PLDT Inc., formerly known as The Philippine Long Distance Telephone Company, agreed to a partnership with China-based Huawei Technologies in mid-February to establish a 5G wireless network in the Philippines by 2020. PLDT probably pursued this agreement to stem Philippine President Rodrigo Duterte’s criticism of the country’s telecommunication firms and to better position the company against increasing competition.
- PLDT and Globe Telecom are the two dominant telecommunication providers in the Philippines, with PLDT commanding approximately 70% of the market and Globe Telecom commanding 30%, according to export.gov. These providers currently operate on a Long-term Evolution (LTE) network.
- Approximately 30% of the Philippines’ 102 million people use smartphones, according to Statista, a statistics portal, and the country is expected to be one of the fastest growing markets for smartphones within Southeast Asia, according to the Asian Journal.
Duterte since May has warned the country’s two dominant telecommunication firms to improve services and reduce consumer costs. The Philippines has one of the slowest internet speeds in the world, according to content delivery network provider Akamai, and Duterte believes an improved telecommunications services will make the country more competitive and increase foreign investment.
- In November, Duterte announced plans to open the telecommunications sector to allow foreign companies, in an effort to promote competition and improve services, according to The Philippine Star.
- In July, Duterte directed the newly-created Department of Information and Communications Technology to develop a national broadband plan to address the country’s internet problems, according to Inquirer.net, and in May, Duterte warned PLDT and Globe Telecom to improve their services or face new foreign competition, according to CNN Philippines.
Huawei’s partnership with PLDT consistent with its global efforts
Huawei’s collaboration with PLDT is consistent with the company’s longstanding efforts to partner with telecommunication providers throughout the world. Most recently, in late February, the company announced a partnership with a Swiss telecommunications provider to create a “defect-free” network, according to RCR Wireless News.
- In May, Huawei opened a Southeast Asia regional headquarters in Bangkok, Thailand, to support Thailand’s efforts to be an information and communications technology hub in Southeast Asia, according to the Bangkok Post. The headquarters also will support Huawei’s operations in other Asian countries.
- Huawei’s and PLDT’s agreement comes at a time of improved political relations between China and the Philippines. It is unclear what, if any, impact improved ties had on this deal.
PLDT’s partnership with Huawei probably will lead to improved internet connectivity speeds—recent efforts of PLDT’s wireless unit with 4G LTE already have produced significant gains in connectivity speed, according to a press release from the company—but increased competition and continued political pressure probably will suppress margins and limit the potential for this partnership to appreciably increase the company’s net income.
- In February, the Philippine National Telecommunications Commission (NTC) director stated that three Chinese telecommunication firms and one US technology company have inquired about a spectrum bidding planned for later this year. The spectrum bidding is part of NTC’s plan to entice a third company into the Philippine’s telecommunications sector, according to Rappler, a Philippine news site.
- In November, PTLD and Globe reduced their “interconnection rates” from Philippine Peso (PHP) 4 to PHP 2.50 after Duterte revived threats to dismantle the duopoly, according to the Nikkei Asian Review. PLDT’s 2015 Annual Report indicates that interconnection costs contributed 9% of all Wireless expenses, suggesting that a decrease in interconnection revenues will increase the percentage of interconnection costs.