China Telecom, Local Tycoon Team Up To Win Philippine Telco License

A consortium of China Telecom (0728.HK) and firms controlled by a Filipino tycoon was provisionally named winner of the Philippines’ third telecoms license on Wednesday, after two rival bids were rejected and foreign players opted out.

State-controlled China Telecom joined businessman Dennis Uy – whose interests include real estate, energy, shipping and logistics – to form the consortium Mislatel and challenge existing players Globe Telecom (GLO.PS) and rival PLDT (TEL.PS).

The third license was offered at the behest of Philippine President Rodrigo Duterte and aims to boost the country’s notoriously patchy services and end a domestic duopoly long accused of being uncompetitive.

Despite a history of mistrust between the Philippines and China, Duterte has made strong business ties with Beijing his top foreign policy priority and expressed a desire to have a Chinese firm in the domestic market. He even “offered” the license to Chinese Premier Li Keqiang.

Uy’s ties to the president are well known and he was a contributor to his 2016 election campaign, hailing from Davao, the city where Duterte was mayor for 22 years.

In a statement issued moments after being declared winner, Mislatel called it a “historic opportunity to provide the best telecommunications services that Filipinos have been aspiring for.”

The Mislatel consortium includes China Telecom and two of Uy’s firms – Udenna Corporation, a holding company, and Chelsea Logistics Holdings (CLC.PS), one of its units.

Foreign firms that had shown interest opted out including Norway’s Telenor (TEL.OL), South Korea’s KT Corp (030200.KS) and Vietnam’s Viettel.

Foreigners were required to join a consortium due to a 40 percent ownership cap in a local telecoms outfit, which experts say has limited competitiveness in a sector worth about $5 billion a year in revenue.

Mislatel agreed to meet the telecom regulator’s 140 billion pesos to 240 billion pesos ($2.65 billion-$4.55 billion) capital expenditure requirement over five years.

There were only two rival bids – Philippine Telegraph & Telephone Corp (PTT.PS) and a consortium of TierOne and LCS Group – but both were rejected for being incomplete.

Both said they would appeal.

LUCRATIVE MARKET

Analysts see the Philippines and its 105 million people as a potential growth market, with its thriving $23 billion business process outsourcing sector and its underdeveloped mobile and fixed-line services, which consumer groups complain are unreliable and expensive.

Both Globe and PLDT’s mobile unit, Smart, say they have invested big in boosting coverage – $950 million and $1 billion respectively this year – but are constrained by weak regulations that make acquiring permits for infrastructure a painstakingly slow and complex process.

Telecoms Minister Eliseo Rio recently told Reuters moves were underway to streamline that, introduce tower-sharing requirements and eventually, raise foreign ownership caps.

A Viettel source told Reuters the time was “not appropriate” to bid. KT Corp and Manila’s Converge ICT, which had tied up for the bid, said “conditions imposed for participation render the venture commercially unviable”.

Aristoteles Elvina, an aide to Converge’s head, said it was pointless bidding against a company owned by the Chinese government, or getting a license that demands a new entrant commits to speeds and coverage that operators Globe and Smart are not required to meet.

“We don’t feel it is a level playing field,” he told reporters.

Duterte’s preference for Chinese involvement has also prompted cybersecurity concerns among some lawmakers, who said it was possible that China Telecom could be a “Trojan horse” aimed at giving China access to state secrets.

Without naming China, Grace Poe, a prominent senator, on Wednesday said security concerns “should not be sidestepped” and the military and intelligence agencies “should weigh in” in assessing qualifications.

Chelsea’s shares closed up 28.6 percent, having risen as much as 35 percent earlier on Wednesday. Shares in Globe closed down 8.9 percent and PLDT was down 5.6 percent, against a 2 percent drop on the broader index .PSI.

Telecoms minister Rio told local radio that despite being an associate of Duterte “no favors were given” to local magnate Uy in a “very, very open … very transparent” bidding process. – Reuters