GDP growth and telco

"Running a telco is challenging, given government red tape and corruption"

There are two major developments on the business and economic front: One, there is a new telco in town. Two, the economy is slowing down.

The new telco, Mislatel Consortium wants to disrupt the hugely profitable stranglehold of Smart/PLDT/Salim Group and Ayala/Globe/SingTel of the local cellular and telephony business which is worth $7 billion in annual revenues and $1 billion in annual profits even while rendering among the world’s slowest internet speeds and among the world’s highest telco rates.

Less developed countries like Vietnam and Indonesia have four to six times (50,000 to 90,000) the number of cellular sites of Smart/Globe combined (15,000), while providing a better quality service at a much lower price.

Running a telco is very challenging, given government red tape and corruption. It takes 26 permits and eight months to process a cell site. So 50,000 cell sites will require 1.3 million permits—from the government. A new Anti-Red Tape Law is supposed to cut processing to seven days but the implementing rules and regulations to make the law effective by October 2018 have been delayed by—red tape.

Meanwhile, Philippine economic growth (as measured by the rise in the value of goods and services or GDP over a given period) has slowed to 6.1 percent, the slowest pace in three years or 13 quarters, even while inflation surged to an 11-year high and food, especially rice, was in serious shortage during 2018.

In the last quarter of 2018, GDP growth was 6.1 percent—the lowest in 13 quarters. When Duterte became president in July 2016, the economy was already growing by 7.1 percent per quarter, under a previous rule by a do-nothing president. In contrast, Duterte’s economic team is very dynamic and one of the best and most pro-poor ever assembled by any president.

Annual GDP growth for 2018 was only 6.2 percent, the lowest since the 6.1 percent of 2015. Economic growth was 6.9 percent in 2016 and 6.7 percent in 2017. In 2016, your income of P1,000 was growing already by P69 a year, including the effect of inflation.

In 2018, your P1,000 income was growing by only P62, despite the government spending P800 billion more in taxpayers’ money, from a budget of P3 trillion in 2016 to P3.8 trillion in 2018, and collecting P868 billion more in taxes.

Quite naturally, President Duterte’s economic managers are clearly worried and have issued a joint statement to assure the people that economic situation is, well, okay.

The full-year 2018 growth of 6.2 percent “is a firm finish that cements the Philippines’ standing as one of the fastest-growing economies in Asia. We are next to India, Vietnam, and China. From Q1 to Q3 of 2018, we overtook Indonesia and Thailand in terms of economic performance,” said Economic Planning Secretary Ernesto Pernia, Finance Secretary Carlos Dominguez, and Budget Secretary Ben Diokno.

Inflation rate—the rate of increase in prices—was 5.1 percent in 2018, far above the central bank’s 2-to-4-percent target and 59 percent above the 2017 inflation of 3.2 percent and 2.8x (almost three times) the 1.8 percent inflation in 2016.

In 2018, the state National Food Authority (NFA) announced a rice shortage even before it happened. Also in 2018, TRAIN increased the tax on diesel—the poor man’s fuel—from zero to P2.50 per liter (P4.50 this January).  Then the peso depreciated by 12 percent from end-2016 and crude prices hit $80 per barrel.

Royally screwed is how economist Solita Monsod describes how inflation hurt the poor in 2018. She writes: “The average inflation rate faced by the poorest 30 percent of the people for the 11-month period (January to November) in 2018 was 7.1 percent. Contrast that with what we (the nonpoor) experienced for the same period: 5.2 percent. What makes it all the more unfair to the poor is that, at the same time, the take-home pay of the nonpoor (except for the top 0.01 percent) was increased because of the TRAIN law income tax reforms. The poor had no such increase in take-home pay. In effect, the nonpoor were given the wherewithal to more than cope with any price increases, while the poor were given nothing.”

Record-high prices and a severe food shortage is a formula for discontent.

When France’s Emmanuel Macron raised fuel prices unnecessarily last November it triggered a popular unrest

not seen since the French revolution. Once dubbed France’s JFK, Macron is fighting for his political life coping with a people’s revolt that has no leader, no organization, no end in sight, and no major agenda except his removal from office.

In Argentina, the world’s highest inflation rate since the Bible was invented has divided the country into two presidents, one duly elected but not performing, and another self-proclaimed but propped up by foreign colonial powers that used to ravage the country like they were playing in a barren football field.

Davao tycoon Dennis Uy’s Mislatel Consortium promises to be the Philippines’ best telco in terms of quality of service, network reach, internet speed, and reasonable pricing.

While a late entrant into a mature business, Dennis has considerable influence—he is the best business friend of the strong-willed Rodrigo Duterte who hates monopolies and Big Business as a matter of attitude; he is tied up with state-owned China Telecom, China’s third-biggest telco which does not seem to have the baggage of Huawei; and he wants to ride on the government’s power grid called National Grid which has a nationwide infrastructure.

“We don’t want to be just the third telco,” Dennis Uy assured the senators at the hearing on Jan. 24, 2019. “We want to be the best telco. A telco that is fast, affordable, and most importantly, secure.”

Before entering the telco business, Uy said, “I endured the most strict scrutiny no other businessman before me underwent. Many of my relatives and friends warned me against going into telecommunications. You have to make a lot of sacrifices before you start making money,” he added.

“Still,” Uy stressed, “I persisted because I believe a better telecommunications service is needed for faster growth of the Philippines. For too long, people have been waiting for a world-class and affordable telecommunications provider,” he lamented.