Telstra-SMC mobile venture faces shareholders’ scrutiny

MANILA, Philippines – The possible joint venture of Australia’s biggest telephone company Telstra Corp. with San Miguel Corp. (SMC) for a mobile network in the Philippines  needs more careful study amid concerns about the viability of the business, consulting firm Creator Tech Pty. Ltd. warned.

According to a report of Creator Tech, a firm providing strategic marketing and business development services to communications and information technology companies, these issues include the availability to Telstra’s shareholders of detailed costing in providing the 4G service in the Philippines.

Creator Tech principal Steve Mackay said it is unclear whether Telstra’s shareholders have been made aware of the open-ended costs that could be incurred to develop the mobile network to customers in a country with 7,107 islands.

Telstra chief executive officer Andrew Penn announced earlier the firm was considering investing less than $1 billion for a 40 percent share in the joint venture with SMC, but details on how such would be spent as well as the target date for finalizing the plan have yet to be made public.

“Our analysis, which is ongoing, suggests that Telstra’s management may need to do a lot more detailed work on the costs associated with the proposed Philippines joint venture,” Mackay said.

He said there are also concerns on the value as well as ownership of the 700 megahertz band, an indispensable asset to mobile operators.

The 700 Mhz is considered the most valuable frequency range for 4G technology as it can easily penetrate buildings and walls and has greater coverage with less investments required compared to frequencies on higher bands.

The bulk or 90 Mhz of the total 100 Mhz on the 700 band in the Philippines is assigned to SMC through wi-Tribe Telecoms Inc.’s 80 Mhz and High Frequency Telecommunications Inc.’s 10 Mhz. The 10 Mhz balance is held by New Century Telecommunications.

Mackay noted neither SMC nor Telstra have disclosed the value of the 700 Mhz spectrum.

“Based on current exchange rates, we estimate the possible value of this asset to be in a range from A$1.26 billion to as high as A$3.8 billion.

Telstra’s 40 percent share of this critical asset is therefore valued at somewhere between A$507 million and A$1.52 billion – thus, spectrum cost alone could wipe out the A$1.4 billion ($1 billion) that Telstra has in its Philippines war chest,” Mackay said.

Local telco players Philippine Long Distance Telephone Co.  and Globe Telecom, Inc.’s move to question SMC’s monopoly of the 700 Mhz band and call for the reallocation of the spectrum via an auction could also impact Telstra’s planning. It would be a costly and lengthy process should PLDT and Globe decide to take legal action to compel the National Telecommunications Commission to conduct a bidding for the reallocation of the spectrum.

“Telstra could be facing a whole new set of case law and government regulations covering telecommunications in the country after the court case and the national elections,” Mackay said.

There are also concerns on SMC’s track record in telecommunications given its joint venture with Qatar Telecom which was dissolved in July.

While the Philippines is an attractive market for Telstra given the country’s growth potential, Mackay said the company would have to come up with a full and transparent business plan to ensure shareholders they conducted proper due diligence.

In October, SMC president Ramon Ang said the new network would likely be ready next year.