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Philippine mobile leader plays down China Telecom's targets

State-owned Chinese operator teams up with Duterte pal Dennis Uy

"Let's put it this way, if I were asked to run that company and say, 'Give me this goal,' I'd say, 'You got to be dreaming.'" -- Globe CEO Ernest Cu. (Nikkei Montage/ Source photo by Getty Images/ Reuters) 

MANILA -- The Chinese-backed consortium behind the Philippines' third mobile network had no hope of achieving its stated goal of capturing 30% of the market within a few years, said rival telecom chief Ernest Cu.

In blunt remarks on Dito Telecommunity -- a joint venture between President Rodrigo Duterte's campaign backer Dennis Uy and the Chinese state-owned China Telecom -- Cu, CEO of Globe Telecom, said the new player lacked the scale to capture such a large share of the roughly $6 billion market.

"It's impossible," Cu told the Nikkei Asian Review in an interview. "To be a viable competitor, you have to have a network, distribution and marketing and all that."

Breaking the duopoly held by Globe Telecom, which is jointly owned by Philippine conglomerate Ayala and Singapore Telecommunications, and PLDT, which is partly owned by Japan's NTT Group, has been championed by President Rodrigo Duterte, a popular policy for consumers who have long suffered from some of the slowest internet speeds and most expensive data charges in Asia.

After beer-to-infrastructure conglomerate San Miguel abandoned its own attempt to establish a third network in partnership with Australia's Telstra in 2016, then new President Duterte quickly set about trying to revive interest in building a third network.

The Dito consortium involving Uy -- who comes from Duterte's home town of Davao and was a major backer of his 2016 presidential campaign -- and China Telecom finally had its license awarded in July last year. Dito is expected to launch its network in second half of 2020.

Dito last month said that it had secured over 3,000 sites for its network rollout, and has enlisted local and foreign contractors, including China Energy Equipment Co, to build its infrastructure.

For its first year of operation, Dito committed to spend 150 billion pesos (around $3 billion) to cover 37% of the population with a maximum internet speed of 27 megabits per second, faster than the country's average speed of 16.67 (mobile) to 25.55 (fixed line) Mbps last year, according to Ookla, a U.S.-based internet speed tester.

But Cu said just having a network is not enough to compete with Globe which, along with PLDT, has set aside a combined record capital expenditure of $2 billion for 2019 alone.

 Globe Telecom CEO Ernest Cu. (Photo by Jun Endo)

Mocking Dito's promised internet speed, Cu said, "Of course, if you have five subscribers in your network, you can do whatever speeds you want. I can do 1 gigabyte per second if I take out all my subscribers."

"Dito is just really optimistic," said King de Mesa, a telecom analyst at Unicapital Securities in Manila. "I share the same view with Ernest Cu that's it is kind of impossible to do that."

"It's a competitive market. It's hard to accomplish that, maybe they can get 5-10% market share in three-to-five years," de Mesa added.

Corenne Agravio, an analyst at Regina Capital Development, said that while she wouldn't go so far as to say that Dito's targets were impossible, achieving them will be difficult "because it will be competing with two incumbents that have established large presence."

The new Mobile Number Portability Act that allows phone users to keep the same number if they switch service providers could assist Dito's bid to win subscribers, Agravio added.

Still, despite Cu's skepticism, Globe appears to be taking no chances. Last year the company rolled out 1,000 new cell sites -- its largest ever -- with plans to match that expansion this year.

According to Cu, Globe now has 1.2 million cellular credit loading stations nationwide, which he says is vital in a predominantly prepaid market of over 100 million people.

"You have to have a product that is equal with what we have because you can't compete," said Cu. "And I don't think that's going to happen in six months."

Globe plans to defend its 57% mobile market share by investing more in the network. The company will also bolster its Huawei-powered 5G network, which had a pilot commercial launch last year.

"Let's put it this way, if I were asked to run that company and say give me this goal, I'd say you got to be dreaming," said Cu, who led Globe's rise as the Philippines' largest telecom company by market capitalization, eclipsing giant PLDT by close to $1 billion in valuation.

Cu also pointed to the industry's history. Since deregulation in the 1990s, the market had always been forced into consolidation, and even those with powerful backers eventually retreated.

In addition to San Miguel's failed attempt, JG Summit Holdings' mobile service, Sun Cellular, entered the market with great fanfare in 2003 with unlimited calls and texts, only to be sold to PLDT in 2011 after bleeding losses.

"I think the telco industry in general requires scale to get to where Globe and PLDT are at," Cu said.

Dito plans to capitalize on Dennis Uy's expanding empire that includes logistics and retail, as well as on a recent policy allowing shared cellular towers to accelerate the rollout.

The tycoon has also taken steps to list his fledgling telecom and media ventures through a backdoor listing on the Philippine Stock Exchange, where it can sell shares to raise funds.

But Cu does not consider Dito a threat -- at least until he sees an actual service. "They have not figured into our plans for 2020," he said.

Cu said he's guarding against a possible price war once Dito's network is up and running, admitting that China Telecom's deep pockets could hurt Globe's bottom line.

"But if the objective is to destroy the market, it's different if the objective is to make money," he said.

Dito Telecommunity did not respond to requests for comment.

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