• Philippines: Telecom and energy deals send disquieting signals

  • Philippines: Telecom and energy deals send disquieting signals
  • tinidazole over the counter Questions linger after consortium led by a presidential advisor and backed by China Telecom was selected as third telco provider; move towards energy exploration in disputed waters could trigger backlash.

    Last year’s provisional selection of a third telco operator in the Philippines sent more mixed signals about opportunities for investment in what has been one of the region’s most promising economies – for decades.

    Executives and analysts interviewed by Access Asia Consulting Co Ltd said the long overdue arrival of a new teleco in Asean’s second most populous country could accomplish one of President Rodrigo Duterte’s campaign promises: improving lackluster telecom service, widening coverage and lowering prices.

    They also noted that the country’s two existing carriers – Globe Telecom and PLDT’s mobile unit Smart – had together increased investments in their networks by almost USD 2 billion ahead of the selection of their new rival Mindanao Islamic Telephone Group (Mislatel) on 7 November 2018.

    The Misatel consortium, however, will face the same hurdles Globe and Smart do, including a severe shortage of cell towers.

    The Philippines needs an additional 50,000 cell towers beyond the existing 16,500 to ensure adequate service to the country’s more than 100 million subscribers, industry analysts say. (As in other ASEAN jurisdictions consumers routinely subscribed to more than one service to take advantage of cheaper on-network tariffs.)

    The Misatel consortium is 60% owned by Philippine tycoon Dennis Uy through two of his holding companies – Udenna Corp and Chelsea Logistics – while China Telecom holds the remaining 40%, the maximum allowed under the country’s foreign investment rules.

    Executives said Duterte’s threat on 11 September 2018 to personally pick the winner – “within 30 minutes” – if the selection process was not completed in November prompted several companies that had expressed interest to withdraw from the process.

    Other concerns raised about the selection process include the disqualification of two bidders – Sear Telecom and PT&T – and the withdrawal of a third Converge ICT, and its partner Korean Telecommunications hours before the selection was announced.

    Other would-be competitors disappeared from the process after purchasing bidding documents in September, leaving Misatel as the last bidder standing.

    The selection process demonstrates that the government’s ability to pick concessionaires requires, at the very least, fine-tuning, executives said. Others were less discrete, saying it demonstrated cronyism as well as political motivations, primarily a desire to encourage Chinese investment in a country that is aiming to rapidly upgrade infrastructure.

    The presence of a Chinese conglomerate, however, has raised concerns about cyber security and privacy; a Senate committee led by former presidential candidate Grace Poe is leading an investigation into these hot-button issues, while analysts have said US companies with outsourcing facilities in the Philippines would face heightened risks if they switched service provision to the new consortium.

    Mistatel, for its part, has dismissed these concerns. It plans to be operational by the end of next year or the first quarter of 2020 and is in talks with the Bank of China to secure financing for what it has said will be a rapid market entry.

    Clicking Here Dennis who?

    Executives have pointed out that Uy – who on paper controls 60 percent of the consortium – has no experience in the telecom sector.  The Davoa City entrepreneur is a long-term Duterte supporter, contributing more than USD 677,000 to his 2016 presidential bid and is now one of his advisors.

    Since Duterte’s election, Uy has been on a buying spree – aided by a USD 220 million loan from the Bank of China and lucrative IPOs on the Philippine Stock Exchange.

    Uy’s business empire may also get an injection from oil and gas extraction, following a memorandum of understanding (MoU) signed between Beijing and Manila on 26 November 2018 to develop a framework for joint exploration of offshore deposits in disputed waters. Such exploration has been stalled since early 2015 due to a territorial dispute between the Philippines and China.

    The MoU was one of 29 signed by Duterte and Chinese President Xi Jingping on 20 November 2018, during the latter’s first state visit to the Philippines.

    Although these MoUs have been labelled ceremonial and lacking in specifics, it is important to note that Uy’s Dennison Holdings acquired a 15% stake in PXP Energy on 26 October 2018, according to a filing by PXP Energy to the stock exchange.

    PXP has a near 80% stake (through London-listed Forum Energy Plc) in exploration rights for the Recto (Reed) Bank near the Spratly Islands.

    Executives in the Philippines expressed some surprise that Uy had acquired a stake in PXP ahead of the MoU.

    Exploration of offshore oil and gas blocks is, however, becoming increasingly urgent as the Philippines’ main source of natural gas, the Malampaya field, is expected to be depleted in less than a decade. Gas from this field is used to generate 40% of Luzon Island’s power.

    Duterte has not been shy about improving relationships with China, and has put their territorial dispute – which flared in 2014/15 – on the backburner.

    The former mayor of Davoa City won the presidency in 2016 with pledges to improve government services, reduce the power of the cartels that constrain the country’s growth, eradicate crime, solve Manila’s traffic congestion and possibly legalize same-sex marriage.  

    Despite his failure to achieve these goals, Duterte has remained buoyantly popular. He has a unique ability to shock and dominate the national conversation, while channeling the inchoate frustrations many Filipinos feel about the lagging pace of social and economic reforms in country, analysts said.

    Duterte’s impatience with entrenched economic interests – like the duopoly that controls the telecom market – have been key to his popular support.

    However, the entry of Chinese conglomerates in the telecom and energy markets (especially in disputed waters) could dilute this popularity and trigger a rise in the anti-China sentiment that is pervasive in Philippines.

    Moreover, the perception that Duterte is favoring businesspeople close to him could further undermine his image as a people’s president, while the lack of transparent bidding processes could undo the progress made by the previous administration. Its incremental reforms led to the gradual but sustained increase in confidence in the Philippines that continues to sustain its robust growth.