SMC/Telstra Filipino JV talks collapse; shares in PLDT, Globe rise sharply

14 Mar 2016

Talks between Australian telco Telstra and Philippines-based beer and food conglomerate San Miguel Corp (SMC) over a Filipino mobile joint venture (JV) have collapsed, seemingly scuppering the prospects for a credible third player in the local market to challenge the dominance of Philippine Long Distance Telephone Company (PLDT) and Globe Telecom. The Australian telco was considering a minimum USD1 billion investment for 40% in the JV, with a view to deploying a high speed mobile data network, in a market that on the surface appears ripe for picking. Whilst both PLDT and Globe offer wide coverage and low prices, their speciality is currently confined primarily to voice and SMS services and internet connectivity is poor. As previously reported by TeleGeography’s CommsUpdate, in a September 2015 filing with the Australian Securities Exchange Telstra stated: ‘We note recent speculation concerning Telstra considering an investment in a wireless JV in the Philippines with San Miguel, and that financing is being sought in relation to that JV. We are in discussions in relation to these matters. However, no agreements have been reached in relation to these matters and there is no certainty that this will occur.’ Telstra announced yesterday (Sunday), that it ended negotiations after both parties failed to agree on an equity investment.

In the wake of the failure of talks, shares in PLDT climbed 10% on the local bourse, while Globe’s stock also climbed 7.9% in early trading – its sharpest gain since June 2013. By contrast, the price of SMC unit Liberty Telecom’s shares fell 16% in Manila trading. PLDT and Globe shares have underperformed in recent months due to the uncertainty over the JV plan, which many believed could result in the launch of a third major telecommunication player by the end of this year.

It is thought that Telstra was deterred from the deal by the likely high spend needed to get the new network off the ground. Having committed to the JV, the new partnership would then need to secure billions more from local banks to fund the construction of the network, which could have required up to USD2.5 billion over four years. Added to this, the newcomer would need to secure a foothold in a market dominated by the big two, mindful that it would face legal battles along the way – e.g. PLDT and Globe are already fighting hard to stop SMC using its ‘jewel in the crown’, its valuable 700MHz spectrum assets. As if that were not enough, some have pointed fingers at endemic corruption in the Philippines which some fear could potentially undermine the new joint venture’s progress.

The news is, however, a blow to SMC which has been bolstering its assets in the Philippines with a view to mounting a charge on the mobile market. In July 2015 it confirmed that its 100%-owned subsidiary Vega Telecom had purchased 426.8 million common shares and 1.53 billion preferred shares in Liberty Telecoms Holdings Inc (LTHI) from its partner in the wireless broadband joint venture, Qtel West Bay Holding (part of Qatar’s Ooredoo Group). Further, Vega bought out 175.11 million preferred shares in Liberty Telecoms from Wi-Tribe Asia, and 1.21 billion preferred shares from White Dawn Solution Holdings as SMC consolidated its growing telecoms portfolio in the Philippines. The conglomerate paid a total of PHP5.75 billion (USD126.6 million) in cash for the three companies’ holdings, accounting for a combined 51.01% stake in Liberty Telecoms – which offers 4G wireless broadband services under the brand name Wi-Tribe. Liberty is expected to break even following its exit from corporate rehabilitation last May and, with 500 base stations, serves less than 50,000 Wi-Tribe subscribers. Aside from Liberty, SMC also controls Express Telecommunications (Extelcom), Eastern Telecommunications (ETPI) and its subsidiaries Telecommunications Technologies Philippines (TTPI) and Bell Telecom.

Australia, Philippines, Globe Telecom (incl. Innove), PLDT Inc. (incl. Smart Communications and Sun Cellular), Telstra