FITCH: REGULATION OF PH TELECOM, MEDIA ‘POLITICIZED’

Fitch cites politicized regulatory regime, slow pace of reforms

London-based think tank Fitch Solutions sees heightened investment risks in the Philippine media and telecom space, citing the “politicization” of the regulatory regime amid the shutdown orders on ABS-CBN Corp. and Sky Direct.

The National Telecommunications Commission’s (NTC) “apparent ability to be influenced by the government continues to be a key impediment to foreign investor sentiment and has also made the telecom landscape difficult for both new entrants and existing players,” Fitch Solutions wrote in a research note dated July 7.

As such, Fitch Solutions revised downward its telecom industry risk score for the Philippines to 46.1 from 57.5 points in its previous quarter’s update. The highest possible score in this scale is 100.

“The forceful termination of ABS-CBN and Sky’s broadcasts are highly politicized and clearly linked to President Duterte’s opposition toward ABS-CBN,” Fitch Solutions said.

Mr. Duterte has publicly shown his disdain for ABS-CBN early on, alleging that the network had favored a rival candidate during the 2016 presidential elections.

Fitch Solutions also cited the slow formulation of the government’s tower-sharing policy, which was released in a draft version in May 2020 following a protracted period of discussions and negotiations. This only highlighted the “slow pace of instituting reforms and has partially contributed to the delay of new telecom entrant, Dito Telecommunity, in rolling out its commercial services,” the research said.

According to the think tank, the politicization of services as highlighted by the cease-and-desist orders (CDO) issued to Sky Cable and ABS-CBN, coupled with what it deemed as the country’s “fluid and inefficient” telecom regulatory regime, had been a deterrent to foreign investment.

NTC’S June 30 CDO to Sky Cable stopped the direct broadcast satellite service Sky Direct as well as its airing of its TV Plus channels in Metro Manila. The order followed the NTC’S May 5 decision to shut down Sky Cable’s parent company, ABS-CBN, following its failure to secure a provisional franchise from the regulator.

Sky Cable estimated that its shutdown would affect close to 1.5 million direct-to-home (DTH) subscribers.

“Unlike in other markets where IPTV (internet protocol TV) and cable TV services predominate, many households residing in rural areas outside of Metro Manila remain reliant on DTH services for entertainment purposes. The country’s archipelagic nature, coupled with relatively low levels of disposable incomes in regional areas, makes developing extensive and robust fixed infrastructure commercially unviable, accentuating the low-margin nature of the business and limiting returns on investment,” the research said.

Citing broader regional trends and estimates of TV set sales in the country, Fitch Solutions estimated that there were about 4.77 million pay-tv subscriptions in the country, with DTH services accounting for 2.84 million, or 60 percent of the total. The other DTH players in the Philippines include Cignal and G Sat while cable TV providers include Cable Link and Destiny Cable.

While Congress is in the process of reviewing a new congressional franchise for ABS-CBN, Fitch Solutions said the outcome of the review was uncertain.

The broadcasting firm, which is 22-percent owned by foreign investors through Philippine depositary receipts, has been accused of breaching foreign ownership rules. On the other hand, 40 percent of Sky Cable is held by Singapore-based investor ST Telemedia, in line with government foreign ownership restrictions.

“It is also unclear whether Sky Cable’s other services will be forced to cease operations, given that the government’s opposition toward ABS-CBN stems from the broadcast of channels, rather than on the provision of communications services,” Fitch Solutions said.

Sky Cable operated 688,000 cable TV subscriptions at the end of 2018.