China telco investments to benefit Phl
Possible Chinese investments in the Philippine telecommunications market will improve the service quality of the sector, according to a report by BMI research.
“Chinese investments in the Philippines’ telecommunications market would deliver much-needed technical expertise, meaningful competition, improved service quality and lower market prices,” the report said.
“The government and regulator must follow through on its aim and prevent a repeat of market power abuse from the existing two telcos that could derail entry of the new operator,” it said.
BMI cited Philippine government and resurgent telco Philippine Telegraph & Telephone (PT&T)’s move to invite Chinese technology companies to invest in the country’s telecoms market could benefit the Philippines, noting that the yet to be identified investors could work with PT&T to build the nation’s third multi-service network and deliver highquality and affordable broadband services.
“The move is welcomed as years of underinvestment have seen the Philippines consistently rank as the least effective telecoms market in Southeast Asia,” BMI said.
According to earlier reports, PT&T is said to be in talks with eight Chinese firms for potential partnerships, in line with its goal of becoming the country’s third largest telco player.
The report, however, said the main downside risks of the entrance of Chinese investment are that nonChinese vendors would effectively be shut out of the massive project, while the potential for a damaging service price war is high.
Meanwhile, BMI said legislative roadblocks may also hinder the entry of Chinese players, particularly with the Philippine Constitution foreign ownership limit of public utilities of 40 percent.
“While Congress could propose changes, the Philippine government will likely want a local firm to be involved to a large degree,” BMI said.
It added that a joint venture between a Chinese incumbent and recently reactivated PT&T would be a probable outcome of the ongoing talks.
Moreover, the report said while Chinese investors would have the technical expertise, the finance and the logistics resources needed to quickly build the new network, they would also have the clout to demand support and concessions, such as tax breaks, or exclusive access to new spectrum.
“We anticipate the nearexclusive use of a Chinese workforce and Chinese-made equipment, potentially locking alternative suppliers out of the market,”the report said.
Moreover, BMI said there is also a need to improve transparency in the country, as the lack of it would renew concerns regarding corruption.
BMI cited the initial attempt to build a National Broadband Network as an example, as it failed after a 2007 $329.5 million deal with China’s ZTE sank amid allegations of price fixing.
“The Duterte government aims to curb corruption, but the decision to negotiate only with Chinese partners could yet mire the project in controversy,” BMI said.
The report also emphasized that the Philippine Competition Commission must ensure the incumbents do not abuse their power to block the newcomer’s entry, avoiding a repeat of their takeover of supposed third player San Miguel Corp. in 2016.
“There is a lot of room for regulatory improvement in a market where nearly 40 percent of its population does not have access to the internet,” BMI said.
“However, the regulators have proved themselves to be ineffective and continuous regulatory reform is unlikely given that the appetite for change could dissipate when Duterte’s time in office comes to an end in 2022,” it concluded.