Does the Philippines need a third telco?

28 Oct 2016

The answer is a resounding yes. The country needs a third, even fourth or fifth telco. It needs the presence of challengers that will put the dominant telcos on their toes again, much the same way that the new players did to PLDT over two decades ago when the telecommunications market was finally opened up to competition.

The Philippines’ telecommunications sector is ripe for new investments. It has 110 million people, most of whom have a mobile phone. Only 41% of Filipinos, however, have access to the internet—this, 20 years after it became commercially available in the country. Filipinos are technology savvy and social media adept, have a GNI per capita of 8,900 (at PPP), and are hungry for reliable and affordable data service.

But there’s a catch. That third or fourth telco would probably need to put in more effort and deal with more risks—more political and legal rather than commercial—in the current environment where PLDT and Globe, apart from having a good head start, each operate a vertically integrated and monolithic network, from the landing station, the backbone, the middle mile, and the retail market.

Unless a new telco comes in with its own investment in a submarine cable consortium or perhaps have direct access to international satellites, and will spend to build its own backbone network, it will have to deal with getting squeezed when buying bandwidth from or paying access charges to the duopoly, or even be refused interconnection.

At the last mile, the third telco must have enough capital to build a wired network. Otherwise, it would have to make do with left-over mobile frequencies because most of them, or at least those that are still relevant, were given to the duopoly. In fact, the regulator admitted that there is no mobile frequency left for a new player except for those surrendered by PLDT and Globe after the two bought equal controlling shares in San Miguel Corporation’s telecom business back in May, as well as the 3G frequency of CURE, a subsidiary of Smart Communications.

And let’s not forget that one small pocket of 3G frequency left but is still in litigation between the NTC and Bayantel. But even assuming that Bayantel wins, this telco that once dared to compete (and successfully so in some areas) with PLDT’s landlines, is now Globe.

The sad reality, as heard from engineers and telco folks, is that the frequencies that are up for auction are for technologies that are on their way out. It’s no surprise then that PLDT and Globe readily offered to give these frequencies up while doing everything they could to get ahold of the 700-MHz spectrum. And until it is revealed which specific spectrum bands these are, potential investors will not know whether they are a full set.

Engr. Pierre Tito Galla of ICT reform movement believes that because of the incoherence in spectrum allocation policy, the duopoly ended up owning 80% of the total available and allocatable spectrum. In his analysis written in a recently issued paper, “The Problem of PH Internet – How can President Duterte Make Philippine Telecommunications Faster, More Reliable, Cheaper, and More Accessible,” Galla claims that there is not enough spectrum to be attractive for the entry of even one potential new player as the usable ones have been “boxed-out” by the duopoly.

The new telco, if it wants to deliver the now more lucrative data service, also has to contend with laws and regulations that are stuck in the landline era. While there have been efforts to amend Republic Act 7925 or the Public Telecommunications Act, which still requires international gateway and cellular mobile telephone operators to roll out hundreds of thousands of landlines, progress in any of the pending bills has been slow.

Some argue that a new telco is not the answer; that there were several big telcos before, and now they are gone. A number of them died a natural death—some were mismanaged, chose the wrong technology, made bad investments, or just decided to sell. But some of them struggled really hard to survive, had to deal with paying non-competitive access charges, got refused interconnection, got bogged down with court battles, bureaucratic red tape, and territorial exclusivity that was in practice although not documented.

Echoing the same findings as the Arangkada’s Philippine Broadband Policy Brief, asserts that real competition among several players is the solution to slow and expensive Philippine internet. They wrote,

For true healthy competition in a telecommunications market, a University of Florida study has determined that there has to be at least five (5) players, no player must have more than forty percent (40%) market share, and entry for new competitors must be easy. The market shares of the effective duopoly clearly demonstrate the absence of real competition in the Philippine telecommunications market.

And ensuring true, healthy competition is what the Philippine Competition Commission is there for. Hopefully, though, the court would allow the PCC to do its mandate. It is only by putting the big players in check that we can welcome and sustain competition, and assure potential players that they will operate in an environment that encourages competition, that ensures a level playing field, that implements consistent and transparent rules, and that allows even the small, niche players to flourish. Otherwise, a potential third telco will remain elusive.

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