Telco threats

Terry Ridon, Non-Resident Fellow of the Stratbase ADRi and Convenor of InfraWatch PH

In last week’s State of the Nation Address, the President started with a rambling, vaguely coherent rant, complaining about the poor level of service of the two leading telcos and urging them to improve their services by December so he can “call Jesus Christ to Bethlehem.”

As usual, the President ended his tirade on telcos with a threat — that he will order the closure and expropriation of the leading telcos if services are not improved.

In fact, in a meeting with Globe President and Chief Executive Officer Ernest Cu after the SONA, the President joked that he would hang Mr. Cu on one of the Globe’s towers if the level of service remains poor. But Mr. Cu retorted that this will not happen because there1 are no towers on which to do it, lamenting that government red tape has been the main cause of delay in building new towers.

In fact, at least 25 permits at the national and local governments are needed to build a single cell tower. This current level of government interference allows leading telcos to build only 3,000 towers per year. But the current tower backlog stands at 30,000, such that it will take at least 10 years for the country to keep with the current tower demand. Most certainly, no new towers can be built from today until the President’s December deadline.

The case of the third telco, Dito Telecommunity, serves as a good example on the difficulties of building towers during the coronavirus pandemic. Due to the three-month lockdown, Dito has only been able to build 300 operational towers out of 1,300 towers needed to meet its commitment for its technical launch in July.

As a result, the National Telecommunications Commission allowed Dito a six-month extension to comply with its commitment to cover 37% of the population, with a minimum average internet speed of 27 megabits per second. While an extension due to the lockdown is understandable, the extended period of six-months is surprising, because this extension is not counted as among the two six-month remediation or grace periods allowed in the third telco’s Terms of Reference. Nonetheless, Dito’s tower difficulties should serve as a cautionary tale on the vacuous deadline set by the President to the leading telcos.

Inasmuch as this is an infrastructure concern, this is foremost a governance concern. Even after meeting with the Globe chief executive, there remains to be no policy clarity on what the President expects by December.

As such, the leading telcos continue to find themselves in a very vulnerable situation. If a playbook similar to the ABS-CBN shutdown is undertaken, Globe and Smart should expect the President’s congressional allies to file numerous bills calling for franchise revocation and resolutions inquiring on compliance with labor and tax laws, and service regulations. Regulatory and prosecutorial agencies in the executive branch can also be expected to initiate similar action on the leading telcos.

If the President is indeed serious in raising the level of telco services by December, the first step is to stop making threats, sit down with all stakeholders, and agree on actionable, deliverable objectives by December. Failing to do this will set the stage for telcos to fail, and raise suspicions on the true objectives of the President’s directives.

With uncertain reform objectives, the leading telcos will be sitting ducks for illicit transactions, contrary to the President’s call to identify and report officials delaying cell site construction.

This situation impinges on economic growth, undermines confidence in the economy, and violates the sanctity of contracts.

If the President forces the expropriation of the leading telcos, no less than 25,000 employees will be out of work during a still unresolved pandemic, more than double the jobs lost in the ABS-CBN shutdown.

More importantly, current public funds are certainly better spent for a credible coronavirus response than paying the fair market value of the two telcos, which currently stands at P553 billion or 13% of the 2020 national budget, or 3.3% of our Gross Domestic Product.

The President can brag about the country’s credit rating all he wants, but these indices on governance and infrastructure do not inspire investor confidence. Sooner than later, credit agencies and lenders will have to contend with these serious governance issues.

In the SONA, the President said he is a casualty of the Lopezes. But the real casualty in the fight with his perceived oligarchs was not him. He remains President and the Lopezes still have their businesses. The real casualties are the 11,000 workers who will be out of jobs by the end of August.

With the President’s new battle with his perceived telco oligarchs, the resulting disruption will be a greater disaster for all of us.




This article was originally published in BusinessWorld.

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