Smart shuns legal action vs sale of ETPI shares to ISM

Smart Communications will no longer pursue a legal action to stop publicly listed ISM Communications Corp.’s recent acquisition of a 17.7-percent stake in Eastern Telecommunications Phils. Inc. (ETPI), but the fight is hardly over, industry sources told The STAR.

"Smart and other mobile phone service industry players can make it very difficult for ISM to survive in this business. Look at how they made it hard for Digitel to interconnect at the beginning," an industry official said.

Existing players believe there is no more room for a fourth cellular industry player. Sources said ISM will have to spend billions of dollars to establishing a network for 3G, a technology which has no track record as yet of bringing in profits for a company that uses it.

ISM plans to enter the highly competitive cellular mobile telephone system (CMTS) business where Smart is currently the market leader. ISM is bidding for a third generation (3G) mobile technology frequency and license and is reportedly eyeing the acquisition of Extelcom which is a holder of a CMTS franchise. Other holders of a CMTS franchise are Smart, Globe, Digital Mobile (Sun Cellular), and Bayan Telecommunications (BayanTel).

ISM acquired recently Aerocom Investors and Manager’s 17.7-percent stake in ETPI, a move that was met resistance by Smart which insisted that existing shareholders of ETPI have a right of first refusal over the Aerocom shares.

Aside from the Aerocom shares, ISM is offering to acquire the 40-percent block held by an Australian group. ISM, led by Roberto Ongpin, has just raised $8.2 million after three companies, namely Ashmore Investment Management, Boerstar Corp. and Araza Resources, subscribed to about 45.92 billion shares of ISM.

ISM said five of its current directors — Roberto Ongpin, Gregorio Araneta III, Craig Ehrlich, Scott Sproule, and former finance undersecretary Eric Recto — have interests in the three companies.

ISM is interested mainly in ETPI’s international gateway facility (IGF) license. Controlling ETPI and Extelcom would allow ISM to have the whole range of telecommunications services, both wired and wireless.

ISM president Eric Recto earlier said the deal marks the beginning of ISM’s transformation into a telecommunications company, which has been on hold pending the completion of the acquisition of assets necessary for its business.

Smart, the country’s biggest wireless service provider, had opposed the transaction, saying Aerocom must give Smart and other ETPI stockholders the right of first refusal over the disputed shares as embodied in the country’s articles of incorporation.

"Smart asserts its right of first refusal to the proposed sale by Aerocom of its 17.7-percent equity interest in ETPI to the Ongpin group," Rogelio Quevedo, head of Smart’s legal and carrier business group, had said.

The PLDT cellular subsidiary owns a 9.8- percent equity interest in ETPI. Forty percent is ownedby Australian Gigahertz Network International while 18 percent is owned by Pablo Lobregat (Aerocom group). The remainder consists of sequestered shares now under the Presidential Commission on Good Government (PCGG)

Quevedo cited Article 10 of ETPI’s amended articles of incorporation, which states that the right of first refusal applies to any sale, transfer, disposition or assignment of shares by any stockholder of ETPI except when such sale, transfer, disposition or assignment is done between or among the incorporators of ETPI or corporations controlled by such incorporators. "Since none of the exceptions apply, Smart and all other ETPI stockholders should be given the option to exercise the right of first refusal over the reported sale by Aerocom of its shares to the Ongpin group," he said.