Vega Telecom, Inc., the telecommunications business of San Miguel Corporation (SMC) has been acquired by the Philippine Long Distance Telephone Company (PLOT) and Globe Telecom Inc., each acquiring 50% equity interest.
Vega Telecom owns controlling interests in Bell Telecommunication Philippines, Inc., Eastern Telecommunications Philippines, Inc., Cobaltpoint Telecommunication, Inc.(formerly Extelcom), Tori Spectrum Telecommunication, Inc. (formerly Wi-Tribe), and Hi- Frequency Telecommunication, Inc. SMC had eyed an entry into the Philippine internet and mobile market with a planned joint venture with Australia’s Telstra, but talks collapsed in March, much to the dismay of the public.
“Despite an enormous amount of effort and goodwill on all sides, we were simply unable to come to commercial arrangements that would have enabled us all to proceed,” said Telstra CEO Andre Penn in a statement released through the Australian Securities Exchange. Telstra was expected to invest up to $1 billion in the partnership.
SMC had been holding most of the 700 Mhz frequency, in addition to its 800,1800, 2300,and 2500 frequency bands. PLDT has rights to 800 MHz, 900 MHz, 1,800 MHz, and 2,100 MHz bands. Globe, meanwhile, holds 900 MHz, 1,800 MHz, and 2,100 MHz bands.
Since 2005, PLDT and Globe have been calling on the National Telecommunications Commission to reallocate the 700 Mhz frequency, an important swathe of spectrum for wireless communication. Spokespersons of both telcos had dubbed SMC’s control of the 700 Mhz band as “anti-competitive.”
With an average internet connection speed and average peak connection speed of 3.2Mbps and 27Mbps, respectively, the country still has the second lowest connection speeds in the Asia Pacific Region, according to Akamai Technologies.
“This transaction offers a breakthrough opportunity, not only for the companies involved but also for the industry and the country,” said PLOT Chief Executive Officer, Manuel V Pangilinan, in a release sent to the press. “This will enable existing operators to provide significantly improved internet and data services to the public and to our customers in the shortest possible time. At the same time, it leaves the door open for new entrants into the industry. Taken together, this will enable the industry to better support the country’s development efforts – especially significant with the onset of a new Government.”
“We entered into this transaction as a solution to harmonize the spectrum assets in the country and immediately unlock the benefits of the underutilized frequencies. Ultimately, our goal is to provide our customers with a better experience on our mobile data and home broadband services progressively over the next twelve months,” said Ernest L. Cu, president and CEO of Globe, in a separate release.
“Coupled with our execution excellence as the preferred brand for Filipinos’ digital lifestyle choices, the additional frequencies will provide the much needed capacity to improve mobile browsing speeds that our customers would enjoy.”
The consideration for the acquisition of the SMC telecommunications business is PHP69.1 billion which includes PHP52.08 billion for 100% equity interest in Vega Telecom, Inc. and the assumption of around PHP17.02 billion of liabilities.
Obstacles to service improvement
In the release issued to the press, Globe says Philippine telcos are currently having difficulty improving the quality of mobile data services because of continued challenges with site acquisition for cell sites and the intensely bureaucratic permitting process of many local government units. At present, it takes about 25 permits spanning a period of eight months to get an approval to build one cell site. Also, the inconsistent and at times prohibitive fees across various LGUs are added challenges that increase the cost of ownership of these cell sites.
These hurdles are some of the primary reasons behind the country’s current state of low site density, contributing to capacity issues and slow mobile internet. These challenges result to a relatively low number of cell sites serving the growing base of mobile data users. Notwithstanding the need to build more cell sites, having additional spectrum will provide some relief as it will immediately add new capacity with the existing number of sites.
PLDT says the acquisition will provide significant benefits to PLOT, Smart, TNT and Sun Cellular customers, further improve internet and data services for the public, and speed up the country’s overall development efforts.
Following the acquisition, customers will progressively experience faster internet and higher call and data quality across the fixed and mobile networks of PLOT and Smart. Capacity and coverage, both indoor and outdoor, will be expanded and enhanced. This will enable PLOT to provide attractive mobile connectivity and digital services to its consumer and enterprise customers at affordable prices. Stronger networks and connectivity are key enablers for individual and enterprise sector productivity and cost efficiency.
Increase in PLOT’s capex
PLOT says access to the much-needed radio frequencies, especially the 700MHz, is likely to raise the company’s capex by US$1 00 Million for 2016 and 2017. The rollout of service on the 700 MHz will be accelerated, allowing PLOT’s fixed and wireless subscribers to enjoy the significant benefits of this frequency at the soonest possible time. The additional spectrum will result in wider coverage and more efficient network utilization.
This will enable PLOT to pursue a growth-focused expansion of its network and extend Internet services to a larger number of customers in more areas of the country. In particular, Smart will be able to serve better the regional and rural areas of the Philippines by utilizing the 700MHz spectrum. This will help bridge the Digital Divide in the country and create more opportunities to utilize digital technologies to promote rural development. In addition to the 700MHz frequencies, PLOT will also receive supplementary frequencies in the 900MHz and 1800MHz bands which will enhance our current networks and increase capacity, resulting in faster and improved data services.
PLDT and Globe will cause the acquired companies to relinquish certain radio frequencies in the 700 MHz, 850 MHz, 2500 MHz, and 3500 MHz bands and to return these radio frequencies to the Government through the National Telecommunications Commission. These radio frequencies to be returned by subsidiaries of Vega Telecom to the NTC will be sufficient, together with radio frequencies already held by the NTC, to allow for a third-party operator to enter the market. The acquisition will thereby help the NTC and the Philippine Government provide for a better utilization of available radio frequency spectrum for mobile services, which will benefit consumers more quickly.
Reacting to the sale of SMC’s telco assets to Globe and PLDT, Senator Paolo Benigno “Bam” Aquino IV stated in a press release that Philippine Competition Commission needs to look into these transactions carefully and responsibly.
“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,” said the senator, who currently chairs the Senate Committee on Trade, Commerce, and Entrepreneurship and the Senate Committee on Youth.
“The Philippine Competition Act provided the Commission with wide-ranging powers and the mandate to protect the public interest. This is their first test and definitely a defining moment for them.”