Converge [CNVRG 9.20, up 1.6%; 54% avgVol] and Dito Telecommunity [DITO 2.40, up 0.4%; 131% avgVol] [link] put out a joint press release yesterday to announce the signing of what they call a Master Facilities Provisioning Agreement (MFPA) for the sharing of select land-based and undersea fiber optic cable assets. CNVRG and DITO said that the MFPA will allow both companies to “expand coverage” and “increase redundancy” while increasing “operational efficiencies” and reducing “capital expenditure requirements”. For CNVRG, owned by Dennis Anthony H. Uy (“Pampanga Dennis”), the agreement is a way to “leverage” its existing facilities (lend the use of those to DITO) to gain access to new subscribers (through using DITO’s lines). For DITO, owned by Dennis Ang Uy (“Davao Dennis”; not mentioned in this press release), the MFPA does some vague touchy-feeling stuff “under the spirit of forging alliances and healthy competition”. Reporting by the Manila Bulletin seemed to indicate that there are still several areas of concern that are being addressed in the finalization of the implementation plan, and that the MFPA is only a “framework” and “does not yet detail the quantity and portions of the shared infrastructure.”
MB BOTTOM-LINE: Neither company comes into this agreement from a position of great strength. While there’s a big difference between CNVRG’s broken bones and DITO’s gushing neck wound in their respective financial statements, the fact is that both companies have very expensive infrastructure assets that have been installed in pursuit of their own ambitions which can be monetized through agreements like this. If DITO can’t sell its towers (for whatever reason) like Globe [GLO 1725.00, up 0.1%; 85% avgVol] and SMART [TEL 1281.00, down 0.5%; 44% avgVol] to raise cash, they can at least offer use of their infrastructure in exchange for something else of value: the use of CNVRG’s infrastructure. For CNVRG, this is a pretty cheap way of getting quick access to new subscribers since they don’t have to do the expensive wet work of installing new cables and connectivity infra to reach those homes. They can just use whatever DITO is offering, which will save them some money and a considerable amount of time. It will be interesting to see if this deal will be able to address CNVRG’s slowing subscriber growth rate. It doesn’t sound like they’re done figuring this thing out yet, so it might take a quarter or two before they’re even ready to start selling in DITO-enabled areas. That’s just speculation though. I hope CNVRG will address its timeline for the benefits that shareholders might enjoy from this agreement sometime soon.
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