News Analysis Telecoms

Closed channel: San Mig steps away and telco giants step in

Following the breakdown of talks between local conglomerate, San Miguel Corporation (SMC), and Telstra, Australia’s largest telco, to provide an alternative to the Philippines telecom duopoly, San Mig has scrapped its plans to enter the sector.

And the two dominant players, Philippine Long Distance Telephone (PLDT) and Globe Telecom, have tightened their stranglehold on the market, buying up SMC’s Vega Telecom assets in a US$1.5 billion deal which includes a 700MHz spectrum.

Telstra had pledged to invest US$1 billion in a joint venture to build a mobile network across the archipelago. But after nearly 12 months of negotiations, it became increasingly apparent that no agreement could be reached. And although no specifics were given as to why the protracted talks broke down, it’s clear that SMC’s proposals would have been unacceptable to Telstra’s shareholders who never liked the deal from the start. In fact, Telstra’s share price rose by 2% on the news that negotiations had failed, reversing the share’s downward movement when the talks were first announced in August 2015.

The Australian Foundation Investment Company which holds US$277 million worth of Telstra shares, said they would have needed “a pretty compelling argument,” to persuade them that the deal was viable. Telstra MD, Ross Barker, said that the due diligence clearly showed that the prospects were not as good as they were expecting, while the company’s chief executive, Andy Penn, explained that Telstra was unable to get the risk-reward balance right.

Under Philippine foreign ownership rules Telstra would have been limited to a 40% stake in the new business. Baffling legal complexities surrounding the development of the Philippines telecoms industry was another factor.

SMC – Qatar Telecom pulled out of a telco JV with the conglomerate last year – will look to invest the money from the asset sale in its core businesses such as toll roads, petrochems and oil refining. Telstra, meanwhile, is considering other Asian markets in which to invest.

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