The newest telecom operator in the Philippines, a local joint venture with state-run China Telecom, is already courting national security-related controversy in a newly brokered deal with the Armed Forces of the Philippines (AFP).

Mislatel consortium, comprised of the local Udenna and Chelsea Logistics Holdings, Mindanao Islamic Telephone and China Telecom, signed on September 11 an anticipated memorandum of agreement (MOA) with the AFP.

China Telecom holds a 40% stake in the venture and is expected to provide most of the deal’s equipment. The state-run telecom company cooperates closely with Huawei in 5G, with the two sides jointly releasing a so-called “5G super uplink innovation solution” on June 27.

The MOA will pave the way for the China-affiliated consortium to install communications networks and facilities in Philippine military camps and installations, and is seen as a first major step in the new entrant’s expansion into local markets.

But it is also raising concerns that China’s technological presence in Philippine military facilities could undermine strategic relations with the United States, a mutual defense treaty ally which actively cooperates with the AFP in counterterrorism, training and maritime security.

The US has openly expressed its concerns about the introduction of Chinese-made telecommunication technologies and equipment, especially 5G networks that give Beijing greater control over communication flows, into the country broadly and in Philippine military facilities in particular.

Mobile telecommunication towers in the Philippines. Photo: Twitter

Under the agreement, Mislatel will be required to “furnish all equipment, labor, and materials necessary to effect the co-location of its facilities and will shoulder all expenses in connection with or incidental to the co-location.”

The consortium will also pay to train AFP staff in the use of equipment as well as its maintenance, upgrade and services.

The Philippine military will specify the exact location and use of Mislatel’s equipment to ensure its operations are not compromised, AFP Chief of Staff General Benjamin Madrigal Jr said.

Duterte vowed to open the Philippines’ telecom market to more competition soon after his mid-2016 election win, part of his drive to challenge the country’s traditional business elites, or “oligarchs”, as he has referred to them.

Before Mislatel’s entry, Philippine Long Distance Telephone (PLDT) and Globe Telecom dominated the US$5.2 billion market. Mislatel is led by Dennis Uy, a rising Sino-Filipino tycoon from Davao with sprawling business interests including in energy and a long-time hometown friend and ally of Duterte.

The Philippine military’s Chief of Staff, General Benjamin Madrigal, was quick to defend the controversial deal, noting that similar AFP deals have been struck with the other two major telecom operators, namely Globe Telecom and Smart Communications.

“Our MOA with other telcos significantly improved the ICT [information communications technology] and infrastructure of the AFP, and we are optimistic that this opportunity will also bring great benefits to the armed forces.”

Speaking to concerns of possible Chinese spying or espionage, Philippine military officials are adamant that there are built-in guarantees that the devices, equipment and structures installed at the sites provided by the AFP cannot be used to gather or eavesdrop on classified information.

Philippine Defence Secretary Delfin Lorenzana gestures during a Reuters interview at the military headquarters of Camp Aquinaldo in Quezon city, metro Manila, Philippines February 9, 2017. REUTERS/Romeo Ranoco - RTX30A9V
Philippine Defense Secretary Delfin Lorenzana gestures at the military headquarters of Camp Aquinaldo in Quezon city, metro Manila, February 9, 2017. Photo: AFP

Madrigal reportedly endorsed the approval of the deal to Defense Secretary Delfin Lorenzana, an independent-minded military leader who has often raised concerns over Chinese threats to Philippine national security, including through encroachment on Manila’s claimed territory in the South China Sea.

Presidential spokesperson Salvador Panelo, however, said on September 16 that “[Lorenzana] texted me about it and he said he doesn’t know anything about it and he is going to investigate and ask the concerned people involved in the deal so we’ll wait for his findings.”

Panelo said that if there are any national security red flags, “this government can do something about it.”

Barring security-related delays, Mislatel, soon to be renamed Dito Telecommunity, is expected to quickly implement the agreement as the firm embarks on an ambitious five-year expansion plan that aims to break the market’s long-time duopoly.

“This partnership gives Mislatel a fair chance to compete with the other networks, given that the AFP also has similar partnerships with Globe and Smart,” Madrigal said

Uy, who has emerged as a major corporate player under Duterte’s presidency, was unsurprisingly upbeat about the deal, saying it was a much-needed stamp of approval from the Philippine defense establishment amid lingering public skepticism.

“We…are truly grateful to the AFP for this partnership. The rollout of Dito’s towers is indeed one herculean feat. With this partnership with the AFP, we are nearer our goal of building a wide and robust network,” Uy said.

Leading opposition figures, however, quickly labeled the deal as a clear and present danger to Philippine national security.

Dennis Uy, chairman and CEO of Philippines' Phoenix petroleum company, delivers his spech at the Philippine Stock Exchange in the financial district of Makati, suburban Manila on July 11, 2017, on the company's tenth anniversary of its listing.  / AFP PHOTO / TED ALJIBE
Dennis Uy at the Philippine Stock Exchange on July 11, 2017. Photo: AFP/Ted Aljibe 

Opposition critics have pointed to Chapter 1, Article 7 of China’s new National Intelligence Law, which states, “Any organization or citizen shall support, assist, and cooperate with the state intelligence work in accordance with the law…”

They argue that China Telecom could easily use its financial and technological influence within Mislatel to spy and surveil within Philippine military facilities, particularly in gathering sensitive information about the two sides’ disputes in the South China Sea.

“Why build these telco towers inside camps in the first place?” complained Senator Francis Pangilinan, a stalwart of the opposition Liberal Party. “The Philippine government has not only allowed the Chinese telco on our soil, it has laid the red carpet for Dito Telecoms inside our military camps,” he said in a statement released a day after the MOA’s signing.

The opposition senator warned that the deal “raises fears of electronic espionage and interference given the record of some Chinese firms for engaging in this illegal activity.” Under Duterte’s Beijing-leaning presidency, he opined, “Our security and foreign policies have become so absurd.”

Jose Antonio Custodio, a former National Security Council consultant, warned that China may “perceive what happened as a gauge of their success in co-opting elements from within the Philippine military,” and this will make the Philippines seem as “an unreliable ally” to the US.

During a visit to the Philippines earlier this year, US Secretary of State Mike Pompeo openly warned, “America may not be able to operate in certain environments” if host countries adopt advanced Chinese technology, especially Huawei 5G networks.

Whether Philippine-US defense cooperation will actually suffer after Mislatel installs Chinese communications technology in Philippine military bases is yet to be seen. But by treating such sensitive China deals as business as usual, Duterte’s administration has blatantly ignored the publicly expressed concerns of its long-time treaty ally.