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China Telecom, local tycoon's joint bid poised to win Philippine telco licence

FILE PHOTO: The company logo of China Telecom is displayed at a news conference in Hong Kong, China August 20, 2018. REUTERS/Bobby Yip/File Photo

By Neil Jerome Morales and Karen Lema

MANILA (Reuters) - A consortium of China Telecom <0728.HK> and firms controlled by a Filipino tycoon appeared poised on Wednesday to win the Philippines' third telecoms license, after two rival bids were rejected and foreign players tipped to participate opted out.

State-controlled China Telecom joined businessman Dennis Uy, whose interests include real estate, energy, shipping and logistics, under a consortium called Mislatel, hoping to win the right to challenge existing players Globe Telecom (GLO.PS) and rival PLDT (TEL.PS).

The third license, which could be awarded by year-end, comes at the behest of Philippine President Rodrigo Duterte and aims to boost the country's notoriously patchy services and end a domestic duopoly long accused of being uncompetitive.

Duterte, who has made strong business ties with China his top foreign policy priority, had repeatedly expressed a preference for a Chinese telecoms firm to enter the Philippines, and even verbally "offered" the license to Chinese Premier Li Keqiang.

Uy's ties to the president are well known and he was a contributor to his 2016 election campaign, hailing from Davao, the city where Duterte was mayor for 22 years.

South Korea's KT Corp <030200.KS> issued a statement with Philippine firm Converge ICT confirming they had decided against bidding, while Vietnam's Viettel, which in August confirmed its interest in the Philippines, said it would not contest.

Norway's Telenor (TEL.OL) had bought bid documents but did not enter the contest.

There were only two rival bids to Mislatel's, from local companies, but both were rejected by the telecoms regulator for being incomplete.

The two disqualified bids were from Philippine Telegraph & Telephone Corp (PTT.PS) and a consortium of TierOne and LCS Group. Both bidders said they would appeal the regulator's decision.

Foreign firms are required by law to join a consortium due to a 40 percent ownership cap in a local telecoms outfit, which experts say has limited competitiveness in a sector worth about $5 billion a year in revenue.


LUCRATIVE MARKET

Analysts see the Philippines and its 105 million people as a potential growth market due to its thriving business process outsourcing sector and its underdeveloped mobile and fixed-line services, which consumer groups have complained are unreliable and expensive.

Both Globe and PLDT's mobile unit, Smart, say they have been investing big in boosting network coverage - $950 million and $1 billion respectively this year - but are constrained by weak regulations that make acquiring permits for building infrastructure a painstakingly slow and complex process.

Telecoms Minister Eliseo Rio recently told Reuters moves are underway to streamline that, introduce tower-sharing requirements and eventually, raise foreign ownership caps.

A Viettel source told Reuters the time was "not appropriate" to bid, while KT Corp and Converge said the Philippine market and industry outlook were financially viable, but "conditions imposed for participation render the venture commercially unviable".

Aristoteles Elvina, a special assistant to the head of Converge, said there was no point bidding against a company owned by the Chinese government, or getting a license that demands a new entrant commits to things operators Globe and Smart were not required to do.

"We don't feel it is a level playing field," he told reporters.

"The existing players right now were not asked to do what we're being asked. Like we have to put up speed, coverage."

The Mislatel consortium includes three companies, China Telecom, and two of Uy's firms, Udenna Corporation, a holding company, and Chelsea Logistics Holdings (CLC.PS), one of its units.

Chelsea's shares were up 35 percent on Wednesday afternoon after news that Mislatel's was the lone qualified bid.


(Additional reporting Khanh Vu in HANOI; Writing by Martin Petty; Editing by Muralikumar Anantharaman)