DESPITE losing its titan of a partner from Australia, San Miguel Corp. (SMC) will continue to pursue the launch of its mobile unit this year, still bearing the promise of delivering fast, reliable and affordable Internet services for smartphones this year.
Industry sources said there were two things that have caused the collapse of the talks between the diversified Filipino conglomerate and Telstra Corp. Ltd. First is the unbalanced allocation of risks and rewards.
Andrew Penn, the chief executive of Telstra, said in an earlier announcement to the Australian Stock Exchange that his company and SMC could not meet halfway with regard to the commercial arrangements for Bell Telecommunications Philippines Inc.
“While this opportunity is strategically attractive, it was obviously crucial that the commercial arrangements achieved the right risk-reward balance for all involved,” he said in a March 14 statement to the Australian bourse.
The second one, observers said, involves the “risk” that Penn mentioned.
He might, according to sources, be referring to the risk of entering a duopolistic market with incumbents battling for the asset that Telstra’s potential partner owns—the 700-megahertz (MHz) frequency band.
The resurrection of the seemingly dead issue on the reallocation of the precious frequency band started a few more months after the announcement of Telstra’s potential entry to the Philippine telecommunications market.
Such a foray into the Southeast Asian economy was so huge that it caused quite an uproar in Asia’s rising tiger. People, according to telecommunications and technology experts, were too fed up with “the relatively mediocre” services that the two incumbents—Philippine Long Distance Telephone Co. (PLDT) and Globe Telecom Inc.—have been offering since the dawn of the new decade.
Fearing that their market shares will be eroded, as some analysts have predicted, the two companies moved to pressure the National Telecommunications Commission (NTC) to reallocate the 700-MHz spectrum.
Real estate
SPECTRUM is the real estate on which telecommunication operators develop their respective networks to deliver services to customers.
The amount of spectrum assigned to a telecommunications company (telco) impacts the cost, the build capacity, overall network performance, ability to offer new multimedia services and general customer experience of wireless services.
The US Federal Communications Commission (FCC) has described the 700-MHz band as a beachfront property: it “is an important swathe of spectrum available for both commercial wireless and public-safety communications.”
The band consists of 108 MHz of spectrum running from 698 MHz to 806 MHz, and was freed up as a result of the digital television transition, the FCC said on its web site. “The location of the 700-MHz band—just above the remaining TV broadcast channels—gives it excellent propagation characteristics,” the FCC said. “This allows the 700-MHz signals to penetrate buildings and walls easily and to cover larger geographic areas with less infrastructure [relative to frequencies in higher bands].”
The 700-MHz band is key to expanding mobile broadband into the outlying islands and rural provinces in the Philippines, enabling mobile operators to reduce capital and network costs, thereby accelerating rollout and lowering prices for end-users, according to a report of international telecommunications association Groupe Speciale Mobile (GSMA).
Utilizing the 700-MHz spectrum would allow the deployment of a high-capacity Long-Term Evolution (LTE)-based wireless and fixed broadband network to deliver higher data rate and LTE wireless broadband service, according to a GSMA report in 2011. With the use of the 700-MHz frequency, broadband prices can go down, further benefiting consumers.
And since SMC holds the right to operate all of the 700-MHz band, this makes it a formidable competitor with so much firepower on its back. Telstra is known to be one of the first few telcos in the world to have successfully capitalized on the 700-MHz band.
But without Telstra’s technical know-how on the 700-MHz band, it might be difficult for SMC to compete with the incumbents.
This raises the question, would the two incumbent telcos still pursue the reallocation of the precious asset?
Battle goes beyond Telstra
ACCORDING to Globe Spokesman Yolanda C. Crisanto, “the fight for the 700 MHz goes beyond Telstra.”
“It is a fight for the immediate benefit to be felt by the consumers who are clamoring for faster and better Internet services,” Crisanto said in an e-mail interview. She added that mobile users of her company will benefit largely from the benefits that the spectrum carries.
“Consumers should not be deprived of the benefits of this digital dividend, and the potential benefits of this spectrum can only be realized if it is distributed to all telco players,” she said.
Smart Communications Inc. Spokesman Ramon R. Isberto said his camp will also continue to fight for the right to own a portion of the spectrum.
“Smart Communications filed its application way back in 2008, well before the San Miguel-Telstra joint venture became the subject of speculation here in the Philippines,” Isberto said. “We are pursuing our application because the 700-MHz band will enable us to significantly improve the broadband service that we provide our customers.”
He explained that the frequency band is “ideal for economically deploying mobile broadband over large areas—especially in rural areas,” hence, it can help his group provide services in areas that are previously tagged as unreached.
“It can also improve coverage and service quality in urban areas—including in-building penetration. This will benefit not only the telecoms industry. Studies by global organizations like GSMA show that the use of the 700-MHz band for mobile broadband will create jobs and boost the economy,” Isberto said.
GSMA estimates that by 2020, the digital dividend for the Asia-Pacific region could be worth almost $1 trillion in additional contribution to the country’s GDP.
Delaying the decision to allocate the 700-MHz band would have an impact on the total socio-economic benefits of the technology. For instance, delaying the harmonization could lead to loss of employment opportunities and tax revenues for the government, as well as loss of new business activities.
All means possible
BOTH Isberto and Crisanto said their camps will be exhausting all means available for their respective groups to get a fair allocation of the said band.
“We will use all legal and moral means possible to make this happen,” Crisanto said.
Isberto added: “We are hopeful that the commission will soon take steps to officially reassign this valuable frequency from broadcast TV to mobile telephony, and then allocate this to operators in a transparent manner. All we seek is a fair share of the 700-MHz band, and that the normative practice worldwide has been to allow existing and new operators the opportunity to secure an equitable allocation of this spectrum.”
He also cited the initiatives of neighboring countries for the harmonization of the said frequency band.
“It’s important to point out that governments all over the world are in the process of assigning the 700-MHz band in their respective jurisdictions to mobile operators,” he said.
This followed the decision of the International Telecommunications Union (ITU) at the World Radio Conference (WRC) in October 2007 to reallocate this frequency band from broadcast TV to mobile telephony. This move was further reinforced by the decision of the ITU in the WRC in December 2015 to “globally harmonize” the 700-MHz spectrum.
“This paves the way for handset and equipment manufacturers and mobile operators to work together in providing mobile broadband service on that frequency band all over the world based on common standards,” he said.
The Philippines, Isberto noted, is one of the two countries in the Asia-Pacific region which have not made progress in assigning the 700-MHz band for mobile telephony, based on international standards. The other one is Thailand.
“At the same time, we have a situation wherein the entire 700-MHz band has been given to a single operator. Our view is that it will become increasingly ‘hard’ for the NTC to maintain its current stance, while the whole world moves forward in utilizing the 700-MHz band,” he said.
Globe President Ernest L. Cu noted that he is “open” to acquiring companies of SMC that hold the rights to the band. These are Liberty Telecoms Holdings Inc., with 80 MHz; High Frequency Telecommunications, with 10 MHz; and New Century Telecommunications, 10 MHz.
Refarm all spectra
MARY Grace Mirandilla-Santos, an independent researcher on information and communications technology and telecommunications policies, said this exercise “may include legal and political pulling of strings.”
She noted, however, that other countries are successful in providing better Internet services despite not having harmonized the said frequency band.
“Other countries that have fast and reliable Internet connection speeds do not necessarily operate on the 700-Mhz band. While this spectrum is known for wide propagation, hence less capital-intensive infra deployment, it is not known for supporting high bandwidth,” Mirandilla-Santos said.
She urged the telecom regulator to reform the spectrum resources, should the need for such an initiative arises.
“If the NTC were to take any action on spectrum, it should not target just the 700 MHz of San Miguel, but also review the spectrum holdings of all players and seriously study the need to refarm spectrum resources, if necessary,” she said.
Mirandilla-Santos pressed on: “This would result in freeing up some spectrum for smaller players and new market entrants. Deregulation of some spectrum bands for open and shared use should also be considered.”
The PLDT Group has the right to operate the 800-MHz, 900-MHz, 1,800-MHz and the 2,100-MHz bands. Globe, on the other hand, has rights to the 900-MHz, 1,800-MHz and the 2,100-MHz bands.
The issue on spectrum, she said, should be overshadowed by the problem on congestion. This means that local telcos and the regulator must focus on building up capacity to provide better Internet services.
“What the local telcos need to address is the problem of congestion. Are there enough cell sites to service the growing number of mobile broadband subscribers? Apart from the much-blamed local governments, what are the other reasons for not having adequate infrastructure?” she said.
Mirandilla-Santos added: “Is the capital expenditures allocated by local telcos for infrastructure deployment commensurate to the mobile broadband services they continue to offer? Is the capex supported by the telcos’ profit margins, or is there still room for increasing the former? Are the telcos able to balance good service and their shareholders’ interests?”
There are about 15,000 cell sites spread across the Philippine archipelago. This is relatively fewer than its peers in Asia, according to data from Globe.
Cu blames the red tape in local government for the slowpoke deployment of additional cell towers across the country. He said, “The government should also pass a legislation that mitigates bureaucratic red tape and other political hurdles that stand in the way in the deployment of telecommunication and broadband infrastructure, such as cell sites.”
Specifically, an open-access law for the telco industry would expedite the issuance of all the relevant permits for all telecommunications facilities at the local government level.
NTC officials were not available for comment.
Capacity buildup still priority
WITHOUT the access to the 700-MHz spectrum, telcos will have to spend more to provide better services to consumers.
Globe has set roughly P35 billion in capital this year, while rival PLDT will spend P43 billion this year.
The bulk of the Globe’s capital expenditures for 2016 will be spent “to deploy fiber-optic cables in 20,000 barangays all over the country to provide faster and more reliable Internet access in about 2 million homes nationwide,” the company said in a statement on March 29.
Cu noted that this program will future-proof Globe’s network for another round of data explosion.
The infrastructure build is expected to take five years and will extend network coverage to more areas that currently have no connection or spotty service.
Cu “emphasized that elsewhere in the world, new digital trends, such as cloud computing, mobile web services and e-commerce, are already radically changing the digital landscape,” the company’s March 29 statement continued.
“In line with its vision of ushering in a digital nation, the network build will also increase the capacity of its network for both mobile and wirelines using different technologies, including 3G, LTE and even Wi-Fi.”
Globe added it “will, likewise, replace the old copper wires that have been used for wireline connections in the past.”
“One of the most important advances in broadband technology, fiber optics offer the fastest way to access data, providing consumers with higher download and uploads speeds, lower latency, faster Internet browsing, including streaming of high-definition multimedia content, among others.”
“Coverage is something that consumers have, but coverage is not enough,” Cu said earlier. “We have to retune our network once again to increase our mobile and wireline capacity by 70 percent.”
More of the same
CRISANTO said Globe Telecom’s business strategy will remain the same—with or without a third player.
“We will continue to focus on our customers, we will provide them with innovative products and superior customer experience so they will prefer Globe over other providers,” she said. “As for our plans this year, we intend to strengthen our network service by building more cell sites, improving capacity and coverage, while using the latest technologies so Filipinos can enjoy their digital lifestyle.”
Isberto, for his part, said his group will be more aggressive in rolling out new services on top of a buildup in its capacity and coverage.
“Yes, we are going to pursue our preparations for the entry of a third player. After all, San Miguel officials have said they will launch a mobile service even without a joint venture with Telstra,” he said.
“Moreover, telecommunications has been liberalized since the 1990s. Operators have to take competition as a given [n]ot only among telecom operators,” Isberto said. “We are also facing intense competition from global Internet players. Given this situation, we shall continue to pursue our efforts to become the preferred provider of communications and digital services in the Philippines.”
Isberto added: “This entails delivering the most extensive and best-quality connectivity services, combined with an increasingly diverse suite of digital services that enrich the lives of our customers.”
Leaning in
THE outcome of this capturing of the 700-MHz band, however, depends on how telcos relate with government regulators.
A BusinessMirror report in December last year provides a glimpse of how this relationship has gone and is going.
Before the new year, PLDT’s Ray C. Espinosa hinted at going after NTC Director Edgardo V. Cabarios.
Espinosa, who heads PLDT’s regulatory affairs and policies office, said they are studying the possibility of seeking administrative and judicial sanctions against Cabarios.
Cabarios was quoted that time as having told reporters that reallocating the 700-MHz band would require a quasijudicial procedure, a painfully long process that could go on for years.
“Strangely, while stating that the issue now surrounding the 700-MHz radio frequency band is a quasijudicial matter—referring obviously to the quasijudicial function of the commission en banc—Director Cabarios, whose department’s function is purely administrative in nature, expressed unofficial and personal biased statements in favor of the current holders of the 700-MHz radio frequency in clear and wanton disregard of applicable laws and regulations covering the repurposing of the use of radio frequencies,” Espinosa said in a news briefing in mid-December.
Espinosa, who represents one of the biggest telcos in the country, accused the director of taking sides on the issue, despite the pending petitions submitted by Smart in 2008 for the reallocation of the band, all frequencies of which have been allotted for SMC’s telecommunications units.
“Worse, he made these statements despite being fully aware of the pendency of the applications of Smart and Smart Broadband Inc. before the commission en banc since 2008 for an equitable allocation of the 700-MHz radio frequency band for mobile telecommunication use,” Espinosa said.
He added: “Director Cabarios, therefore, prejudged the merits of these applications and preempted the decision of the commission en banc on these matters in clear and wanton disregard of the applicable rules and procedures of the commission.”
For his part, Cabarios clarified that his statements were made not on a personal account, but on behalf of the telecommunications regulator.
“I was just replying to the media’s questions, and all of my answers are based on facts. I’m not speaking on personal grounds, I am speaking on behalf of the commission,” he said. “I was given the go signal to answer questions.”
Globe Telecom appeared to share a different view on the matter, with a spokesman saying that the legal aspects of the reallocation of the frequency band shall only be discussed within the company’s leadership.
“Our position is clear: We will continue to pursue the 700-MHz band, and we will continue to urge the government to harmonize the frequency,” Crisanto has said last December.
The case stemmed from reports on the director’s comments on the 700-MHz issue raised earlier by PLDT and Globe. In a November 10 interview with the BusinessMirror, Cabarios said the process of reallocating the frequencies held by SMC would be too long a procedure, and would require the filing of a case for a recall.
Espinosa, however, took this as a negative, saying the comments of Cabarios “would deny the government the opportunity and ability to auction this valuable radio frequency band and raise much-needed government revenues, as has been done in many countries, including Australia.”
The applications of Smart, he said, have become even more urgent in light of the more recent harmonization initiatives and actions taken by the Asia Pacific Telecommunity and the ITU, to which the Philippines is an active member, for the repurposing of the 700-MHz radio frequency band from broadcast use to international mobile telecommunication use.
Group thought
IN the World Radiocommunication Conference (WRC-15) last year, the ITU formally moved to allocate the 700-MHz band—specifically 694 to 790 MHz—to the global mobile industry.
ITU officials specifically stated that this move was taken to help bridge the digital divide, pointing out that the long range of radio over the 700-MHz band will be especially beneficial for underserved, rural areas.
“It goes a long way in enabling bridging of the digital divide, while fully protecting the other services currently operated in the band,” ITU Secretary-General Houlin Zhao was quoted as saying.
For his part, ITU Radiocommunication Bureau Director François Rancy said: “The global harmonization of the 694-MHz to 790-MHz frequency band that has been decided by World Radiocommunication Conference paves the way for manufacturers and mobile operators to offer mobile broadband at an affordable price in currently underserved areas.”
GSMA Chief Regulatory Officer John Giusti said his group commends the vision shown by many countries seeking the flexibility to use the sub-700-MHz band for mobile broadband.
“Not only can legacy television services in the band be delivered far more efficiently using less spectrum, but the reality is that consumer habits are evolving, as video content is increasingly accessed via mobile devices. Allowing both mobile and broadcasting in the band gives these governments the ability to respond to the changing needs of their citizens,” he said.