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Philippines operator acquires competitor - dealing blow to competition

A major operator in the Philippines is set to purchase a controlling stake in one of its rivals. Philippine Long Distance Telephone (PLDT), the mobile branch of which operates as Smart, will acquire a 51.55% stake in the smaller operator Digital Telecommunications Philippines, commonly known as Digitel.

The acquisition would be a blow to competition in the archipelagic nation’s mobile sector, effectively eliminating one of the current three main operators while providing a major boon to the market leader – the resulting entity is essentially a combination of the first and third-largest mobile operators in the market. The purchase will also be beneficial to PLDT in other ways; Digitel’s mobile arm Sun Cellular is notorious for its aggressive pricing strategies, to the point of adversely affecting industry margins.

The stake is currently held by JG Summit Holdings, together with certain other shareholders. As part of the deal, PLDT will receive bonds alongside the stake, which can be converted into Digitel shares, but will also assume responsibility over the holding company’s debts. The operator is looking to acquire further shares from current Digitel shareholders.

At the end of 2010, the Philippines had an estimated 89 million mobile subscribers, of which 45.6 million were with PLDT. Adding Digitel’s 14 million subscribers to this number will rocket the market leader even further ahead, giving it an almost unsurpassable total of 59.6 million – essentially two thirds of the market.

As a comparison, second-largest operator Globe has 26.5 million customers. However, competition could be strengthened by a potential new entrant to the market: the food company San Miguel, known for its eponymous beer, could be entering the mobile sector. The firm is already involved in the Philippines’ fixed-wireless sector, and has been rumoured as a potential buyer for the mobile operator Express Telecom. While mostly inactive, Express has around 7000 subscribers and could represent a means for San Miguel to enter the mobile sector.

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