PH Competition Act and the telecom sector

07 Jul 2015

After 25 years of languishing in Congress, the Philippine Fair Competition Act was finally ratified—a huge victory by any standard, given the strong industry lobby that has delayed the passage of the bill.

Although the Constitution provides that the State “shall regulate or prohibit monopolies when the public interest so requires,” the country lacks a comprehensive competition policy framework to help enforce this mandate. Meanwhile, its Asian neighbors and most developed countries have had antitrust laws passed since after World War II.

Despite the long legislative battle, the competition law did not gain much public attention. It was quietly heard in Congress at a time when people are busy with the next elections—an impressive move by a neophyte senator, it should be noted. If signed by the president, it is one of the landmark laws that could leave a lasting legacy for this administration for championing public interest over corporate greed.

The competition law does not prohibit monopolies, per se, but rather looks at the behavior of market players that “unduly prevent, restrict and lessen competition.” This includes analyzing the effects on the market of agreements, dominant position, ownership and control, as well as mergers and acquisitions.

It provides several definitions of what constitutes anti-competitive practices, but also presents possible exemptions. For this reason, public-interest advocates should guard the crafting of its implementing rules and regulations against unclear or loose definitions in certain provisions. For example, in Section 14 (c), it needs to be clarified how consumers can be allowed “a fair share of benefits” in industry activities “promoting technical or economic progress.” In Section 21 (a), there ought to be a clear mechanism to justify efficiency gains in mergers and acquisitions versus their effects on limiting competition. However, the proposed creation of a Philippine Competition Commission is expected to strengthen the government’s ability to carefully scrutinize such cases.

When applied to telecommunications, the competition law can help protect smaller players from the abuses of dominant telcos whose infrastructure everyone depends on for telecom services and internet connectivity. The 1995 Public Telecoms Policy Act requires value-added service (VAS) providers, including those offering internet connection, to use the network of local telcos. While this was meant to entice investment in telecom in the 1990s, it has increasingly placed the growing internet industry at a huge disadvantage. The problem is that the two big telcos are also competing in the same internet retail market as the VAS providers to whom they sell. There is, logically, a disincentive for the carriers to offer competitive wholesale prices—from the uplinks to the backhaul—that will allow its competition to grow. It is no surprise then that the number of ISPs has dwindled over the past two decades.

If enforced properly, the competition law can help set clear and transparent rules for all market players, such as, for example, the criteria for approving mergers and acquisitions. The competition commission can propose a mechanism for merger controls and monitoring compliance to preconditions, in order to ensure that public interest is served. This function would be applicable to a deal like the PLDT-Digitel merger back in 2011 where the incumbent was allowed to buy the third largest telco that was not only doing well, but which also provided effective competition and consumer choice.

The law provides for the investigation of business practices and agreements that might affect fair competition. This can be useful for arrangements like zero-rating, where major telcos partner with social media giant Facebook. While this brings “technical progress” that expands access to sponsored content, this agreement among dominant market players can dictate content and isolate the rest of the internet that are outside of the partnership.

Finally, perhaps the competition law can help strengthen the case for monitoring and publishing internet quality of service. This exercise can address the perennial problem of asymmetry of information in quality and price. The results can be used as evidence by ISPs to compete in a deregulated market—that is, based on good performance and better price. And ultimately, such an initiative, once adopted, would help consumers make more informed choices.

Update: The Philippine Competition Act has been signed by President Aquino, and officially became a law on July 21

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