Duterte, Dito, and the Duopoly

In late July, during a meeting with his cabinet, Phillipine President Rodrigo Duterte sat at the head of a large table, the country’s official seal hanging behind him. “That’s Ernest Cu,” he said with a slight smile, gesturing to one of the men seated nearby. “I told him, if you don’t improve the service, I will hang you on one of your towers.”

Cu is the president and CEO of Globe Telecom, one of only two mobile network companies operating in the Philippines. Just days before, during his annual state of the nation address, Duterte warned that he was prepared to shut down Globe and its competitor, Philippine Long Distance Telephone (PLDT), and seize their assets, if the companies failed to improve service by the end of the year.

A strongman populist who came to power in 2016, Duterte has singled out the telecom industry as part of a broader war against powerful oligarchs who dominate the country’s economy. During his election campaign, he pointed to painfully slow internet speeds — at the time, the second-slowest in Asia — and warned that, if they didn’t improve, he would bring in a third operator to boost competition. Speeds in the Philippines have since increased dramatically, more than doubling between 2016 and 2019. But Duterte handed out a third license anyway, to Dito, a Chinese-backed company expected to launch in the coming months. 

Duterte is a divisive figure who often lobs outrageous threats at his opponents. He recently lashed out at Facebook, for example, after the social network took down an army of fake accounts that spread support for his policies. But broadband speeds are a popular issue with voters: In 2018, Filipinos were the heaviest users of the internet anywhere in the world, spending on average more than 10 hours a day online, according to one report by the marketing agency We Are Social. 

“Part of the genius of the president is that his team is able to pick out issues that are really close to the gut of Filipinos,” says Michael Henry Yusingco, a senior research fellow at the Ateneo School of Government. He says that, if the president can use his tough policies to drastically improve internet service, “it’s a big plus for his dynasty and also for the allies of his dynasty.”

How did cell towers get so political?

A small group of elite families has long controlled the Philippines, overseeing everything from mining to real estate and infrastructure. The internet is no different, partly because barriers to entry in the sector are so high. A 1995 law regulating telecom companies still requires new entrants to invest in expensive and often unprofitable landlines. “It actually forces industry players to invest in technology or offer a service that is becoming obsolete,” says Mary Grace Mirandilla-Santos, an independent telecommunications researcher in the country.

The only companies that could afford to invest in landlines were cash-rich conglomerates and those run by “old-money” families, like the Ayalas, who are major stakeholders in Globe, or the real-estate-to-airlines conglomerate JG Summit, which is a major shareholder in PLDT. “Our current investment structure in the Philippines is very limited. There are only a few families or groups that can raise the amount of money to put forward a third telco business,” says Yusingco.

Larger companies have also swallowed new upstarts in the space. In 2016, PLDT and Globe together bought out their only rival, Vega Telecom, which was started by San Miguel Corporation, another giant conglomerate. Mirandilla-Santos says that, during its short stint, Vega did have a positive impact on the market: In 2015, 1GB of data cost approximately $7.10, according to her research. By the end of 2018, that number fell to just $3.16. Dito’s entry could similarly drive down prices.

Without competition, there was little incentive for Globe or PLDT to invest in upgrading their network infrastructure or lowering data rates costs. A 2014 study by the think tank LIRNEasia found that internet users in the Philippines paid more for worse connectivity than in almost anywhere else in Asia, holding back development of the country’s technology sector.

“The issue has historically been that data is just too expensive,” says Henry Motte-Muñoz, the founder and CEO of Edukasyon, the country’s leading digital education platform. “So you have a lot of users who, if they could, would spend more time on your site, but they don’t.”

Will a third mobile operator really help?

Duterte’s war against Globe and PLDT appears to be working. When the new president came into office, 25% of Edukasyon’s internet traffic came from Free Basics, a Facebook program that gives Fillipinos free access to some websites, including Motte-Muñoz’s. Today, it’s closer to 10%. “[The price cut] was massive for us because, for lower-income students, Free Basics was the only way to use the internet,” Motte-Muñoz says. 

More affordable data has also spurred entrepreneurship. In 2018, after prices came down, Rexy Josh Dorado founded Kumu, a livestreaming app that now has more than 1 million monthly active users. Price, though, is only one part of the problem: The quality of internet connections remains patchy at best, particularly outside of major urban areas. In the rural city of Dumaguete, where Dorado is from, the internet works just on the main street of his hometown. “If you drive five minutes out, it’s basically dead,” he says.

Together, Globe and PLDT have constructed around 18,000 cell towers, half of what the Philippines’ Department of Information and Communications Technology says is needed for optimal coverage. To build more, Globe told The Philippine Daily Inquirer, it has to comply with burdensome state requirements, including getting 28 to 30 licenses that can take upward of eight months to secure. But over the last three years, Globe and PLDT, up against the same regulations, have poured 30% more money into infrastructure investments, according to data from the credit agency Fitch Ratings.

So why, after all that progress, did the president decide to bring in a third competitor?

What is Dito, and will it succeed?

Dito, Duterte’s new competitor for Globe and PLDT, is run in part by the Udenna Group, a shipping and oil giant owned by Dennis Uy, an old political ally of the president and one of the largest contributors to his campaign in 2016.

The company fits neatly into two patterns typical of Duterte’s time in office. Giving Dito access to the Philippines internet market enriches a figure who is outside of the traditional oligarchy but is also aligned with the president. And Dito relies heavily on Chinese investment: The company is a partnership with the state-owned China Telecommunications Corporation. Duterte has previously courted Beijing for investment in a number of other infrastructure projects. 

That money and political support could give Dito a leg up as it tries to contend with two enormous companies with decades of experience and infrastructure. But it will still need to overcome the same challenges that killed off previous competitors that tried challenging the existing duopoly. Even if it fails, however, it may have already served its political purpose. “For the Duterte government, the entry of Dito is really about the perception that they’ve tried to do something about the really bad internet,” says Yusingco.