Creator Tech CEO Steve MacKay raises serious due diligence concerns over China Telecom and its close links to the Chinese Government.
A recent telecommunications industry report, “A Study Into The Proposed New Telecommunications Operator In The Philippines: Critical Success Factors and Likely Risks” by Australian-based consultancy firm Creator Tech CEO Steve MacKay, raises concerns about the process undertaken by the Philippines Government to select Dito Telecommunity/China Telecom as the country’s third telecommunications player.
The report claims the process appears flawed and says the agreement does nothing to incentivise the consortium to connect the unserved and underserved regions of the country. The report also notes the role of China Telecom as a self-described “force for building a cyber power” and that it is accountable to the Government of the People’s Republic of China.
MacKay queries the financial model being applied indicating the third telco will require a further USD 2.5 billion as a credit facility with the sole lender being the State-owned Bank of China; he argues that this may further reinforce the “pervasive influence of the Chinese Government” in the project.
According to MacKay, the study revealed concerning matters in relation to the new entrant, and he claims that its plans to build a telecommunications network across the country may have serious repercussions for the Philippines.
“Firstly, it is clear the bidding and selection process was not undertaken in an even-handed way. A number of well-credentialed companies participated in the bid including Norway’s Telenor, Korea Telecom and a number of experienced local operators. Worryingly, most were either knocked out or forced out on spurious grounds. As a result, it would seem that China Telecom was pre-destined to secure the licence. Worse, the Philippines partner in the winning bid – Dito Telecommunity – has no previous background in the telecommunications sector. Dito does, however, have close personal ties to the Philippines’ President Rodrigo Duterte via its owner Dennis Uy,” claims MacKay.
More broadly, MacKay discusses the challenges involved in constructing a telecommunications network in the Philippines citing a raft of potential headwinds.
“The country features dense rainforests, jungles and mountain areas, making it extremely difficult to build the physical network. These obstacles are exacerbated further by significant regulatory and political issues. In addition to securing a myriad of permits, local bribes are often required to get a new base station across the line,” claims MacKay.
According to MacKay, while the Philippines Government has made moves to streamline approval processes, he argues that it remains to be seen whether this will alleviate the delays and alleged under-the-table payments which add to the cost and timescale when rolling out new infrastructure.
In the report, Globe CEO Ernest Cu pointed out to President Duterte that to build a single cell tower for a base station transceiver required up to 30 permits from national and local government departments.
In another report by Business World, it claimed the “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 ten years for the country to keep with the current tower demand”.
According to MacKay, all three telcos have since reported that the situation has improved for towers. He argues that it is worth reserving judgment as to whether this improvement will apply to all aspects of building a network, particularly for a new entrant starting from scratch.
As noted by commentator David Ramli, he alleges the “elephant in the room is corruption”.
After the failure of a Telstra-San Miguel partnership to form a third national Telco, he argues that “corruption remains a constant problem that has reached the highest levels of government. One of the biggest scandals involved the construction of a national broadband network in 2008 and accusations of interference by the husband of the country’s then-president Gloria Arroyo. All of the PH-based sources of information we consulted said that, although the Duterte government has improved the situation in this regard – sometimes markedly so – the problem still remains, and will likely do so for some time,” says Ramli.
MacKay agrees. He argues that it will be a challenge for any new entrant to provide good coverage across a high percentage of the population, particularly at the ambitious bandwidth which has been proposed. He also argues that a future Philippines administration could have multiple grounds on which to re-visit or withdraw Dito/ChinaTel’s license, representing a significant ongoing risk to the venture.
“When you throw complex and opaque official, and unofficial, regulatory processes into the mix, as well as the prevalence of endemic corruption, one would have to question how the new entrant will go about delivering on its mandate to provide telecommunications coverage across the country, including regions currently unserved or underserved,” says MacKay.
(Ed. Creator Tech CEO Steve MacKay says his firm is a specialist consultancy which provides research and advisory services to public and private sector organisations on digital technologies. For a copy of the full report, click here. Featured image of President Rodrigo Duterte, Mislatel (Dito) Chairman Dennis Uy, NTC Commissioner Gamaliel Cordoba and ICT Secretary Gregorio Honasan II during a ceremony at the Malacañan Palace on July 8, 2019, courtesy of Photographer Alfred Frias.)