Will Gokongwei find happiness with MVP?

They have signed the papers. They have made the public announcement. But I am still skeptical that Mr. John Gokongwei Jr. will find long term happiness as a 12.8 percent minority bloc at PLDT.

Mr. John normally wants control, being able to dictate the directions and make the important decisions affecting his investment. And a stake close to P70 billion pesos in a company he doesn’t control isn’t going to be comfortable for the taipan.

Then again, maybe Mr. John, who is turning 85 this August, has mellowed considerably… but I doubt it. I suspect this all-stock transaction with JG Summit is a temporary arrangement that gives MVP more time to raise the cash equivalent. There has to be a side agreement stipulating a cash buyback of part, if not all of the PLDT shares used to buy control of Digitel.

Probably, the other thing that convinced Mr. John it was alright to momentarily suffer the indignity of being a minority partner is the opportunity to enter into other businesses with the Metro Pacific Group. He is probably looking at potential deals where he could be the lead investor.

What comes to mind is the power generation business. I suspect Mr. John is eyeing the possibility of investing in a power plant and he needs the goodwill of MVP to ensure a market through Meralco.

I remember that Mr. John was so happy with his first experience in power generation as a minority investor in the Lopez-led First Bauang Power. This was a BOT power project during the blackout days of the 90s and has already been turned over to Napocor a couple of years ago. It had a take or pay contract with Napocor that ensured it got paid whether or not the power it could produce is used or not.

We can also take a cue from Mr. James Go, Mr. John’s brother and current CEO of JG Summit who told a press briefing last Tuesday that they intend to go into PPP projects, mainly power and airport. They have been saying this for some time now. Perhaps, the Digitel sale is part of a conscious decision to select a partner with deep pockets for the PPP investments. And it seems they would rather work with MVP than Ramon Ang of San Miguel.

If the Gokongweis are really planning to invest on PPP projects, it is good news for the country. I have been saying in this column that these taipans should invest more of their locally derived profits in local infrastructure. Not only will such investments create jobs and spur economic growth, these will be seen by potential foreign investors as a vote of confidence by local industrialists who know our country best.

I know that the Gokongweis had been interested in investing in local airports. In fact, before Cebu Pacific moved to NAIA 3, they sounded out the government to allow them to build a modern domestic terminal near where that decrepit shack is now located. It would have been easy to connect that terminal to the LRT to give domestic passengers easy access to public transportation. They got NAIA 3 instead and from what I hear, they are about to use up NAIA 3’s designed capacity of 13 million passengers soon.

I also heard that they were ready to build an airport that can handle big jets on Carabao Island near Boracay before San Miguel came into the picture and offered to modernize Caticlan airport instead. There should be many more such opportunities for a refocused JG Summit in places with high tourism potential like Palawan.

The decision to divest in Digitel was surprising because they had been investing serious money in its infrastructure in recent years. In fact, I have heard industry experts say that Digitel’s facilities are more modern than Smart’s. And its subscriber base is steadily rising.

But Digitel is not generating as much cash from its customer base that is comparable to the high returns of Smart and Globe. By catering to a niche market with less spending power, Sun has also affected the ability of Smart and Globe to sustain their high profitability. I suspect that one other reason PLDT bought Digitel is the ability to control Digitel’s cut throat business model.

This brings us to the issue of reduced competition in the telecoms industry. A duopoly of PLDT/Smart and a much weaker Globe cannot be good for the consumer. In fact, the duopoly can get into a cozy arrangement that is as good as a monopoly situation.

The claim that the combined PLDT/Digitel will provide better service through increased investments in facilities looks good on paper. But historically, telecoms companies are not known to invest in new technology until after they have extracted every drop of potential profits from whatever technology they already have… or unless they have been threatened by a new comer.

The big question now is how serious is the threat coming from San Miguel. Ramon Ang says they will introduce new technology that will revolutionize the industry. Their roll out thus far had been unimpressive. But with the enlarged PLDT/Digitel environment, San Miguel’s telecom challenge will have to be big and compelling for it to have the ability to disrupt the local duopoly.

In the meantime, the NTC must be more vigilant than ever in protecting consumers. NTC said it would have to approve the deal since the ownership change involved a sale of more than 40 percent. I wonder if the review is merely ministerial rather than one that examines the impact on market competition.

We must all watch out for evidence of regulatory capture… bureaucrats acting to benefit the industry they regulate rather than the public. It would be a pity if the work started by FVR in liberalizing our telecoms industry that made it highly competitive in recent years would just bring us back to where we started in the bad old days. Lee Kuan Yew would be laughing out loud.

Consumer woes

I received this e-mail from Roland T. Redoble.

Hi Boo!

It took years for the Filipino consumer to enjoy the fruits of liberalization in the telecommunication industry. It took years for prices to go down. Now Smart is on the move to raise it up again. Let me cite my personal example.

For years I was using Globe and my monthly bill averaged more than P10,000 since I have to talk to my employees, my clients and my family wherever I am. In fact when I use roaming service I would racked up my bill to P20T.

This was until Sun came along and introduced a different business model. Most of my businessman friends shifted to Sun. And I followed them. My monthly bill went down from more than P10T to an average of P4T. A huge savings. I gave up my Globe line since then.

Of course SMART’s atrociously high annual return of P24B per year started to go down to earth. It was simply a matter of time that the business model of SUN will gobble up the high return of SMART as it has practically eaten the market share of Globe.

That is classic market competition working for the consumer!

Now comes the bright boys of SMART offering Digitel P74B to become part of SMART. You mentioned the benign “expansion of market share” as the purpose for doing it. I beg to disagree. SMART wants to go back to the era of “minting money” through cell phone revenue- P24B a pop per year!

Of course Globe is smiling! Yes please by all means let us go back to that era a few years ago when we too were minting money - some P17B per year a pop!

So Boo, com’on speak up for the consumer. Regulators must not allow this.

Unless of course, Liberty will come in and introduce a SUN business model for the lowly consumer!

Twin sister

 Dr. Ernie E is back and sent this one.

A guy brought a porn film home for him and his girlfriend to watch as she was saying they needed to spice up their love life.

But when he told her it was a homemade movie involving a local girl and two guys, she told him to sit down as she had something important to tell him.

He couldn’t believe she’s had a twin sister all these years and she’s only telling him now.

Boo Chanco’s e-mail address is [email protected]. He is also on Twitter @boochanco