DITO Telecommunity (DITO)
DITO Telecommunity (DITO)
Project Summary
DITO Telecommunity Corporation (DITO) was formerly known as Mindanao Islamic Telephone Company (Mislatel). DITO is a joint-venture company of Udenna Corporation, Chelsea Logistics, and Infrastructure Holdings Corp. (Chelsea), and China Telecommunications Corporation. Ownership is divided on a 35-25-40 percent basis, respectively. In July 2018, 2019, NTC, a certificate of Public Convenience and Necessity (CPCN), was granted to the company which makes it the newest major telecommunications provider in the Philippines. Previously, the Philippines digital technology markets were dominated by two telecommunication companies which are Globe Telecoms and Smart Communications. President Duterte offered China to become the third telecommunications operator in the country to address the lack of services that were offered. The bidding process was not smooth sailing and although they were granted the certificate, they have not been able to launch its public rollout. The commercial launch is scheduled for March 2021.
Project Background
The Philippines digital technology markets were dominated by two telecommunication companies which are the Globe Telecoms and Smart Communications. While the demand for digital communication is rising, this duopoly is not able to deliver services as efficiently as they would with the high price that was imposed to the consumers. These two companies were greatly criticized for the services that they have provided by both the consumers and each other. One of President Rodrigo Duterte’s 2016 campaign promises was to introduce a third major telecommunications provider to improve services through competition. Then-presidential candidate Duterte has taken upon himself to dismantle this duopoly and issued a warning to the telcos to provide better services. In November 2017, it was reported President Duerte offered China to become the third telecommunications operator in the country.
A bidding process took place and was overseen by the DICT, the NTC and oversight committee. Selection criteria were national coverage, internet speed, and capital expenditures There were ten entities that have shown interest but there were only three bidders submitted the offers on 7 November 2018 which are PT&T, Mislatel Consortium, and Sear Consortium. PT&T and Sear Consortium were disqualified, which leaves the Mislatel Consortium as the winner of the bid. Mislatel then changed its name to DITO Telecommunity as they received their permit to operate.
Project Structure
Issues
There are legal issues involved. Only three bidders submitted the offer out of 10 entities that purchased the bid documents which are the PT&T, Mislatel and Sear Consortium. PT&T were disqualified as they are not able to secure a certification from the NTC while Sear Consortium were disqualified because they are unable to issue valid letters of credit. Both did not accept the decision and appeal. Sear Consortium also claimed that Digiphil Technology, Inc (one of their own) had an active agreement with Mislatel that requires Digiphil’s consent before partnering or selling shares. If this is the case, then the Uy’s group will be disqualified as the allegation would invalidate the Udenna-Chelsea-ChinaTel group’s partnership with Mislatel. The bidding would be a failure as all bidders are considered disqualified. PT&T, Sear Consortium, and Now Telecom (one of the 10 entities) filed a suit but was denied as Duterte warned the court not to issue any temporary restraining order (TRO) or injunctions.
Apart from that, the third telecom carrier must obtain a valid congressional franchise to operate. To avoid delays, this requirement was waived pre-qualification process. Mislatel received such a franchise in 1998, but without congressional approval, it could not be transferred when controlling interest in Mislatel changed hands. This approval was easily obtained in the House of Representatives on December 11, 2018. The Senate raised concerns about Mislatel’s compliance with the original terms of the franchise but still authorized the transfer on February 6, 2019.
Moreover, there is the cronyism capitalism issue. Cronyism is not alien to the Philippines. When Mislatel was announced as the winner of the bid, it was not surprising, and it comes with a lot of criticisms. The winning group was headed by Dennis Uy, a businessman based in Duterte’s hometown, and a big supporter of Duterte. It is interesting to find that Dennis Uy and her wife, Cherylyn Uy, wife of Dennis Uy, have both contributed a huge sum of money for Duterte’s campaign. Dennis contributed P30 million, based on the Statement of Contributions and Expenditures (SOCE) while Cherylyn Un contributed P1 million. Cherylyn is also the treasurer for both Udenna Corporation and Chelsea Logistics.
Dennis and Cheryln Uy both own the Udenna Corporation, with Udenna Corporation being the holding company of the Uy family. It also holds 70 percent of the outstanding shares of Chelsea Logistics. Efron Uy, one of the Logistics board members, contributed P3.5 million, Chryss Alfonsos Damus, the officer-in-charge of Udenna Corporation and president and CEO of Chelsea Logistics, both contributed P500,000. Ma Henendina San Juan, corporate secretary of both companies contributed P400,000 while Udenna and Chelsea vice president for finance Ignacia Btaga IV contributed P150,000. It was also reported that Uy was estimated to have bought at least 36 companies since Duterte became the president. It is not an issue for Duterte to have good will with the Uy’s but on propriety and affairs. It is intriguing to learn how the bidding works very well for Mislatel. After Duterte offered China the privilege of the license in 2017, ChinaTel partnered with Dennis Uy to eventually become the only qualified bid.
Also, there is the modelling flaws. Dito will need to loan an amount of USD $2.5billion from the Bank of China to operate. This will increase the leverage of Dito with the Chinese government. Senator Francis Escudero has raised the possibility that Dito’s controlling interest could even be transferred to ChinaTel because of this borrowing. Lastly, the threat to national security. There is long-standing tension between China and the Philippines over China’s territorial claims in the South China Sea, which infringe on Philippine national waters. If Dito were to be the third telecommunications operator in the Philippines, Dito will co-locate some of the microwave relay and base transceiver stations for mobile communications services and equipment with that of the Armed Forces of the Philippines (AFP). As Chinese Law requires their companies to provide intelligence to the government, there is an incentive for the Chinese to spy on the Philippines. A cyber security threat from China toward the Philippines is possible. This raises more concern as Hymax (2018) reported that Crowstrike, one of the world’s largest cybersecurity firms was more ahead than that of Russia.