Elections is coming. The 3rd telco is near. I just want to contemplate a little bit about the 3rd telco and how we got to here. I am not invested in any telco. The reason is, I don’t like the telco companies in the Philippines. They are slow, poor customer service, its just a real pain for people who use the internet for their livelihood. I consider money as a vote. I invest in companies that I think are worth to be alive. I don’t use it just to make money, if I invest, I invest because I want the company to succeed. I want the money to enact change in the world, even with a small amount.
So having said that, with the third telco near at hand, why I still not buying a 3rd telco into my portfolio? The reason is still the same. I don’t trust the telcos that are going to come out. ISM, with Dennis Uy and China Telecom, is a big issue. There’s the issue of national security. China Telecom is a government majority owned telco. And they have been banned, together with other China tech companies in some other countries because of being caught hacking and spying on their host’s government. China telecoms are banned in Australia for the same reason. And there has been a banned on networking equipment made from China because of having found trojan and spyware, again spying and hacking other countries.
When China Telecom, partnered with Dennis Uy became the 3rd telco, a breach in privacy and national security is a big problem. Most people will say, “wala naman akong tinatago kaya ok lang.” Would you let people see your private part just because wala kang tinatago down there?
Another issue is the amount of debt ISM (the future Udenna Holding company of Dennis Uy) is carrying. Their current income is not enough to pay the interest payment of all those loans. Which means, they have to make the 3rd telco a success, before the banks starts knocking on their doors. Dennis Uy and Henry Sy seems to be close. As BDO is the main lender for Dennis Uy’s buying spree. What is the future of the shareholder that will invest side by side Dennis Uy?
I don’t know. And I don’t want to invest just to know. They may have to dilute the shareholders to raise more money to pay the debts. Like MPI when Manny Pangilinan is on a buying spree (funded by debts and dilution of shareholders) a couple of years back. Or Double Dragon when they’re on a massive expansion. The one who will shoulder this debt will be the shareholders. I’ll just wait and watch for now.
I don’t want to point fingers on who to blame why we are in this spot as a country. The 2 duopoly of PLDT and Globe has been very poor in their service, the people want more. We can’t blame the government for solving this problem. But the choice our government has chosen is like opening the pandora’s box. And besides, we are not a political website, we are a value investing website.
I’m a fellow value investor like you. I’m currently hoarding PLDT shares as much as I can. As I dont believe the 3rd telco will be able to compete with the duopoly. First there is the issue of foreign ownership 60/40% in favor of local companies. 2nd, it takes 2yrs just to build a cell tower in the country, something the 3rd telco mislooked before joining in. A telco needs to secure around 25permits from various govt agencies, from the highest branch to local LGU’s down to the brgy level, they have to secure environmental permits and various papers from homeowners assn, imagine the headache. Pldt and globe are able to complete at most 300 cell sites a year only, the 3rd telco will be subject to the same procedures as the incumbents. How long can they sustain the cash burn? Pldt is rapidly expanding its reach and has already cornered 70% market share in fixed line internet as of Sept 2018. The 3rd telco are just starting, how long will it take them to operate? 5yrs? Not counting the undersea submarine cables and fiber lines which they have none yet. Mislatel also has a pending case on the supreme court filed by Sears telecom. Imagine the massive hurdles ahead. Maybe that’s why ZTE, San Miguel and Telstra all gave up their dreams of becoming a new player in the past.
Hello fellow value investor. You might be right. There are a lot of hurdles the third telco will face.