The Philippines' NTC and the spectrum mess

19 Jan 2016

Recently, the National Telecommunications Commission (NTC) has been put in the spotlight amid calls from PLDT and Globe to reallocate the 700-MHz band held by San Miguel Corporation (SMC) for more equitable distribution.

The 700-MHz band (694-790 MHz) is the second digital dividend for mobile broadband identified by the International Telecommunication Union (ITU) at the World Radiocommunication Conference (WRC-15) last November. This means it was created by migrating the analog terrestrial television platforms which formerly occupied this band to more spectrally-efficient digital platforms. The low-frequency band’s wide propagation capabilities allow for lower capital investment to cover a larger area, which can significantly aid the growing smartphone uptake.

SMC currently holds 90 MHz of the total 100 MHz on the 700-MHz band through Wi-Tribe Telecoms, Inc. (80 MHz) and High Frequency Telecommunications, Inc. (10 MHz). The remaining 10 MHz is held by New Century Telecommunications.

It’s been said that the 700-MHz spectrum is SMC’s most valuable asset in a potential joint venture with Australian telco Telstra. As of December 2015, SMC and Telstra were still in talks and no final deal has been struck.

In November 2015, PLDT and Globe issued statements clamoring that NTC reallocate the 700 MHz for equitable distribution. PLDT claimed that it has lodged its request to NTC since 2008, but had not received any official reply. In press statements, NTC said that the frequency reallocation would be difficult as it is “a quasi-judicial process.” There must be a reason to recall the spectrum from SMC, such as non-utilization or non-payment of SUF, conditions that, the NTC says, do not apply to SMC. PLDT has threatened legal action against one of NTC’s deputy commissioners because of this statement.

The growing demand for mobile broadband worldwide has made radio spectrum allocation a matter of critical importance. In the Philippines, the NTC is mandated to manage and award spectrum licenses based on a law enacted in 1931.

Spectrum user fees (SUF) collected by the NTC reaches about 3 billion pesos annually. This makes up over half of the regulator’s entire license fees for a year. SUF collection, however, goes directly to the national treasury, and the NTC does not get to keep any of it as income.

By law, spectrum allocation in the Philippines is to be done through an open tender and auction, following the standard government bidding process. The procedure for the review, allocation, and assignment of spectrum is contained in an NTC memorandum circular issued in 1996, barely a year after internet service became commercially available in the country.

To date, however, no bidding has ever been carried out by NTC to allocate precious spectrum. The radio frequencies for 2G to 3G have always been assigned to the telcos by the Commissioner’s office. The reason, according to NTC, is that supply for spectrum has always exceeded demand—something unheard of, as spectrum is considered a scarce natural resource in most parts of the world.

Spectrum auctions are a huge source of income for governments. In Thailand, the 900-MHz license was auctioned off for 87 long hours and earned the Thai government a staggering $4.2 billion.

The Philippines’ NTC argues that putting a high price on spectrum would not be beneficial, as the telcos would simply pass on the cost to its subscribers. And yet Thailand has one of the most affordable mobile broadband services in Asia, making up only 1.38% of its gross national income (GNI) per capita, compared to the Philippines’ 2.7%.

The basis for NTC’s valuation of spectrum is not very clear. When asked, the regulator said that allocation is based on three factors: (i) demand, (ii) amount of available bandwidth, and (iii) the spectrum’s use or social impact. For example, 10 MHz of 3G in the 2100 band is currently valued at 65 million pesos, as this would translate to a contribution of P1 per month for each subscriber. An additional 5Mhz will cost 50 million pesos.

The need to reallocate spectrum is at hand, but observers point to the risks in applying a confiscatory approach based solely on pressure from other (larger) players. Some telecom stakeholders have lamented that key spectrum bands have mostly been allocated to the large telcos without consideration for the smaller players and new entrants.

Others deem it important for NTC to open up more unlicensed frequencies in order to allow small providers to offer internet service. Telcos, meanwhile, argue that spectrum allocation should be based on the number of subscription and scale of use.

Different stakeholders value spectrum differently. But one thing is sure: the absence of a spectrum management plan and transparent allocation process are critical issues that affect the quality of mobile.

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