Australia’s largest operator Telstra said today it was unable to reach a commercial arrangement with San Miguel Corp (SMC) on setting up a wireless joint venture in the Philippines.

Andrew Penn, Telstra CEO, said the two companies agreed to end negotiations after they were unable to agree on a possible equity investment over the weekend. “Despite an enormous amount of effort and goodwill on all sides, we were simply unable to come to commercial arrangements that would have enabled us all to proceed.”

“While this opportunity is strategically attractive, and we have great respect for San Miguel and its president Ang, it was obviously crucial that the commercial arrangements achieved the right risk-reward balance for all involved.”

Telstra confirmed in August it was in talks for several months with SMC about investing up to $1 billion to create a third mobile operator in the country.

Telstra said it offered to continue technical network design and construction consultancy support to San Miguel, should those services be required.

SMC, the country’s largest corporation by revenue, took steps last year to consolidate its growing telecoms holdings in the Philippines. An SMC subsidiary acquired a 100 per cent stake in its wireless broadband venture Liberty Telecoms by purchasing the outstanding shares from its partners Qtel West Bay (part of Ooredoo Group), Wi-Tribe Asia and White Dawn Solution.

The Australian operator was obviously attracted by Liberty’s 80MHz of spectrum in the 700MHz band. But in early November PLDT and Globe Telecom – which together account for 99 per cent of the country’s mobile connections — called on the regulator to auction off part of the valuable 700MHz spectrum held by SMC’s units.

Both operators for months have insisted that since the spectrum is “highly underutilised”, it should be reallocated to help them deliver faster speeds in a more cost-efficient way.

Longer-term threat
Fitch Ratings said Telstra’s exit will delay the entry of a formidable third player into the Philippines’ market, which will support the credit strength of the incumbents in the short term.

However, it noted that the medium- to long-term threat of greater competition remains as SMC said it will still proceed with its own network rollout as scheduled, and will consider other joint-venture opportunities in the future.

Fitch expects the incumbents to invest in greater capacity this year, with industry capex to stay high at around PHP80 billion ($1.7 billion) in 2016, up from PHP75 billion last year and PHP55 billion to PHP58 billion a year from 2012-14.