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Duterte plan to invite Chinese telco hits a roadblock: the 1987 Constitution

In a bid to forge closer ties with China, President Rodrigo Duterte has invited last December the Chinese government to consider investing in the Philippines’ telecommunications industry.

Apart from being helpful in further thawing the bilateral relationship between the two Asian neighbors, the potential deal is also being marketed as a way to end the duopoly by Manny V. Pangilinan’s Smart Communications and the Ayala-owned Globe Telecom.

Speaking to reporters during a press conference, presidential spokesperson Harry Roque revealed that in response to Duterte’s invitation, the Chinese government has selected China Telecom for a possible business venture in the Philippines. China Telecom is the ninth largest telecommunications company in the world for 2016 according to the Forbes magazine.

“Given the huge telecoms market in China, Chinese companies ought to have already technical know-how in providing competent and reliable telecom services,” Roque said. The Philippines is consistently ranked as having one of the slowest Internet connections globally, most recently by the Akamai Technologies’ State of the Internet Report.

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Will China Telecom really be able to penetrate the Philippine telecommunications market?

Having few players in the telco industry is frequently blamed for the poor Internet service in the country. Other lingering problems include dropped calls, vanishing loads, as well as unsatisfactory customer service.

However, it will not be a smooth-sailing for the planned entrance of China Telecom to the Philippines to push through. One key roadblock is Article 12, section 11 of the 1987 constitution. The said provision states that “no franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens.”

The implication of this is that barring a constitutional amendment, China Telecom can only penetrate the Philippine market if it enters into a joint venture with a local company which will own 60% of the entity. This task is easier said than done, as shown by the failed attempt of the Australia-based telecoms giant Telstra to have a deal with San Miguel Corporation two years ago.

For its part, think tank Ibon Foundation called on the Duterte administration to scrap its plan of letting China Telecom enter the Philippine market, saying that the current plan will not necessarily solve the persistent problem of poor Internet service.

“Despite their very high profit margins, the reigning telco giants are apparently not investing enough in infrastructure development to meet the growing needs of consumers and improve their provision of telecom services, especially in the country’s remote areas which are less commercially viable,” Ibon Foundation said in a statement.

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