The Philippine Competition Commission and the taming of a duopoly

13 Jul 2016

Just a few months after it was formed, the Philippine Competition Commission (PCC) was already faced with its first, and possibly toughest, test case. And what better way to put its mandate and effectiveness to the test than in telecommunications, one of the country’s most profitable sectors that, despite deregulation and liberalization, remains to be dominated by only two players, PLDT and Globe. Call it naiveté of a newbie watchdog, but it’s refreshing to see a government regulator put its foot down despite pressure from the powerful telcos and their allies—something the country has not seen in a long while.

The issue began when PLDT and Globe, historically at odds with each other, announced in May that they had each bought 50% of the telco assets of San Miguel Corporation (SMC), a potential third telco. The transaction included the much-coveted 700-MHz spectrum band, most of which SMC held. Before the buyout, SMC was reportedly gearing up to roll-out a third mobile network but was struggling to find a foreign partner, aggravated by the threats of law suits by PLDT and Globe.

Since the announcement of the deal, PLDT and Globe have been dishing out press statements to justify the buyout—the most urgent, according to both, being the utilization of the 700-MHz spectrum band that was allocated to, but remained unused by, Vega Telecom, a subsidiary of SMC.

A sort of word war has begun between PLDT and Globe, and the Internet Society Philippines Chapter, one of the first groups to send its comments to the PCC on the buyout. ISOC criticized the deal as anti-consumer, as it locked out new or emerging competitors. It also argued that taking over the 700 MHz band is neither necessary nor sufficient for providing good internet connectivity, as seen in other countries that do not use the spectrum yet have much faster internet speeds.

PLDT and Globe were quick to issue a response to the global non-profit organization, claiming that the ISOC’s premise is erroneous and asserting the need for the 700-MHz band.

Now the PCC has to make the tough decisions. Will it allow the deal to push through or not? If PCC disapproves the deal, what are the consequences to the telcos involved? If it approves the deal, how can it ensure that competition in the sector will remain intact? And, in the larger scheme of things, how will PCC’s decision affect similar cases in the future?

This is a test case not only for the PCC, but for the whole country as well. The public, whose interest is of primary concern, should also get involved, ask questions, and speak out.

Should government intervene in this transaction, which the telcos argue is targeted at gaining efficiency? While I agree with a telco executive’s assertion that government should leave the private sector alone, that comes with an important caveat that the market is working well, is effectively satisfying the consumers’ needs and demands, and not one or a few players is benefitting at the expense of others. When these factors are absent, the government should be there to protect the consuming public.

Will the SMC telco buyout benefit the general public in the long run? And this is not just about firing up a few hundred base stations within a few months. Or expanding Wi-Fi hotspots in select public areas. Or coming out with freebies and all sorts of data service promos. It’s about the freedom of consumers to choose a service provider based on value for money, customer service, and truly diversified offerings.

Following global best practice, the PCC has announced a call for views on whether the merger will (1) substantially prevent, restrict, or lessen competition in the relevant market, or (2) adversely impact consumer welfare (Comments may be sent via email to [email protected]).

But just a day after the call was issued, PLDT and Globe separately filed a Petition for Certiorari and Prohibition with an application for a Temporary Restraining Order (TRO) against the competition watchdog with the Court of Appeals.

Although the two telcos did vow to cooperate with the PCC just a month ago, this move comes as no surprise. For PCC, this is tantamount to PLDT and Globe seeking to prevent the commission from exercising its mandate to review mergers and acquisitions. Sadly, however, the law allows it. Industry players have always resorted to the appeals court to delay or stop regulatory actions and decisions that are not in their favor. As these legal battles can drag on for years, even up to a decade, the parties with the deepest pockets and the best lawyers always win, no matter the court’s decision.

There are a hundred reasons why Philippine internet is slow and expensive. But one of them, for sure, is due to the lack of options for the consumers. And if this deal goes unchecked, Filipino internet users can bet on their bottom “load” that the situation will not change in the future. Philippine telecoms will be synonymous to PLDT and Globe, just the two of them.

Maybe that’s okay. Who knows, in a few years or so, they could metamorphose into something else, add a service or two, perhaps change their logos. But their incentive for doing business will not change, and they will carry on doing what they have been accustomed to. At the very least, they would probably give consumers the bare minimum but not go out of their way to offer the best. Because nobody will be there to challenge them anyway.

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