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Opinion

China Telecom's Philippines plan under scrutiny

Duterte must address critics' transparency and security concerns

China Telecom is set to challenge the Philippine market's "duopoly" by teaming up with local partners.   © Reuters

In the week of a long-awaited visit by Chinese President Xi Jinping's to the Philippines, the Southeast Asian country is on the cusp of approving a major investment by a Chinese telecommunications company.

A new competitor in the over-protected $5 billion telecommunications sector should be warmly welcomed, not least for the country's long-suffering internet users. The existing cozy duopoly that provides some of the world's slowest and most expensive internet services, in overdue for a proper shake-up.

But instead the plan is raising widespread political and security questions because the key investor in the Mislatel consortium leading the race to win the contract is state-run China Telecom.

President Rodrigo Duterte is under intense pressure from critics to ensure that he addresses concerns about the deal's transparency and the potential security implications. He would be wise to take these criticisms into account, examining both specific aspects of a sector-changing contract and the wider issue of relations with China.

Duterte portrays the new operator's entry as a great leap forward, since "many will stand to benefit" from "good competition." To the populist leader, who cruised to power partly by promising better government services, the deal would be an important political success ahead of next year's crucial midterm elections. But if the transparency and security worries multiply the project could yet could backfire for the president.

The Mislatel consortium, led by Chinese-Filipino businessman Dennis Uy's Udenna Corp. and China Telecom is seeking to challenge the decadeslong duopoly of PLDT and Globe Telecom.

Under protectionist clauses in the 1987 constitution, the Philippines bars full ownership of critical public services, including in media telecommunications, by foreign owners. Foreign companies must team up with local players, who should hold at least 60% of any venture.

These rules partly explain the dominance of these sectors by a few local conglomerates, which have been accused of providing subpar services at high cost. Through the entry of more foreign investors, the Duterte government hopes to diminish the stranglehold of the so-called Philippine "oligarchy."

If it wins, Mislatel has committed to spend more than 250 billion pesos ($4.74 billion) over the next five years to establish a world-class telecommunication infrastructure. It Mislatel has pledged internet speeds of up to 27 megabits per second on average in its first year of operation, and as high as 55 mbps in the succeeding years of operations. Today, the average internet data upload speed in the Philippines is 1.54 megabits per second, a fraction of the global average of 10.6 mbps.

The consortium also intends to cover up to 84% of the nation with its services by the fifth year of operation, compared to Globe's 68% and Smart's 64%. By any measure, all this would benefit consumers.

In August, as many as seven foreign companies from U.S., Japan, South Korea, Vietnam, Norway and China, formally expressed interest in bidding. But only four groups, including Mislatel, turned up for the public, livestreamed, auction on Nov. 7, organized by the National Telecommunications Commission, the regulator.

The three other competitors were disqualified on various grounds, including the inability to meet technical requirements, leaving Mislatel to win unopposed.

With the Mislatel bid still facing final verification, some rivals have protested that the process was unfair. For example, a consortium, involving the much-vaunted Korea Telecom, withdrew its bid after complaining how the third telco would be "required to incur an inordinate amount of funds and carry out commitments at a pace that was not required of the current dominant service providers."

Other critics have focused on the president's alleged support for a Chinese investor. In a speech two years ago, Duterte openly threatened domestic players to step up or give way to a Chinese telecom player. "If you do not do it right, you wait, I'm going to China."

In a joint statement this month, opposition senators headed by Senate Minority Leader Franklin Drilon, asked, "Why were the other bidders booted out? Simply to show that the government went through the process?" They highlighted the alleged "involvement of Malacanang [the presidential palace]" in facilitating and expediting the entry of China Telecom.

The opposition senators also raised concerns over the president's ties to China Telecom's local partner, Uy. "The selection of the joint venture of a Davao-based businessman and state-owned China Telecom as the provisional new major telecommunications player should be examined carefully," they said.

Uy and his wife Cherylyn were major contributors to Duterte's 2016 election campaign, contributing 31 million pesos in cash, according to Duterte's official contributions statement.

Presidential Spokesman Salvador Panelo, however, insisted that any suggestion of political favor is "a baseless assumption" and that "relationship, alliances, friendship do not matter with this president" in decision-making matters.

Duterte's Senate critics, have also raised national security concerns. Senator Grace Poe, a prominent independent legislator, who heads the Committee on Public Services, demanded that the Armed Forces of the Philippines and security and intelligence agencies should vet China Telecom's entry.

Meanwhile, a former high-ranking intelligence officer told the Philippine Daily Inquirer newspaper that the entry of China Telecom would be "a long-term disaster for us," lashing out at Duterte for being "so enamored with China."

But Duterte's National Security Adviser, Hermogenes Esperon Jr., said the security agencies vetted the bidding. Panelo, however, maintained that there was no political interference in the process. "There was a transparent, fair, public and open selection process, done in accordance with laws, as well as with pertinent rules and regulations."

Back in the late-2000s, the Gloria Arroyo administration suffered a political setback, when financial controversy forced the authorities to drop a China-led NBN-ZTE broadband project., after opposition mobilized against growing Chinese influence.

This time under Duterte, independent and opposition legislators could push for Senate investigations, while other critics may seek court interventions to block China Telecom's entry.

The government must reassure the public about the integrity of the bidding process, and the safety of allowing the entry of a Chinese state-run company. Otherwise the criticism could grow into a public backlash and derail a much-needed telecoms investment.

Richard Heydarian is a Manila-based academic, columnist and author; his latest book is "The Rise of Duterte: A Populist Revolt Against Elite Democracy."

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