Globe, PLDT take over SMC's telco assets

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Metro Manila (CNN Philippines) — A landmark deal among major telecommunications players promises to bring much faster internet speeds to mobile phone users in the next few months.

However, it also raised concerns that valuable telco assets are becoming even more concentrated in the hands of a few, removing competition in a fast-growing and lucrative market.

San Miguel Corp. (SMC) sold its telco assets to the Philippine Long Distance Telephone Co. (PLDT) and Globe Telecom, Inc. for about P70 billion on Monday.

At the center of the deal is the 700-megahertz spectrum frequency, which is more cost-efficient to operate, has wider coverage, and reaches indoor areas better.

Globe and PLDT are splitting the assets, each taking a 50% stake in Bell Telecommunications Philippines, Inc.; Eastern Telecommunications Philippines, Inc., and Tori Spectrum Telecommunications, Inc. (formerly wi-Tribe), among others.

It represents a coup for the two carriers, who have dominated the industry since 2011, when the Pangilinan-run PLDT bought out Digital Telecommunications Philippines, Inc. (Digitel), which operated Sun Cellular.

SMC had initially planned to use the assets itself, holding talks with Australian carrier Telstra Corporation, Ltd. for a partnership valued at around $1 billion.

Industry watchers had hoped the SMC-Telstra joint venture would become an important third player in the market to help push prices down and make services better. Negotiations fell through this March, however.

In a statement, SMC said it decided to sell its assets because the legal and commercial risks in the investment were far too large to take on alone.

It added that the deal seemed the most beneficial for consumers, since Globe and PLDT would be able to maximize the assets much faster.

"This is a sacrifice we have to make to finally unlock the full potential of our high-quality, mobile broadband spectrum faster and allow consumers access to its benefits through the combined resources, network and expertise of the two carriers," SMC President and COO Ramon Ang said in the statement.

Faster internet sooner

Globe and PLDT have assured they will make the most of the 700-mHz spectrum frequency, with improvements to be rolled out within the year.

Globe President and CEO Ernest Cu said in a press conference also on Monday that the company would immediately begin hanging new antennas onto its existing cell towers.

Customers should experience faster mobile internet speeds in just three to four months, he said. "We are not starting from scratch. We already have the resources and we can order the equipment fairly quickly."

Globe aims to extend this frequency to 90% of all cities and municipalities in the Philippines, he added.

Meanwhile, PLDT President and CEO Manny Pangilinan said in a statement: "PLDT has an execution team in place already which will enable PLDT to integrate this acquisition rapidly into our current network... It is fully our intention to improve internet access and coverage nationwide on an accelerated basis."

PLDT said it would increase its capital expenditure by $100 million in 2016 and 2017 so it could invest in the 700-mHz spectrum frequency, particularly by building more cell sites in rural areas.

Ayala-owned Globe plans to spend $750 million on capital expenditures this year, with majority of this earmarked for mobile data.

Globe is financing this buyout mostly through debt, borrowed from local banks. PLDT is funding it by selling 25% of its stake in Beacon Electric Asset Holdings, Inc., which has a 35% interest in Manila Electric Co. (Meralco).

PLDT shares jumped 9.13% on Monday, closing at P1,901 apiece. Globe shares rose by 5.6%, ending at P2,310 apiece. SMC also saw a 5.8% increase in share prices, closing at P80.30 apiece.

Duopoly allegations

Sen. Bam Aquino, who took the lead in passing the Philippine Competition Act, lamented the deal.

"A lot of Filipinos like myself were looking forward to a third player to shake up the telco market and improve competition. Knowing that this third player is far from reality again is unfortunate," Aquino said in a statement.

The hold Globe and PLDT have on the telco market has been controversial. Their supposed duopoly was heavily discussed during the presidential and vice-presidential campaigns. Candidates said the country's sluggish internet speeds and high prices were due to the lack of competition in the industry.

Related: Duterte warns telcos: Shape up or face foreign competition

Incoming President Rodrigo Duterte has himself threatened Globe and PLDT to improve their services or else he would have a third player come in. The government holds some frequencies of its own and theoretically could sell it to another company to open up the market.

But Cu said, with massive potential unlocked in the new 700-mHz frequency, competition would likely become even fiercer between Globe and PLDT.

He also nixed talks of a duopoly, saying that only happens when two industry players are comfortable with each other. But he said, "[Globe and PLDT] are at each other's throats constantly. We compete with each other fiercely, both in terms of price, in terms of features and in terms of products as well."

Moreover, Globe and PLDT are returning their unused frequencies to the government. These frequencies cover the complete range of 2G, 3G, 4G and even 5G. Cu and Pangilinan both said this would enable the government to still bring in a third player to the industry if they so wish.

Nevertheless, the newly-formed Philippine Competition Commission has said it is taking "keen interest" in the deal.

"It is within the powers of the Commission to evaluate all business agreements and transactions that may have potential impacts on market competition," the Commission said in a statement on Monday.

It added that even without implementing rules and regulations yet for the watchdog, the provisions of the competition law were fully in effect.

"The Commission will gather more information and details on the transaction, and until such time, shall refrain from commenting further on the potential effects of the subject transaction on competition."