The Phillippines’ main telecommunication companies PLDT and Globe Telecom Inc came into mutual agreements with San Miguel Corp (SMC) as each acquired 50 per cent of the diversified conglomerate’s telco assets.
Both PLDT and Globe made the announcement Monday, less than a week after newly-elected Philippine president Rodrigo Duterte warned the two companies to improve their services or else he will allow foreign companies into the local market or would make internet connectivity in the country as a public policy.
San Miguel, accepted the offer from the two telcos six weeks after it ended joint venture talks with Telstra, a leading telco and information services company in Australia.
PLDT and Globe acquired 50 per cent each of the issued and outstanding capital stocks of San Miguel’s three telco businesses with total enterprise valuation pegged at $1.5 billion (P70 billion), including total liabilities of $367.8 million (P17.15 billion). The three firms are Vega Telecom Inc, Bow Arken Holdings Company Inc (BAHC), and Brightshare Holdings Corporation (BHC).
VTI owns an equity stake in Liberty Telecom Holdings Inc, a local listed company which owns equity stakes in various enfranchised companies, including Bell Telecommunication Philippines Inc, Eastern Telecom Philippines Inc, Express Telecom Inc, and Tori Spectrum Telecom Inc, among others.
PLDT and Globe will complete the acquisitions under similar definitive agreements.
Equity value amounts to P52.8 billion, which translated to an agreed consideration of P26.4 billion for the 50 per cent equity stakes in the companies.
The acquisitions of the two telcos were made through a sales and purchase agreement (SPA), to be settled in cash payments on a pre-defined payment timeline, wherein 50 per cent shall be payable upon closing of the transaction, and later two payments, each for 25 per cent of the agreed consideration, shall be made six and twelve months after closing, respectively.
PLDT made its first payment today, representing 50 per cent of the equity payment.
Both PLDT and Globe assumed liabilities of P17.15 billion upon signing the SPA.
UBS AG acted as financial advisor to PLDT, while Picazo, Buyco, Tan and Fider acted as Legal Advisor.
Globe, however, was financially advised by JP Morgan, and its law firm was Romulo Mabanta Buenaventura, Sayoc & De Los Ageles.
Included in the acquisitions was San Miguel’s 700 MHz spectrum, which the two telcos have been clamoring to be distributed by the National Telecommunications Commission for further and immediate Internet development in the country.
PLDT chief executive officer Manuel V. Pangilinan said in a media briefing that 85 megahertz will be returned to the government and the balance will be split evenly between PLDT and Globe.
According to Globe, the transaction preserves the government’s option to enable a future player to offer telecommunication services because a significant amount of unused spectrum assets of the country covering a complete set of 2G, 3G, 4G, and potential 5G frequencies will be returned to the NTC.
“PLDT and Globe have caused and have undertaken to cause the acquired companies to relinquish certain radio frequencies in the 700 MHz, 850 MHz, 2500 MHz, and 3500 MHz bands and to return these radio frequencies to the government through the National Telecommunications Commission (NTC),” PLDT earlier said in a statement, noting NTC has approved today the use by its mobile carrier Smart Communications Inc of certain radio frequencies in the 700MHz, 900MHz,1800MHz, 2300MHz, and 2500MHz bands.
“PLDT has an execution team in place already which will enable PLDT to integrate this acquisition rapidly into our current network and capex plans,” Pangillinan said. “It is fully our intention to improve Internet access and coverage nationwide on an accelerated basis.”
Benefits and competition
The latest developments serve as a relief for PLDT and Globe as they can now roll out quickly without the need to acquire immediately as many cell sites as before and this will be good for the public in general.
“We think that on the whole, the transaction benefits the public because of higher call quality service, faster internet, and pay services throughout the country and I believe we would be able to utilize our network assets much more efficiently particularly in the likes of the 700 mhz which would mean lesser Capex for us,” Pangilinan said.
Globe likewise agree with PLDT that the return to the government of the frequencies that are part of deal are more than sufficient to allow for a third player come in and that competition is still very much alive in the local telco industry.
Globe president and CEO Ernest Cu said talks regarding the transaction began immediately after San Miguel and Telstra ended their JV plans and they entered into the transaction as a solution to harmonize the spectrum assets in the country and to immediately unlock the benefits of the underutilized frequencies.
“While we cooperated here in terms of being able to get the spectrum freed up, I think you will see the resumption of intense competition very shortly,” Cu said.
But Cu noted cell site acquisition will still continue to move forward on because the demand for mobile data in the country is growing really fast.
He cited the Philippine telcos are having difficulty improving the quality of mobile data services because of continued challenges with site acquisition for cell sites and the intensely bureaucratic permitting process of many local government units.
For instance, it takes about 25 permits spanning a period of eight months to get an approval to build one cell site. Also, the inconsistent and at times prohibitive fees across various LGUs are added challenges that increase the cost of ownership of these cell sites.
These hurdles are some of the primary reasons behind the country’s current state of low site density, contributing to capacity issues and slow mobile internet. These challenges result to a relatively low number of cell sites serving the growing base of mobile data users.