Telstra recently confirmed that it was in talks with SMC to launch a mobile carrier in the Philippines that would provide voice, text and internet services with a focus on mobile broadband. The move has alarmed Telstra investors and analysts alike, given the hundreds of millions of dollars worth of investments required into a risky market already dominated by PLDT and Globe Telecom. Add to this Telstra’s inexperience in emerging markets, and mixed track record when it comes to investments overseas.
Reports are that Telstra would not be working with its mobile technology provider Ericsson on its Asian investments, but would instead work with ZTE on building a new mobile network in the Philippines. Telstra has partnered with ZTE in the past, having also used the Chinese firm’s technology to build subsidiary CSL’s high-speed broadband network in Hong Kong in 2009.
Filipinos are wary of ZTE and associate the company with corruption after it was anomalously-awarded US$328 million national broadband network (NBN) contract by the Philippine government in 2007.
Whistle blowers Joey de Venecia and Jun Lozada exposed under-the-table payoffs by ZTE that led to a bloated contract price which was more than double the actual cost. The Office of the Ombudsman in December 2011 then filed graft charges against the former President for supposedly approving the multi-million dollar NBN-ZTE contract, despite being “fully aware” of its supposed irregularities. Government investigations and hearings on the matter eventually led to the cancellation of the ZTE contract and the impeachment of Arroyo from office.
Her husband, Jose Miguel “Mike” Arroyo was also indicted on charges that he and his wife received millions of dollars in bribes from ZTE to push the overpriced government NBN contract. The former president is currently detained at the Veterans Memorial Medical Center over plunder charges.
Aside from corruption scandals, ZTE has also been labeled as a security risk by countries including the United States, UK and Canada because of espionage and cyber attack concerns. In June of this year, the US in fact identified a massive security breach traced to Chinese hackers. The security breach exposed the social security numbers of millions of US federal officers, creating a major privacy violation. As a result, several other countries have taken heed and exercised caution in dealing with Chinese companies.
The Australian government itself banned Chinese companies from bidding as suppliers to its own national broadband network in 2012. In addition to this, new laws being drafted under the Telecommunications Sector Security Reform will give the Australian government the capacity to revoke the service licenses of telecoms carriers should they be found to violate the new rules. This move may further restrict Chinese companies from supplying Australia’s networking and telecommunications infrastructures.
The Philippines is especially sensitive to China’s security threats, considering its ongoing dispute with the Chinese over sovereignty in the West Philippine Sea. ZTE’s involvement with Telstra in building a new telecoms network in the country would certainly be watched closely by government regulators and security officials.
"We note recent speculation concerning Telstra considering an investment in a wireless joint venture in the Philippines with San Miguel, and that financing is being sought in relation to that joint venture," Telstra said in a recent disclosure to the Australian Securities Exchange. "We are in discussions in relation to these matters. However, no agreements have been reached in relation to these matters and there is no certainty that this will occur."
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