Converge emerging as ‘formidable player’ in fixed broadband space — Fitch
MANILA, Philippines — Converge ICT Solutions is poised to become "a more formidable player" in the fixed broadband segment after securing fresh funding, although sluggish regulatory reform will continue to be the biggest stumbling block for Philippine telco carriers, analysts at Fitch Solutions said.
Converge reportedly received a P12.8 billion ($250.4 million) cash injection from US-based private equity firm Warburg Pincus, as incumbents PLDT and Globe deploy their 5G networks for fixed wireless services.
In a research note sent to reporters Wednesday, the Fitch unit said Converge is set to continuously expand its fiber optic infrastructure in a bid to take a bigger bite of residential broadband sector, where it still trails the major service providers.
Fitch Solutions noted that Converge disclosed in December last year it had approximately 200,000 broadband subscribers, less than PLDT’s 2.054 million and Globe’s 1.616 million reported in the same period.
Converge also lags behind the Philippines’ largest alternative broadband player, Sky Cable, which supplied 688,000 cable TV subscriptions, Fitch Solutions added.
“[Converge’s] customer base remains concentrated in urban population centres on the main island of Luzon, although the company has stated that it is in the midst of deploying infrastructure in preparation for a ‘mid-2019’ service launch in the two other main island groups of Mindanao and the Visayas,” the Fitch unit said.
“The company is known in the Philippines primarily for its competitive pricing, which undercuts the two incumbents; this has forced the duo to focus on bundled services to grow their market shares,” it added.
In August 2018, Converge also signed a five-year, $1.8 billion agreement to deploy a nationwide high-speed fiber broadband network with a group of foreign partners, which include South Korean incumbent KT Corp, Filipino-Korean venture LSI-Fibrenet Konstruk Corp. and US-based telecoms equipment maker Tyco Electronics Subsea Communications.
Converge has also not ruled out the possibility of raising funds through the sale of both equity and debt.
President Rodrigo Duterte in 2017 invited China to be the Philippines' third telecom provider that would transform the country's troubled telco sector that has long been dominated by PLDT and Globe.
Davao-based tycoon Dennis Uy, an old friend of the president, teamed up with state-run China Telecom to form the Mislatel Group — which the Philippine government had formally declared as the country’s third telco carrier after two rival bids were rejected and foreign players backed out.
Converge earlier said it was keen to make a bid for the third telco slot together with partners KT Corp and Teltech Group. But the consortium eventually retreated, saying the conditions set by the Department of Information and Communications Technology were “commercially unviable”.
According to Fitch Solutions, bureaucratic procedure will remain a key stumbling block in telcos’ efforts to deliver quality services nationwide.
“While government efforts including the National Broadband Plan and the common tower policy will be positive at simplifying the application process for telecoms companies seeking right of way to rollout their infrastructure, as well as create ‘one-stop shops’ to seek government approval, the unrushed pace at which new law is passed in the country will continue to be a hurdle,” it said.
“For one, the Open Access In Data Transmission Act which was introduced in the Senate in March 2018 to remove requirements for companies to enter the data transmission business has yet to be approved by lawmakers,” it added.
Meanwhile, Converge could look to launch mobile services through a mobile virtual network operator agreement, or MVNO, with another operator to “become a more comprehensive competitor in the consumer space,” Fitch Solutions said.
“We view that it (Converge) will also seek to further monetise its fibre backbone further by leasing capacity to other operators,” it added. — Ian Nicolas Cigaral
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