Biased selection?

I would expect a ratings agency as well regarded as Fitch to go beyond the optics in making conclusions. But it claimed in a statement that there was bias in the selection of the Mislatel/China Telecom consortium as the third major telco.

“The selection of China Telecom, which follows the almost immediate disqualification of the two other bidders, hints at the government’s bias towards Chinese involvement in the telecoms sector, and is a clear sign of Duterte’s warming posture towards China,” Fitch Ratings said in a statement last Thursday.

If Fitch was writing a gossip column, that would have been expected. The Mislatel consortium is led by one of President Duterte’s favored businessmen. China Telecom is the consortium’s technical partner and Mr. Duterte had publicly said he wanted the Chinese company to be our third telco.

Actually, if it was just the NTC and its current leadership that conducted the bidding process, I would have believed there was favoritism. But the presence of Acting Secretary Eliseo Rio Jr. changes everything. I believe the former general kept everything above board, despite the impression delivered by the winners.

Favoritism or not, it was the best possible outcome. Even Fitch conceded that China Telecom does have the track record and the capability to compete in the currently duopolistic Philippine telecommunications sector.

“We believe that the selection of China Telecom would have been, from a technical perspective, the most feasible one as the state-owned telco has the experience, scale and financial capability needed to disrupt the Philippines telecoms sector that is otherwise lacking at the other contenders,” the ratings agency said.

It was the most transparent government bidding process in recent memory. There was widespread discussion and the rules set many months ago were never changed, contrary to claims of losing bidders.

The public witnessed three bidders putting in their bids on Nov. 7 before the 10 a.m. deadline. In the order of submission, these were Mislatel, Sear, and PT&T.

Sec Rio: “We simply looked at documents, not the personalities. It was an exercise on objectivity. The bidding was done in the most transparent and open manner. Despite this, the losers still impute that the process was rigged to favor Mislatel…

“Upon opening Mislatel’s first envelope, it was determined to have submitted all the documents required. When it was Sear’s turn, it did not have the required bid security. Finally, for PT&T first envelope lacked the document to certify that it operated for the past 10 years on a national scale.”

Sec. Rio went on to dispute claims made by the losing bidders.

There is no truth, the DICT chief said, to the claim of PT&T that the rules were changed at the last minute to favor Mislatel and Sear. 

“The general rule is, and has always been, that the operations contemplated in the MC are national in scale and scope.

“Upon review by the NTC Regulations Branch, PT&T did not provide, deliver, and operate telecommunication services for the last 10 years continuously (unbroken and current) on a national scale.

“Apart from internet/broadband services in NCR from 2008 to present, all other NTC regional offices reported that PT&T did not operate for the past 10 years in their regions.

“PT&T also ceased its local exchange carrier (LEC) operations in 2008. In PT&T’s Oct. 26 position paper, it readily admitted that it’s nationwide service was interrupted in 2009 when it was compelled to undergo corporate rehabilitation.

“PT&T insists that inspite the above facts, its regional operations would qualify it to compete with Globe and PLDT/Smart on a national scale. It compares itself with Mislatel, but forgot that the Mislatel group has China Telecom as a member. China Telecom’s operations are definitely much bigger than Globe and Smart combined.”

In other words, if PT&T had a local or foreign partner that satisfied the requirement on national scope for 10 years, it would have qualified and its second envelope would have been opened.

As for Sear, Sec Rios explained that “Sear was disqualified because it did not have the required participation security in its first envelope. It even went on to blame NTC, that NTC did not respond to its inquiries pertaining to the letter of credit they intend to use as their participation security.

“SEAR’s letter of inquiry was sent and received by the NTC on Nov. 7, at around 8:20 a.m., less than two hours from the 10 a.m. deadline. But Mislatel and PT&T did not have any problem in complying with this requirement…

“The NMP-selection committee denied the Motion for Reconsideration because the subsequent submission of a participation security is tantamount to modification of selection documents after opening which is prohibited under Sec. 7.4 (a) (2) and Sec. 8.8 of the ITP.”

As for Sear’s claim of superior level of commitment, that has become irrelevant due to its disqualification. Sec Rio nevertheless expressed disbelief on Sear’s in ability to fulfill the obligations on technical and financial grounds.

As I wrote last week, the third telco will be an all China show. In a business forum last Monday, Deng Jun, the country head of Bank of China said his bank has worked with China Telecom and its local partners for the third telco project. He said China Telecom has 50 engineers already in the Philippines working for the 2019 launch.

Still, the third telco faces formidable challenges. Fitch observed that “The lack of existing fibre assets gives the new telco an uphill task in a market that has maneuvered for years to keep new entrants out and has continuously undermined the supervisory power of the telecoms regulator. To succeed, the new entrant will need to have continued regulatory support from the government to operate.”

I think the third telco has that. It just so happened that a fair bidding process produced the result the President is happy about. Sheer serendipity.

Boo Chanco’s e-mail address is [email protected].  Follow him on Twitter @boochanco