The news that Australia’s largest operator Telstra is in talks with the Philippines’ San Miguel Corp (SMC), one of the largest conglomerates in the region, about investing in a local mobile operator has elicited a predictable response from the country’s two dominant players.

PLDT and Globe Telecom – which control 58 and 42 per cent of mobile connections in the country respectively – have reacted with a mix of “bring it on” bravado and warnings about the huge investment required.

Globe CEO Ernest Cu said the company is prepared to take on any challenger as it has already transformed its network and back-office operations and has faced major competitors in the past. But he warned that the network infrastructure alone for the newcomer could cost as much as $2.5 billion.

Market leader PLDT has responded with more caution, with chairman Manuel Pangilinan telling the Times Mirror that how strong a threat the new operator poses will depend on how it positions itself in the market.

Telstra reportedly will take a 40 per cent stake in the venture, which will invest $1.5 billion to $2 billion over the first three to four years. The Australian firm is also looking for about AUD500 million ($252 million) in loans from four banks.

Longer-term impact
The entry of a third mobile operator in the Philippines, where the duopoly also controls most of the fixed-line and broadband connections, will intensify competition over the longer term but will have limited impact on domestic competition in the next two years, Fitch Ratings said recently.

There’s no doubt PLDT’s Smart mobile unit and Globe are concerned about a new player eroding their extremely healthy EBITDA margins, which are among the highest in the industry worldwide at 45-46 per cent last year and forecast to drop by just one point this year.

Despite heavy investment in their networks over the past few years, OpenSignal put the country near the bottom in its global Q3 LTE speed ranking, with an average download speed of 8Mb/s (ahead of only Pakistan in Asia). The country, where 90 per cent of internet users are on mobile, had the second slowest average broadband downlink speed among 22 countries in Asia, according to internet metrics firm Ookla. Its average in May was 3.64Mb/s, compared to a global average of 23.3 Mb/s, putting it 176th out of 202 countries.

A third operator, particularly one with a cash pile of more than $4.4 billion and years of technical experience operating 4G networks across a huge geographic area, has the potential to inject much needed competition in the protected Philippine market.

Bring back a third player
The country hasn’t had a third mobile player since PLDT acquired Sun Cellular in 2011. Sun, which entered the market in 2003, started a price war by introducing low-cost unlimited voice and text plans. Both PLDT and Globe had no choice but to follow its move, but not before filing a complaint with the regulator about its “predatory and discriminatory” pricing, which was dismissed in the end.

Potential Telstra partner SMC, a beverage and packaging company, recently consolidated its growing telecoms holdings, with a subsidiary in July acquiring a 100 per cent stake in its wireless broadband venture Liberty Telecoms by purchasing the outstanding shares from its partners. Liberty, a troubled WiMAX provider with 100MHz of 700MHz spectrum, operates under the Wi-Tribe brand and had an estimated 62,000 broadband connections in Q3, according to GSMA Intelligence.

SMC also owns smaller operators BellTel, Eastern Telecoms Philippines, Extelcom and Vega Telecom, which gives it the opportunity to enter the market with bundled packages.

Telstra’s recent acquisition of Pacnet, the largest privately owned intra-Asia cable network with 29 data centres, would give the new operator direct access to international bandwidth via two landing sites in the Philippines, so it wouldn’t be dependent on the two dominant operators.

(Globe itself is negotiating a bilateral IP-peering deal with PLDT but rejected its first offer, complaining it wouldn’t reduce latency of local content and improve internet speeds. Globe, which has pushed for an agreement for six years, said given the current limitations up to 70 per cent of local internet traffic has to be routed outside the country, leading to additional IP-transit costs as well as delays in data transmission and latency.)

With SMC’s deep pockets and Telstra one of the first operators in the world to launch 4G service on the 700MHz band last year, the incumbents will need to raise their game, boosting speeds and reducing prices, but most importantly they must improve service quality. The National Telecommunications Commission has been inundated with complaints this year from consumer groups about poor network quality and in August was considering establishing a minimum speed for mobile broadband.

Judging from PLDT’s two-year court battle to keep Singtel-backed Globe from taking a controlling interest in BayanTel (arguing that the merger violates telecoms law as it would give Globe 95MHz of 4G spectrum), an SMC-Telstra venture would likely face a number of court challenges long before it installs its first base station.

But in the long run, after significant network investment by all parties, the country hopefully won’t be the regional laggard in internet speeds.

The editorial views expressed in this article are solely those of the author and will not necessarily reflect the views of the GSMA, its Members or Associate Members.