Diversified conglomerate San Miguel Corp. has unloaded, for a whopping P70 billion, its telecommunications assets, including the coveted 700 megahertz (MHz) spectrum, reaping P52 billion in equity funds and freeing itself of P18 billion in short-term liabilities to suppliers.
Despite the P70 billion proceeds from the sale, the company says it didn’t make much money. “We only recovered our cost,” says Ramon S. Ang, the SMC vice chairman, president and chief operating officer.
SMC’s pullout from what it had hoped would have been a major segment of its diversified businesses was done more to benefit the Filipino consumers and the public in general than to make a profit. “We wanted Filipinos to enjoy immediately the benefits of high-speed internet at reasonable cost,” explains a senior official.
Indeed, with their purchase of SMC’s telco assets, PLDT is now said to roll out 700 MHz to its 350 cell sites this year. Globe will have 700 MHz in 200 cell sites in four months. So Filipinos will now benefit from faster internet and more reliable cellular phone service, thanks to SMC.
The Philippines has among the world’s slowest internet speeds and among the world’s highest telephone rates—thanks to coddling or rank cronyism by the so-called Daang-Matuwid BS Aquino administration, of PLDT and Globe which ironically are foreign-owned. SMC is largely Filipino-owned. Foreign companies PLDT and Globe refused to allow the Filipino company SMC access to their international gateway facility to enable SMC cellular subscribers to make and receive overseas calls.
Meanwhile, incoming President Rodrigo Duterte has told PLDT and Globe to shape up and speed up their internet or he would allow a third player, a foreign company. One country can deliver fast internet, the latest in technology, and quality cellular service: China.
San Miguel’s 700 MHz speeds up internet because it cuts across buildings at lower heights and thus is a more reliable and stable band for voice and data use in cellular phones, on top of being cheaper to manage because it requires far fewer cell sites to roll out. For an area like Metro Manila, it takes 700 sites for the 700 MHz to become high-band, compared with 2,000 cell sites for the 1800 to 2600 MHz spectrum to work as high band. Also, it costs only $250,000 to install a 700-MHz band cell site.
SMC bought huge chunks of the 700-MHz spectrum years ago when nobody was looking and when nobody thought it was a valuable asset in leading edge cellular service. “The cheapest, fastest and best” was how Ang described the proposed SMC telco service.
PLDT and Globe would not take a serious and cash-rich competitor like San Miguel sitting down. They threatened suits that hampered SMC’s early rollout of its phone service. With the suits, foreign partners were discouraged to partner with SMC. It would have taken the conglomerate up to five years to completely roll out its cellular service.
PLDT did P171.1 billion revenues and Globe P119.96 billion, for a combined P291-billion business in 2015. Their profits: P38.55 billion—P22 billion by PLDT and P16.84 billion by Globe.
Last May, with consumer welfare in mind, SMC did the next best thing: Sell its telco companies to PLDT and Globe which split SMC’s assets, 50/50. The state National Telecommunications Commission told PLDT and Globe to roll out their 700-MHz within 60 days in 90 percent of the towns and cities.
Having unloaded its telco assets, SMC will focus on the next big business of the future—building industrial estates and whole cities. It is laying out industrial estates across the archipelago.
Within three years, SMC will modernize the island of Basilan, a province 1.8 times the size of Singapore and with a fifth of the latter’s population, by building power plants (two 150-megawatt coal plants at a cost of $600 million), bulk water, piers ($30 million), other infra, as well as a flour mill, a feeds mill, call centers and Petron stations. Long wracked by insurgency, Basilan literally will shift from bullets to billions.
SMC will sell power in Basilan for almost a tenth of the current P30 per kilowatt-hour. That will electrify the whole island where electricity is severely in short supply, and out of reach for majority of the people. Lower power cost will also lower industrial production cost since electricity is 20 percent of production cost.
The sale of its telco and the Basilan project illustrate the real character of SMC’s businesses—profit with honor, service to society, helping in national development. SMC is selling electricity in Bulacan and Bicol at a third of the price of competitors.
Making your world better is good business. SMC is poised to chalk up record revenues of P1.1 trillion this year, up 63 percent, and record operating profits of P100 billion, up 27 percent from 2015.
About 60 percent of SMC’s businesses today are in new areas built with $5 billion investments from 2008 to 2015. They push national development – energy (it provides 22 percent of Luzon’s power supply), fuel (Petron has 34 percent market share), and infrastructure (it has 274 kms when completed, or 80 percent of tollways and skyways, plus Boracay’s Caticlan airport which now has a 2-km runway good for jet planes, MRT7 rail and expressway to Bulacan, and bulk water, also in Bulacan).
The biggest of SMC’s projects is the $10-billion new Manila airport. Ang promises to deliver the first two of its four runways in five years from the date of government approval. With the runways, the new Manila airport sitting on 1,600 hectares (including 600 hectares of reclaimed land by the bay), can handle 100 million passengers per year and 150 aircraft movements per hour (triple the present NAIA’s capacity).
The airport will be rimmed by industrial estates, business districts, and high-end residential subdivisions and will be only 10
minutes from Manila’s international seaport, maximum 30 minutes from E. Delos Santos Avenue (Edsa), and using San Miguel’s North/South Expressway connector road (finished by December 2017) will be also 30 minutes from Balintawak in Quezon City. On an ordinary day, these areas are two to three hours from the present airport.
As for industrial estates, Asia is running out of industrial sites and China has become too prohibitive a location for factories. Thailand, meanwhile, is too unpredictable with floods and frequent strikes. Vietnam too is hobbled by industrial strikes.
The Philippines does not have those problems.