Quick points on the SMC telecom business sale

What exactly is being sold?

Cecilia

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Notes on the Present Future

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2 min read

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May 30, 2016

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• SMC is selling its telecom business, which primarily consists of shares in Vega Telecom, Inc. Vega owns controlling interest (meaning more than 50% of the shares) of the following: Bell Telecommunications Philippines, Inc., Eastern Telecommunications Philippines, Inc., Cobaltpoint Telecommunications, Inc. (formerly Extelcom), and Tori Spectrum Telecommunications, Inc. (formerly Wi-Tribe), and Hi-Frequency Telecommunications, Inc.
• Smart/PLDT and Globe will be buying 50% each of Vega and assuming the liabilities amounting to Php 17.2 billion of the company (I am assuming this will also be divided 50-50 between them).
• Just a clarification: news reports say that it is Smart that is buying the frequencies but the PLDT disclosure names PLDT and not Smart as the buyer.
• Globe will also buy SMC shares in the Bow Arken Holdings Company, Inc. and Brightshare Holdings Corporation. PLDT will be buying SMC shares in New Century Telecoms, Inc. and eTelco, Inc.
• Payment schedule for the deal will be as follows: PLDT and Globe will pay 50% of the price at closing of the transaction (i.e., when all contracts are signed), with 25% after six months and 25% after 12 months.
• The main come-on for the sale is access to 700MHz frequencies which, both companies say, will help them “provide customers with better experience on mobile data and home broadband services.”
• PLDT and Globe say that they will also be returning radio frequencies in 700MHz, 850MHz, 2500MHz, and 3500MHz bands to the government. They say that return of these frequencies creates space for the entry of a third telecoms provider but I don’t know how useful or enticing these frequencies will be to new players.
• You may be curious how PLDT will be paying for its purchase since PLDT has disclosed losses in its last earnings call. PLDT says it will be financing the purchase via the sale of its shares in Beacon Electric Asset Holdings, Inc. to Metro Pacific Investments Corporation for P26.2 billion. PLDT will also be taking out loans. Also noteworthy: Beacon owns 35% interest in Meralco.

Now to provide context:

• Smart’s franchise is up for renewal (it expires in 2017) and is now on Third Reading in the Senate. Will the Senators have anything to say on the deal? We will probably know today.
• Under the Philippine Competition Law, acquisitions that exceed Php1.0 billion can only be consummated 30 days after they submit the notice of the transaction to the Philippine Competition Commission. The law however requires the PCC to come up with the form of the notice. Does the absence of rules and the required form exempt PLDT and Globe from complying with the law?
• Section 20 of the Philippine Competition Law prohibits mergers and acquisitions that substantially prevent, restrict or lesson competition in the relevant market. Does this transaction fall under Section 20?