Capital constraints are forcing Asian telecom upstarts to hang up. The Philippines' mobile phone duopoly will jointly pay $1.5 billion to acquire the telecom assets of San Miguel after the local conglomerate's effort to set up a third operator failed. It is a setback for consumers that have to put up with some of the slowest mobile internet speeds in the world. From Thailand to India, new entrants are discovering that deep pockets are needed to take on big incumbents.
San Miguel, which owned spectrum on the coveted 700-megahertz frequency, had tried to set up a joint venture with Australia's Telstra but talks between the pair collapsed in March. Lenders wanted the Philippine group to have a technical partner, the Inquirer newspaper reported, as rolling out a network would have required some of the biggest project financing in the country in decades. A partner would have also helped to keep San Miguel's own borrowings in check. Its net debt was already almost three times EBITDA as of December.
The deal is a relief for the incumbents. Shares of buyers Philippine Long Distance Telephone and Globe Telecom, which is part-owned by Singapore Telecom, surged by up to nine per cent after the announcement. That's because it removes the immediate pressure on the operators to upgrade their own networks, even though incoming president Rodrigo Duterte has warned them to provide a faster service or face more foreign competition.
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San Miguel's withdrawal is reminiscent of a similar situation in Thailand. Upstart Jasmine, backed by tycoon Pete Bodharamik, won a super-fast mobile licence at the end of last year but was unable to secure the financing it needed from an unnamed Chinese group. It was forced to give back the licence, prompting a rally in the shares of local rivals. By contrast, independent investors in India's Reliance Industries, which is part owned by the country's richest man Mukesh Ambani, have so far tolerated the oil-to-retail group's massive $15 billion investment in the nation's largest super-fast mobile network due to launch later this year.
Yet the failure by San Miguel, the Philippines' most diversified conglomerate, to realise its mobile ambitions is a timely reminder of how hard it is to break into the telecom big league - even for the big boys.
