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Philippines needs to be wary about welcoming Chinese technology

Winner of telco franchise has backing from state-owned enterprise in China

| Philippines
Dennis Uy, an entrepreneur from Davao City, has relied heavily not only on Duterte's backing but also China's. (Photo by Kim Ignacio)

On President Rodrigo Duterte's watch, the Philippines has progressively welcomed Chinese infrastructure investments, including in the critical telecommunications sector. This expanding presence, however, raises questions about the system's security.

There are also potentially negative implications for the Philippine-U.S. alliance, with Washington warning that this adoption could jeopardize bilateral security cooperation.

While the Philippines should not categorically turn down affordable and efficient Chinese technology, it has to guard against any deal that could undermine its national security interests.

For the past two decades, the Globe Telecom and PLDT have dominated the Philippines' $5.2 billion telecom market. Once in power, the Beijing-leaning Duterte made it clear that he would seek China's help to shake up the country's failing telecom sector, which has among the most inefficient and overpriced internet services in the world.

Since the Philippine constitution bans full ownership of critical infrastructure by foreign companies, any Chinese entry into the Philippine telecom market should have come in the form of a joint venture.

Enter Dennis Uy, a Chinese-Filipino businessman from Duterte's hometown of Davao, who formed the Mindanao Islamic Telephone Company, known as Mislatel, to be the third major telco player in the Philippines. The company's successful bid for a telco franchise in 2018, however, immediately met with controversy.

First, critics claimed that the company benefited from preferential treatment by the government, especially during what many viewed as a lopsided bidding procedure. Other bidders claimed that they were prematurely disqualified, while Mislatel's bid was questionable since it lacked sufficient capitalization as well as prior experience in the telecom industry.

Records show that Mislatel chief was a top contributor to Duterte's presidential run in 2016, raising conflict of interest issues.

Mislatel rejected this interpretation, saying that "the government held an open bidding [process]... to ensure transparency in the proceedings." It said there had been no preferential treatment for Uy's company because of his donations.

Next, it has links to China. With limited capital of his own, and minimal prior experience in the telecommunications sector, Uy has relied heavily not only on Duterte's backing but also China's. State-owned China Telecommunications Corp. is a major shareholder in and primary source of technology for Mislatel, recently renamed as Dito Telecommunity.

Mislatel said there was "no basis" for claiming it was overreliant on Chinatel, which primarily brought its "technical expertise" to the company.

Despite vehement criticism by leading statesmen and security experts, Duterte approved Mislatel's bid in July, daring the new player to overhaul the duopoly.

Months later, there was widespread public concern when Mislatel signed a deal which would allow it to set up communications, electronics and information systems, or CEIS, equipment inside the facilities of the Armed Forces of the Philippines.

Any deal with the U.S.-trained AFP represents a major public relations coup and a crucial imprimatur for Mislatel. The technical details of the agreement are yet to be fully divulged, but Mislatel is expected to set up CEIS equipment in areas designated by the Philippine military.

Outgoing Philippine military chief General Benjamin Madrigal maintained that there were "guarantees that the devices, equipment and/or structures installed at the site provided by the AFP shall not be used to obtain classified information." The general argued that the deal was not with the Chinese government, but instead with a Chinese company's partner.

Mislatel said that the agreement to supply equipment to the AFP "did not specify that [the equipment was] Chinese in origin" and that the AFP "has the discretion to decide what equipment they would need."

Many Filipinos, however, remain unconvinced. After all, China's new National Intelligence Law, requires "any organization or citizen [to] support, assist and cooperate with the state intelligence work in accordance with the law." This means that Beijing can theoretically lean on state-owned China Telecom to leverage its technological links in places such as the Philippines.

In response, Vice President Leni Robredo called on the "leadership of the military" to exercise caution, since a "number of activities [have] showed [China's] goal here is information gathering."

There are also worries about the negative impact on bilateral security cooperation with the country's sole treaty ally, the U.S.

During his visit to Manila earlier this year, U.S. Secretary of State Mike Pompeo publicly warned that "America may not be able to operate in certain environments" if the Philippines adopts Chinese advanced technology from Huawei.

Though the speech was made as key U.S. allies start to adopt Huawei's fifth-generation, or 5G, network technology, China-backed Mislatel's deal with the AFP likely raises similar concerns for Washington and other allies, especially in the realm of intelligence-sharing.

Even the mere perception of China's capacity for cyberespionage gives it immense leverage over U.S. allies such as the Philippines, although there is no evidence Chinatel has done any such thing in the Philippines or elsewhere.

While the entry of Mislatel could rightly shake up the country's telecom sector, the Philippine leadership should seriously re-evaluate any sensitive deals with Philippine military -- and reject it if necessary in order to protect the country's national interest.

Richard Heydarian is an Asia-based academic, columnist and author of "The Rise of Duterte: A Populist Revolt Against Elite Democracy" and the forthcoming "The Indo-Pacific: Trump, China and the New Struggle for Global Mastery."

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