strong cash flow generating ability and strong branding,” Tan said.

“For SMC, it will allow the company to raise funds for its other projects or pay off its debts. Instead of having to fund the capital expenditure to roll out infrastructure for a third telco company,” she added.

But for Globe and PLDT, the deal will involve “a return of certain frequencies to the government, which will allow for a 3rd competitor to enter the market.”

Both Globe and PLDT said the deal will further improve Internet and data services for the public, and speed up the country’s overall development efforts. (READ: San Miguel Corp, Telstra end joint venture plan)

For SMC, the deal “is a sacrifice” the company has to make to unlock the full potential of the telco’s spectrum much faster.

A ‘hurdle’ to improved services

But information technology (IT) experts and the PCC do not fully believe these press statements.

“These could be stymied by a lack of competition in the sector. The commission has a keen interest in this proposed transaction” PCC said in a statement. 

Because of the importance of this transaction to the public interest, PCC said it will assert all of its powers as provided for in the law. 

IMPROVEMENTS COMING. Globe's Ernest Cu (second from left) says subscribers will start feeling improved services 'in 3 to 4 months.' Photo by Chrisee Dela Paz/Rappler

“We remind the public and the business community that the provisions of the Philippine Competition Act are fully in effect and do not require the final issuance of IRR to trigger effectivity,” PCC said.

“We assure the public and the parties that the Commission recognizes the urgency of the matter and will move quickly to reach a fair assessment,” the newly-formed commission added.

The co-founder of Democracy.Net.PH, Pierre Tito Galla, said he doesn’t see the telcos taking accountability for this. “I don’t see it. I see a greater capability of the two dominant players to exploit their duopolized markets,” Galla told Rappler.

Because of the strengthening positions of the two dominant carriers, the co-founder of the group that supported Magna Carta for Philippine Internet Freedom, said pricing of Internet services “may or may not improve.”

“It may even get worse, with the increase in the potential for collusive behavior, predatory pricing, and business practices such as ‘fair use policies’ even more skewed heavily against subscribers,” Galla said.

PLDT and Globe earlier made pronouncements that SMC’s 700 MHz spectrum is key to expanding their respective mobile broadband to several parts of the country and bringing down prices for end users.

PLDT share prices ended trading on Monday at P1,901.00 apiece, which increased by P159.00 or 9.13% from Friday; while those of Globe rose by P122.00 or 5.58% to P2,310.00.

Meanwhile, those of SMC closed at P80.30 apiece, up P4.40 or 5.80% from the previous close of P75.90. –

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