The PH government's telco ambitions: part 2

16 Oct 2017

Part 2 of a two-part series

Two weeks ago, the Philippines' National Transmission Corporation (TransCo), a state-run firm, announced its plans of becoming the country’s third telco.

What exactly do we mean by “third telco”? Is it a full-service telco offering voice, SMS, and data services? Or would a data-only service provider do?

Would it suffice that the third player invests in commercially viable areas? Or should it focus instead on addressing unmet demands in the emerging markets, including the underserved and unserved areas?

Should the third player be a single, vertically integrated service provider? Or a group of small players serving different market segments, like an open, carrier-neutral backbone infrastructure? Or many ISPs connecting the end-users in the last mile?

TransCo’s president, Melvin Matibag, said that they plan to operate a full telco business. He hinted that 10 firms have already expressed interest to partner with the transmission company.

First question that came to mind is the implications this would have on the National Broadband Plan. Was TransCo’s announcement known to the Department ICT? Would government still be able to use TransCo’s fiber cores for a public sector backbone? Would the transmission grid still be able to help connect the unserved areas in the country?

Second, would TransCo be able compete with PLDT and Globe? The answer is both yes and no.

Yes, because TransCo has an extensive fiber optic cable network and wireless network that stretch from Luzon to Mindanao. According to the National Broadband Plan, TransCo’s telecom backbone—assets that are managed and operated by the National Grid Corporation of the Philippines (NGCP), a private company—consists of “optical paths (optical passive ground wire) along high-voltage transmission lines and microwave radio hops which connect Luzon, Visayas and Mindanao via two (2) routes through Mindoro in the West and via Bicol in the East.”

This can serve as an alternative backbone, with telecom towers and rights of way already in place, for smaller telcos and ISPs, apart from what the duopoly currently has.

No, because TransCo does not have direct access to international connectivity and the last mile network. At least not yet.

TransCo still needs to buy bandwidth from somewhere. Unless there's a carrier-neutral landing station or TransCo gets capacity from satellites or government builds its own landing station, TransCo will still depend on PLDT and Globe for international connectivity.

More importantly, TransCo needs infrastructure to connect to the end-users. Will it now invest in a network that would wire the streets and buildings, and extend fiber to premises and homes, or put up cell sites for mobile broadband?

While some are saying that the government is the only viable third player, others are approaching the idea with caution and sobriety.

Louis Casambre, former executive director of the then ICT Office ICT, believes that government should not be in the telecoms business but it has a role to play in aspects where there is market failure. “Market failure is where financial viability cannot be had, or competition cannot exist. In such cases, government intervenes. While becoming the third telco would be an intervention, it would not… be the best one and it is froth with danger that history has already clearly demonstrated.” For Casambre, government can do any of the following: “1) nationalize or at least regulate the natural monopolies; 2) intervene in the non-viable areas; and 3) let a 3rd private sector mobile operator come in.”

Jesus Romero, a telco executive, thinks that government’s capacity in operating a telco depends largely on getting the right people. “A big handicap of the government is that current salary levels do not allow them to attract and retain people with the talent and skill[s] set necessary (both in quality and quantity) to be able to run [a telco]” with the desired results. That said, Romero commends people who “choose to remain in the public sector despite their clear marketability.”

Dr. Ramon Clarete, a professor at the School of Economics of the University of the Philippines, argues that competition is what the telecom industry needs. “Competition had made the industry [take] very important and big strides for… improving communication services, such that at least 8% of the GDP is contributed now by an ICT-intensive business process management industry.”

Clarete thinks that the government must allow as many players who decide to come in to enter the market. “Contestability of the industry is important to get competition going and strong.” Referring to the botched Telstra-San Miguel deal, Clarete recommends finding out why private investors are shying away from the industry. “Is there a hidden barrier for entry that we don't know?”

Ironically, the government wants to enter the telecoms business due to the lack of competition in the market. To me, the problem is policy, not the lack of interested investors. Faced with the reality of outdated and backward laws and regulations—some dating back 80 years ago when even telephones were a scarcity, and others either vague or fraught with ridiculous preconditions—any investor would have lots of second thoughts. Perhaps the government ought to look first at the policy and regulatory environment that shapes the telecoms market, and address the issue of market contestability. Then maybe we’d see not just a third, but even a fourth or fifth player.

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