THE “forceful” and “highly politicized” shutdown of two local media firms can deter foreign direct investments (FDI) and drag market sentiment for the telecommunications and media industry, Fitch Solutions said.
In a commentary released on Wednesday, the London-based think tank said the National Telecommunications Commission (NTC) appears to be “influenced” by the government in making decisions, citing the recent closure of Lopez-led ABS-CBN Corp. and Sky Cable Corp.
“The regulator’s apparent ability to be influenced by the government continues to be a key impediment to foreign investor sentiment and has also made the telecoms landscape difficult for both new entrants and existing players,” the Fitch unit said.
NTC ordered Sky Cable to cease and desist on June 30, prompting the company to halt its direct broadcast satellite service Sky Direct and TV plus channels in Metro Manila.
This, after the regulator instructed its parent firm ABS-CBN to go off air on May 5. The media firm was not granted a provisional franchise to continue broadcasting.
“The forceful termination of ABS-CBN and Sky’s broadcasts is highly politicized, and clearly linked to President Rodrigo Duterte’s opposition toward ABS-CBN,” the think tank said.
Not an issue–Dominguez
Contrary to Fitch Solutions’ view that the ABS-CBN shutdown will remain to be a “key impediment” to foreign investor sentiment, Finance Secretary Carlos G. Dominguez III said they have not seen a slowdown in investments due to the issue.
While he admitted seeing a slowdown in investments, he said on Wednesday it is not in any way tied to the network’s shutdown, but rather part of the Covid-19 pandemic’s impact.
“We have not seen any direct result of a slowdown in investment because of the ABS-CBN issue. We have seen a slowdown, yes, but that is essentially because of the Covid pandemic. Most companies around the world here and abroad are keeping their money in cash, in case they experienced a drop in demand or any other problems with their own company, so investments are down around the world, both direct investments and otherwise,” Dominguez told reporters. He held a virtual press conference following the pre-State of the Nation Address forum by the Economic Development Cluster and Infrastructure Cluster.
Moreover, the country’s finance chief noted, the government was able to raise $2.35 billion in global bonds in April this year even when the ABS-CBN issue was raging, and this proves investors’ confidence in the country’s economy.
“Recently, we raised…$2.35 billion in our bonds. That is an investment in the Philippines. And that happened during this issue with ABS-CBN. So I think our bondholders, to the extent of $2.35 billion, are very confident in the Philippine economy,” he added.
Duterte’s wrath
The Fitch unit noted that Duterte has been expressing his stance against the franchise renewal of ABS-CBN since he alleged that the broadcaster was favoring his rival candidate during the 2016 elections. The President also accused the company of failure to air his paid advertisement during the campaign season.
The network giant was also accused of violating foreign ownership rules, Fitch Solutions said, noting that ABS-CBN is 22-percent owned by foreign investors through Philippine depositary receipts.
Singapore-based investor ST Telemedia, meanwhile, holds a 40-percent stake in Sky Cable, which is “in line with government foreign ownership restrictions on domestic communications firms.”
“It is also unclear whether Sky Cable’s other services will be forced to cease operations, given that the government’s opposition toward ABS-CBN stems from the broadcast of channels, rather than on the provision of communications services,” Fitch Solutions said.
Sky Cable said the shutdown is seen to affect nearly 1.5 million direct-to-home (DTH) subscribers. According to its latest data in 2018, the company had 937,000 satellite subscribers and 688,000 cable TV subscriptions.
Fitch Solutions noted that many households in rural areas outside Metro Manila were usually subscribing to DTH services for entertainment purposes.
“The country’s archipelagic nature, coupled with relatively low levels of disposable incomes in regional areas, makes developing extensive and robust fixed infrastructure commercially unviable, accentuating the low-margin nature of the business and limiting returns on investment,” the think tank said.
The report added that the Sky Cable closure could boost shift to non-linear, on-demand services such as over-the-top platforms like Netflix. However, Fitch Solutions said that “a key impediment to this transition…will be the difficulty in availing such services outside of urban areas where mobile and fixed network availability is extremely patchy.”
Considering all these recent events, the Fitch unit said that it had to downgrade the country’s telecoms industry risk score to 46.1 points out of 100 from 57.5 in the previous quarterly update.
Foreign investor entry
While the recent issues with the two media firms might weigh on the industry, UnionBank Chief Economist Ruben Carlo O. Asuncion said that foreign telco investors have always found it hard to enter the local scene.
“I think the ‘noise’ is quite secondary and institutional and structural difficulties are the ones that primarily hinder further entry of players…into the telco sector,” he explained.
He added that even local players were also finding it challenging to secure a position in the sector.
The Fitch unit said that there was also a “slow formulation of…tower-sharing policy, which was released in a draft version in May 2020 following a protracted period of discussions and negotiations.”
This shows the “slow pace of instituting reforms,” which contributed to the delay of third telco player Dito Telecommunity in rolling out services, it added.
RCBC Chief Economist Michael L. Ricafort, meanwhile, pointed out that the rule of law and institutions are the primary consideration in attracting foreign investments.
There should be due process, transparency and level playing field, he explained.
“Other important considerations by foreign investors/FDI include the sanctity of contracts ]especially if involving different administrations], mechanisms for arbitration/adjudications/other judicial processes and remedies in case there are disputes especially in interpreting provisions of the law/regulations/contracts,” he added.
According to Bangko Sentral ng Pilipinas, FDI net inflows slowed down by 14.2 percent to $1.7 billion in the first quarter from $1.9 billion last year for the same period as net investments in debt instruments declined by 41 percent and reinvestment of earnings slipped 24.1 percent.
With Bernadette D. Nicolas
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