Philippines' unlikely saviors make $5B network bet

The pandemic crisis has exposed the Philippines' woeful digital infrastructure. But a partnership between two unlikely saviors may make the difference.

As the Daily Inquirer pointed out last month, the lockdown has highlighted the need for advanced connectivity, yet "the country still has one of the most expensive internet rates in the world."

The latest Speedtest global index ranks the Philippines 121st in mobile with an average download speed of 12.09 Mbit/s, and 109th in fixed with an average 21.0Mbit/s download speed.

You don't have to look far to see why. The country has an entrenched duopoly in both fixed and mobile services. Owned by two of the country's richest families, the Philippines operators are among the most profitable telecom businesses in the world.

In the last financial year PLDT and Globe reported EBITDA margins of 52% and 53% respectively. By comparison, Axiata, which runs mobile operators across the region, reports a 41% margin, and China Mobile 40%.

Since taking office in 2016, President Duterte has repeatedly threatened the telcos, resulting in rounds of limited price-cutting and network investments.

That clearly hasn't been enough. Enter Dennis Uy, a high-flying businessman friend of Duterte and his partner China Telecom.

Uy, a trader and petroleum retailer, had acquired southern Philippines-based operator Mislatel, which was awarded the third national license in contentious circumstances in November 2018.

The operator has since rebranded as Dito Telecommunity, with Uy's Udenna Corporation and Chelsea Logistics together owning 60%.

Thanks to a deal between Duterte and China's President Xi, China Telecom was offered the remaining 40%. It is the Chinese firm's first foreign venture.

Critics say the licensing process lacked transparency and is a flagrant example of resurgent cronyism.

That may be true but, as one anonymous businessman told Nikkei Asian Review six months ago, Uy is also doing Duterte a favor.

"The next five years is not, in any form, going to be a good investment for anyone," the businessman reportedly said. "Not for China Telecom, not for decades. But Dennis had to do it, because there's going to be a lot of egg on the president's face if the third telco project didn't happen."

That prediction has been borne out so far.

Dito has committed to investing 257 billion pesos (US$5.1 billion) over five years. With Uy already owing around $2 billion to local financial institutions, the Dito project will be funded by Chinese banks.

However, Dito's chief administrative officer, Adel Tamano, said in February the real problem was not the funding "but the rollout, building of the towers, data centers."

Site acquisition is usually the hardest task for any greenfield operator, especially when faced with two entrenched competitors and irregular zoning laws.

Perhaps that is why DICT has just set out new guidelines on tower sharing. It has ruled all new basestations must be sited in shared towers, and all passive tower infrastructure must provide space for other operators.

That would provide some relief for the newcomer, but it has a hard mountain to climb.

Globe and PLDT already have 18,000 basestations. Dito is hoping to complete 1,600 by July, its original 4G launch date. This has now been put back to March 2021, with 5G launching some time after.

A Chinese oligopolist and a presidential crony might make an odd couple, but they could be the ones to bring 21st century service and pricing to long-suffering Filipinos.

— Robert Clark, contributing editor, special to Light Reading