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Chinese Telcos Deaf to Filipino President's Pitch

Robert Clark
News Analysis
Robert Clark

With some of the slowest download speeds in east Asia, broadband in the Philippines badly needs new blood.

But it looks like it's not going to come from China, despite the pleas from Rodgrigo Duterte, the Filipino president.

Duterte, who has pivoted the country hard to Beijing since taking office in 2016, issued an invitation through Chinese Premier Li Keqiang in a meeting last year.

Publicly, he has expressed confidence that a Chinese operator will take up the offer.

He's promised to wave them through the formalities in seven days and has called on the key government agencies to ensure the new telco can get set up by the end of the first quarter.

"This is a matter of national interest for the benefit of the public," he said.

The Philippines currently ranks 88th in fixed broadband on the Speedtest Global Index, with an average download speed of 15.2 Mbit/s. In mobile it ranks two places lower.

But so far Duterte's pitch has met with silence from the Chinese side (China Telecom Corp. Ltd. (NYSE: CHA) and China Mobile Communications Corp. have not responded to Light Reading queries).

The reason isn't hard to discern.

The telecom market in the Philippines is dominated by two well-connected companies -- Philippine Long Distance Telephone Co. (PLDT) and Globe Telecom Inc.

They are sitting on a cosy duopoly, with a similar number of customers in each segment.

PLDT has 1.9 million fixed-line broadband, 2.6 million landline and 58.2 million mobile subscribers. Globe has 1.26 million home broadband, 1.36 million landline and 59.33 million mobile customers.

Globe is owned by the Ayala Group, a conglomerate operating financial services, property, retail and utilities businesses as well as its telecom unit.

In its latest financial result, PLDT reported a consolidated EBITDA margin of 43%. Globe's is 41%.

By comparison, China Telecom, mentioned in the Philippines media as the most favored Chinese telco, achieved a margin of 31.6%.

For all the latest news from the wireless networking and services sector, check out our dedicated mobile content channel here on Light Reading.

The Chinese possibly have an eye on the experiences of Australia's Telstra Corp. Ltd. (ASX: TLS; NZK: TLS). After months of courting Filipino brewer San Miguel over a joint telecom venture, it threw in the towel, describing the market as too risky.

San Miguel's previous telecom partner, Qatar Telecom, departed in 2015 after half a dozen fruitless years.

San Miguel took Telstra's exit as a cue to leave as well. It sold its spectrum holdings to the two big players, ensuring they now own 91% of all spectrum issued.

The hostile business environment aside, the Chinese players may have other reasons for not taking up Duterte's invitation.

For one thing, with the exception of China Mobile's Pakistani venture, they have never run a foreign subsidiary.

And for another, a Chinese brand in a volatile neighboring market might carry a certain political risk.

In his latest remarks, just last week, Duterte acknowledged the lack of Chinese interest, but said his government was willing to work with other telcos to introduce a third operator to the market.

But as the Chinese response has shown, he will need to offer more than a welcome mat.

— Robert Clark, contributing editor, special to Light Reading

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