By VG Cabuag, Lorenz S. Marasigan & Catherine N. Pillas
SAN Miguel Corp. experienced its most difficult decision, according to the conglomerate’s president and COO.
“I, too, was disappointed,” Ramon S. Ang told reporters at the sidelines of a subsidiary’s stockholders’ meeting on Tuesday. “In fact, it was a very hard decision for the company. And when we discussed this with the management of telco, everybody was very, very sad.”
Ang said the company decided just to sell its 700 megahertz (MHz) of spectrum to the two major players, along with its thousands of cell sites lined up in the most populated areas in the country, so as to “avoid a long and dragging court battle” involving the firms.
He said at the sidelines of the San Miguel Brewery Inc. stockholders’ meeting, “most of them are so scared because of the legal challenges that are in place.”
“And it will be a disservice to our people and consumer by holding on to that frequency and wait for foreign technical partners to come in,” Ang added.
Sale
SAN Miguel decided to sell its telecommunications assets for P69.1 billion to the Philippine Long Distance Telephone Co. (PLDT) and Globe Telecom Inc., two companies that have dominated the industry for several years.
Ang said San Miguel started talking to both PLDT and Globe Telecom about two months ago, almost right after its talks with Australia’s Telstra bogged down. He added they were initially approached by Globe for a possible tower-sharing agreement, “but that did not materialize.”
He said negotiations moved fast, because “we want to make sure that both PLDT and Globe will do this deal quickly, to provide the better broadband service [that] they were promising.”
The transaction involved the sale of San Miguel’s holdings in Vega Telecom Inc., Bow Arken Holdings Co. Inc. and Brightshare Holdings Corp.
These companies control Bell Telecommunication Philippines Inc., Eastern Telecommunications Philippines Inc., Cobaltpoint Telecommunication Inc., Tori Spectrum Telecommunication Inc., Hi-Frequency Telecommunication Inc., eTelco Inc. and New Century Telecoms Inc.
Ang said Globe and PLDT can easily roll out system upgrades, as San Miguel’s 2,000 cell sites are lined up in Pampanga to Batangas, the most populated areas in the region.
Of the said cell sites, 400 were owned by Liberty Telecoms that were converted for mobile broadband.
“Actually, even before we sold this, San Miguel has already enough war chest to invest more in other businesses,” Ang said. “At the moment, we are concentrating on investing and expanding our core businesses, such as tollways, food, power, oil refinery [and] petrochemical.”
Regulatory watch
ACCORDING to Philippine Competition Commission (PCC) Chairman Arsenio M. Balisacan, Globe and PLDT will have to prove their purchase of San Miguel’s assets will actually lead to better services. That is, if the two players seek exemption from review from the PCC.
“Their exemption is for us to determine,” Balisacan said in a chance interview with reporters, after a Management Association of the Philippines’s (MAP) membership meeting on Tuesday. “The commission has the power to examine transactions, especially those that have an impact on public interest.”
Section 21 of the Philippine Competition Act outlines exemptions from prohibited mergers and acquisition. Among the exemptions are if the parties involved are able to establish that the deal has brought about or are likely to bring about gains in efficiencies that outweigh the limitation on competition.
If the two players do seek exemption from prohibition, they must now take up that challenge to prove their buyout will lead to efficiency in the duopoly-dominated telecommunications sector.
This burden to prove efficiency is pressing, as the deal gave Globe and PLDT access to the sought-after spectrum that regulators have given to San Miguel’s Liberty Telecoms Holdings Inc. unit.
Both Globe and PLDT assert they will use the assets to improve their services, with PLDT’s Smart Communications, Sun and TNT brands, as well as Globe and its Touch Mobile brands, pledging faster mobile Internet browsing speeds within four to six months.
“Bigness [of a firm] doesn’t imply inefficiency,” Balisacan said. “There has to be a determination of anti-competitive elements.”
Capital requirements
ANOTHER observer said San Miguel’s assets sale would hike the combined capital requirements of Globe and PLDT to $1.85 billion for 2016.
Fitch Ratings Inc. said the hike in capital requirements will be used to finance respective endeavors to expand their data services, as the two telcos access the 700-MHz band.
Broken down, PLDT will likely spend $1 billion to fund requirements and Globe $850 million. The former earlier announced a $920-million capital-expenditure program, and the latter $750 million.
“We believe that both PLDT and Globe will invest aggressively to expand their data services, now that they will have access to the coveted 700-MHz spectrum, which is able to penetrate walls and is useful to provide in-building coverage,” Fitch Ratings said.
Given this, the two companies will see their business profiles becoming stronger, as the transaction removes the challenge of a third player, the ratings agency said. “We believe that the incumbents’ business profiles will strengthen with the acquisition, which removes the challenge from San Miguel to the duopoly market structure.”
Globe, according to Fitch Ratings, could reap more benefits, as it has greater exposure to the mobile sector, which accounts for 76 percent of its revenue. By comparison, PLDT’s wireless business contributes 63 percent of its revenue.
According to disclosures to the stock exchange on Tuesday, half of the deal was paid on Monday. Another 25 percent will be paid on December 1, and the balance will be delivered on May 16 next year.
Frequency allocation
OPERATING mobile Internet services under the 700-MHz spectrum is cheaper and more efficient than operating under higher-frequency bands.
Under the deal, the 90-percent shareholding of San Miguel in the 700-MHz band will be distributed to the two telcos and the government.
The telcos will each get 35 MHz, while the remaining 20 MHz will be returned to the government.
San Miguel, on the other hand, would be having its war chest filled.
Ang told reporters the proceeds of the deal will allow them to save only “a little” in interest expense. He claims the company was only able to recover its costs and did not make a profit from its telco venture.
While the additional cash will be good for San Miguel’s balance sheet, Ang said even before this sale, the company already had a big enough war chest to allow it to invest in other businesses.
However, the primary question whether antitrust regulators will look at all into the deal between San Miguel and the two telcos is still up in the air. The PCC appears to be content fence-sitting, as it said it will not compel the two players to submit details on the transaction.
“We cannot demand the two players to submit details,” Balisacan said. “It is up to them when they will submit [details].”
In a statement on Monday, the PCC said it has a keen interest in the deal and will take appropriate action on it. But Balisacan on Tuesday also noted that, since the implementing rules and regulations of the Philippine Competition Act has yet to be finalized, they cannot say when or if they can begin investigation on the deal.