How a Telstra-SMC joint venture can affect PH telecom

01 Sep 2015

Telstra announced last week that it was in talks with San Miguel Corporation (SMC), a food and beverage company and the largest conglomerate in the country, on a possible joint venture to offer wireless telecommunications services in the Philippines.

While this by no means should be seen as the solution to the laggard performance of Philippine internet, this partnership could serve to reinvigorate the telecom market and give the Filipino consumer a third choice.

SMC has been positioning itself to be a major telco since 2009. However, its attempts to introduce mass-market telecom services have not been successful. It’s broadband offering Wi-Tribe, for example, has not taken off and some of its offices are already closing shop.

SMC owns a number of small telcos including Eastern Telecoms Philippines, Inc. (ETPI), Vega Telecom, Liberty Telecoms, BellTel and Extelcom. It has significant spectrum holdings and knows the local market, which analysts see as its main contribution in the partnership.

Competition can do much to revive a stagnant telecom industry where PLDT and Globe, the two big telcos controlling the fixed line, mobile phone and broadband markets, no longer have the incentive to outdo each other or improve customer service.

Telstra’s capital and technology coupled with SMC’s telecom assets and local business knowhow would be a force to contend with. While Telstra and SMC are still in the initial stages of negotiation, already Globe has expressed its readiness to take on another competitor, saying that it has had “a long history of fighting a larger, well-resourced incumbent.”

With the entry of a third telco, expect to see an honest-to-goodness rivalry among service providers, unlike the follow-the-leader type of competition that one often sees in a duopoly. And effective competition can only reap benefits for the consumers.

The last time the Philippines had three major telecom operators was between 2003 and 2011—eight glorious years for the Filipino consumers. When Digitel introduced Sun Cellular in 2003, the brand offered unlimited 24/7 voice calls and SMS for 250 pesos ($4.50 then) a month, and brought down the price for IDD calls to $0.40 cents per minute. After only one year of operation, Sun had already amassed 1.1 million subscribers.

Smart and Globe cried foul to Sun’s new offerings, which threatened their mobile phone business and lucrative IDD voice call service. In 2005, Pitel and Innove (subsidiaries of Smart and Globe, respectively) filed a separate complaint with the regulator against the third telco for “predatory and discriminatory” pricing. The National Telecommunications Commission dismissed the protest, but by that time the two complainants were already offering similar bucket plans. The lesson being: real competition is a huge win for the consumers.

If the Telstra-SMC joint venture would push through, Telstra could own up to 40% equity—the foreign ownership threshold permitted by the Philippine Constitution for public utilities. It would also be competing with SingTel who partly owns Globe Telecom, and NTT Docomo, a shareholder of PLDT. In Australia, SingTel wholly owns subsidiary Optus, a mobile, broadband and satellite service provider. Over 10 years ago, Telstra had an exclusive partnership with NTT DoCoMo to deliver i-mode, which provides subscribers with access to content, such as e-mail, games and other applications on their mobile phones—a service that a typical smartphone today can offer.

Another advantage of Telstra is that it owns Pacnet, which has an international submarine cable landing in Cavite and Batangas in the Philippines. This means a direct source of cheap international bandwidth without the need to go through the two big telcos.

Telstra is exploring the deployment of 4G, which only makes up 5% of the Philippine mobile broadband market. Whether this would affect the availability, cost, and quality of broadband services could still be a far-stretched idea. For now, the hope is that the entry of a giant telco can shake up the market and keep the current local telcos on their toes again.

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