The impending consolidation of the mobile phone operations of Smart Communications Inc. and Pilipino Telephone Corp. (Piltel) makes competitors wonder if this is a move to spoil the planned reentry of old players and further consolidate its position in the industry.

After the Philippine Long Distance Telephone Co. (PLDT) Group announced on Friday that Piltel will transfer its Talk ‘N Text subscriber base to Smart and sell its assets to the country’s largest cellular firm, a text message circulated later that day that other mobile phone companies may “play second fiddle to Smart” because it would effectively own the frequencies of Piltel.

“Smart can double its customer base and capacity. Globe Telecom and other players, including old-timers which are staging a comeback, will play second fiddle to Smart,” the text message read.

Piltel will seek shareholders and regulatory approvals to transfer Piltel’s existing Talk ‘N Text subscriber base to Smart in consideration of a one-time payment equivalent to the subscriber acquisition cost, which Smart would have incurred for the acquisition of its own subscribers. It will also sell its GSM fixed assets to Smart at net book value; and license the use of its Talk ‘N Text brand for which Smart will pay Piltel a royalty fee based on a percentage of projected net service revenues.

The two companies ended 2008 with a combined 35.2 million subscribers.

Smart also expressed its intention for a tender offer for common stocks of Piltel held by minority shareholders. The terms, conditions and timing of the said offer will be announced once these have been approved by the Smart board of directors in consultation with independent financial advisors.

It is expected that the proposed tender offer of Smart will provide an exit opportunity for Piltel’s minority shareholders, given the change in Piltel’s business direction,” the PLDT Group told the stock exchange.

The transactions are expected to be completed within the third quarter of this year.

“Since Piltel will abandon its mobile business after buying 20 percent of Meralco [Manila Electric Co.], that frees up its 800 Megahertz (MHz) bandwidth,” according to the text message.

But Globe, the country’s second-largest cellular company, said the transaction does not add anything to Smart because Piltel is already an MVNO (mobile virtual network operator) and does not have an actual network. Globe had 24.7 million cellular subscribers in its network last year.

Sources added that Smart will not gain any additional as the frequency spectrum of Piltel is already being used by Smart.

“Piltel is a publicly listed company. They will leverage it as that,” said a source.

Meanwhile, another source viewed the Smart-Piltel consolidation as an attempt to hoard precious frequencies. “It is just a pure and simple hoarding to prevent competition from getting their hands on the 800 MHz thereby stifling free and open competition,” said a source with strong ties with Express Telecommunication Co.

Express Telecom and Liberty Telecoms Holdings, Inc. are two phone firms currently under rehabilitation process that vowed to revive their operations with new investors by their side. Their operations could also be merged, according to San Miguel Corp, which declared it would financially assist both Express Telecom and Liberty.

“It does not follow that more frequencies equals more subscribers. You can have efficient network with proper frequency planning. They have more than enough. They don’t need Piltel’s 800 MHz,” added the source.

An industry expert who had years serving the National Telecommunications Commission (NTC) said “this is still a frequency ball game.”

“At the end of the day, the one who will emerge is the one that has the most number of frequency bands. The acquisition activities, such as Smart acquiring Cure (Connectivity Unlimited Resource Enterprises Inc.), Globe buying a stake in Altimax, and SMC buying a broadband firm with nearly 100 MHz of frequency, is setting the stage for a heated yet exciting competition,” the official added.

The PLDT Group announced last Friday that Piltel will be buying 223 million shares in Meralco at P90 apiece for a total of P20 billion from First Philippine Holdings Corp. of the Lopez group.

One the transaction is completed, the Lopez family’s stake in Meralco will be reduced to only 13.4 percent. With the Piltel purchase, the PLDT group’s stake in Meralco comes to 30.1 percent. Of which, 10.1 percent was bought by the PLDT Beneficial Trust Fund (BTF).

Also last Friday, Metro Pacific Investments Corp. (MPIC), the flagship arm of First Pacific Co. Ltd., which is the single biggest shareholder of PLDT, will acquire BTF’s interest in Meralco.

The BTF has invested approximately P10.3 billion in its Meralco shareholding while MPIC market capitalization at close of business on 12 March 2009 was approximately P18.9 billion.

“With BTF investment in MPIC, BTF gets a very good portfolio investment in a great array of profitable infrastructure and utility assets with very good growth potentials. At the same time, BTF will drive the synergies of the PLDT group and these assets,” said BTC vice chair Ray Espinosa in a text message.