Philippine President Rodrigo Duterte’s use of his State of the Nation Address this week to attack the country’s two major telecommunications providers, Globe, majority-owned by the Ayala Group, and Smart of the Metro-Pacific group, will go down as yet another of the self-inflicted wounds from which the Philippines has long suffered.
For sure, the nation could well benefit from more competition in the industry, just as it did in the 1990s when the Ramos government ended the old PLDT monopoly. But Duterte’s crude threats to remove the franchises of the two for allegedly inadequate service shows three things to the wider business world.
First is the inordinate personal power which Duterte exercises with the support of a supine congress and judiciary that makes a mockery both of due legal process and of the principles of capitalism.
Having already destroyed much of the business of former leading television network ABS/CBN out of his dislike for the Lopez family, he is now attacking regular businesses in the name of attacking oligarchy. During his speech, he renewed his attacks on Manila Water and Maynilad, two Metro Manila-based water companies serving a combined 16 million customers, saying their contracts are overpriced and threatening the nationalization of water services. The two companies are also controlled by the Ayalas and Metro Pacific.
Pressure from Duterte also resulted in a Feb. 3 decision by Ayala to sell 25 percent of Manila Water to another Duterte favorite, one of the country’s richest men, Enrique “Ricky” Razon Jr., who has been steadily amassing economic power under the Duterte administration. The president also used executive action to transfer Iloilo power distribution from the old established local monopolist Panay Electric to Razon. Apparently, Razon had tried to buy out the Panay company but been rebuffed.
The late strongman Ferdinand Marcos made the same kind of attacks on what he termed the oligarchy, installing instead his own deeply corrupt cronies ranging from Dewey Dee to Eduardo “Danding” Cojuangco, Lucio Tan, Roberto Benedicto, and many others, which ended up doing irreparable damage to the economy.
Secondly, there is the message this sends to large foreign companies. Globe’s partner is Singapore Telecom, one of the most respected Asian companies in the industry and whose treatment will be widely noted in Singapore and beyond. Ayala has long been recognized outside the Philippines as well as locally as the most stable, least politicized large group in the country.
Likewise, Smart’s parent PLDT is linked closely to Metro-Pacific and hence to the ASEAN-spanning Salim group of Indonesia, once a product of Suharto’s cronyism but today a professionally managed conglomerate. Its head Manny Pangilinan is one of the best known and respected businessmen in the country, and beyond.
Thirdly, Duterte’s threat against the two is clearly designed to help Davao crony Dennis Uy, who in 2018 was awarded, without public tender, a national telecom license. This company, now known as Dito, was once a small local Muslim outfit, but is now owned 60 percent by Uy’s companies and 40 percent by the state-owned China Telecom.
It so happens that Duterte’s threats against Globe and Smart are due to take effect at the end of this year, just when the Dito network is supposed to be up and running. Dito thus represents a convergence of presidential cronyism with Duterte’s preference for promoting the interests of China’s state companies.
Uy may need all the help he can get given the rapid, debt-fueled expansion of his businesses. Once confined to oil terminals and marketing mainly in Mindanao, his alliance with Beijing’s China-ASEAN Investment Cooperation Fund enabled him to buy Negros Navigation, a long-established shipping company previously owned by the Aboitiz group and renamed 2GO Group.
Since Duterte’s election, Uy has also acquired rights for a casino in Cebu and development rights at the Clark Global Freeport Zone, adjacent to Clark airport. He has massive plans for hotels, offices and a university and acquired a national telecom licence.
Uy’s holding company, Udenna, also has hotel, fast food franchises and other interests. However, the relationship between Udenna and its 70 percent-owned listed subsidiary Chelsea Logistics is not entirely clear. Concern over the finances of this fast-expanded group is reflected in Chelsea’s share price, which over the past year has ranged from a high of PHP7.6 (US 15¢) to a low of PHP1.9. It is currently at PHP3.3.
Given the particular exposure of this trade-and-travel related group to the Covid-19 collapse in business, the threats to Globe and Smart look like a possible way for Duterte to rescue his crony – with some help from Beijing thrown in.
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