Telcos to benefit from purchase of SMC assets

MANILA, Philippines - Both Philippine Long Distance Telephone Co. (PLDT) and Globe Telecom Inc. are expected to benefit from their acquisition of San Miguel Corp.’s telecom assets as the deal takes away increased competition in the sector, Fitch Ratings said.

The Ayala-led telco stands to gain more, however, given its greater exposure to the mobile sector.

 “The acquisition of SMC’s telecom operations by PLDT and Globe removes the threat of heightened competition in the sector at the cost of a temporary increase in leverage for the two telcos,” Fitch said.

PLDT and Globe each acquired 50 percent of SMC’s telco business for P70 billion, including assumed debt of P17 billion.

The deal involved the purchase of the equity interest of SMC’s Vega Telecom Inc. as well as Bow Arken Holdings Co. (parent company of New Century Telecoms Inc.) and Brightshare Holdings Inc., (parent of eTelco Inc.).

As part of the acquisition, the telcos will get access to frequencies including the 700 Megahertz spectrum which is noted for its ability to penetrate buildings and Fitch said it expects access to the spectrum to lead to both players investing heavily to expand data services in a predominantly 2G mobile market.

PLDT chairman and chief executive officer Manuel V. Pangilinan said the telco’s capital expenditures for this year initially set at P43 billion, would likely increase by P4 to P5 billion.

Globe meanwhile, intends to spend $750 million worth of capex this year.

SMC was initially looking for possible joint venture deals to launch its telco service in the country after talks with Australia’s biggest telephone company Telstra Corp. Ltd. collapsed earlier this year.

Fitch said SMC’s exit reflects the significant investment required to roll out network infrastructure to compete with the incumbents, especially as PLDT and Globe would be reluctant to share their tower and associated infrastructure with the new entrant.

While both would gain from the deal, it said “Globe Telecom could reap more benefits as it has greater exposure to the mobile sector, which accounts for 76 percent of its revenue. By comparison, PLDT’s wireless business contributes 63 percent of its revenue.”