BlogsRSS

PLDT and Globe buy SMC telco assets – A Dissection

After the much-hyped negotiations of San Miguel Corporation with potential foreign partners, the awaited third telco ended up selling its assets to PLDT and Globe . The sale dampens any hope of a new market player anytime soon. It also quashes any doubt that the duopoly will idly stand by and allow potential investors to enter their turf.

It was a deal for the books, with the two telco giants, usually at odds with each other, deciding to purchase shares from a potential competitor 50-50. The buyout price is a staggering $1.5 billion (69.1 billion pesos), $500 million short of the amount that SMC would need had it pushed through with its plan to establish its own mobile service network.

The sale is not an ordinary transaction for so many reasons. Digital rights lawyer Cecilia Soria offered quick points on the deal. SMC is selling its telecoms business primarily through Vega Telecom, which has controlling interests in Bell Telecoms, Eastern Telecoms, Cobaltpoint Telecoms (formerly Extelcom), and Tori Spectrum Telecoms (formerly Wi-Tribe), and High Frequency Telecoms. PLDT and Globe will be buying 50% each of Vega and assume the company’s liabilities amounting to 17.2 billion pesos.

The SMC telco buyout was crafted swiftly just two months after talks with Telstra bogged down. The deal was announced last week, apparently a few days after NTC approved the application of PLDT and Globe for co-use of certain frequencies earlier assigned to Bell Telecommunications, Inc. (a subsidiary of Vega) in the much-coveted 700-MHz band, as well as the 900-MHz, 1800-MHz, 2300-MHz, and 2500-MHz bands. The NTC’s approval on spectrum co-use did not come out until after the PLDT-Globe buyout of SMC telco assets was announced.

According to the NTC, the permission was granted to PLDT and Globe on the condition that they “increase capacity, i.e., broadband and internet access speed, within one (1) year.” But as to how much faster and from what baseline speed were not stipulated in the approval. It is also not clear how the two telcos, who have been blamed for the country’s slow and expensive internet service, can all of a sudden improve the quality of internet in a few months to a year. Are the Filipino consumers to suddenly expect some accountability from the NTC and the telcos?

PLDT and Globe also announced that they will be returning frequencies in the 700-MHz, 850-MHz, 2500-MHz and 3500-MHz bands to NTC supposedly for the use of a third telco. According to Pierre Tito Galla of Democracy.net.ph, the bands being reverted to the government only comprise about 20% of each band’s entirety and appears to be token effort. The return is merely another pragmatic business decision, not a sense of fairness by the telcos, as it reduces the amount of spectrum user fees that they are required to pay.

This PLDT-Globe-SMC deal is begging to be dissected and scrutinized, as it affects not only the telecoms market, but most importantly consumers and the national economy.

It challenges NTC yet again, as the regulator struggles to accomplish any victories and gain credibility over the past several years while internet service has remained poor.

On spectrum use, it needs to asked why it is the telcos that decide which spectrum they want to return and not the NTC’s. Shouldn’t there be a good justification and consideration of the opportunity cost when assigned frequencies are returned?

NTC as the regulator is mandated to approve M&A when there is change of ownership. But since PLDT and Globe are just buying the controlling shares of Vega, and Vega remains the entity that holds the right to some spectrum bands, Atty. Soria thinks there is no need for NTC approval.

This latest telco buyout can also serve as the first test case for the newly established Philippine Competition Commission (PhCC) in implementing the country’s anti-trust law enacted last year.

The PhCC already issued a statement on the deal saying that it will “assess and take action as appropriate .”

However, the PhCC was seemingly put in a bind because of the transitory rules it had earlier issued, which states that while the implementing rules and regulations are not yet in place, parties who submit M&A notices can already implement the agreement as they are already “deemed approved.”

Surely, the transitory rules, issued in the form of a memorandum circular, can and should not eclipse the higher mandate of the PhCC or offer a leeway for anti-competitive practice. The review should still be done and the pertinent questions still needs to be asked, hopefully not in futility but for some enlightenment on this very important transaction.

Could it be considered as anti-competitive when the two largest market players work together to buy the controlling shares of another telco, in this case a potential new entrant, effectively lessening the opportunity for competition? In the past, NTC apparently did not see such a risk when it approved the mergers of PLDT and Digitel, and Globe and Bayan.

What could be the impact of transferring the telecom infrastructure and spectrum bands, previously assigned to another telco, to the hands of the two largest telcos in the country?

In order to achieve fairness for all parties to be affected by the buyout, should the PhCC impose significant market power obligations on the duopoly? This may be in the form of, say infrastructure sharing with smaller and new market players, similar to how NTC allowed them to co-use spectrum.

Finally, will concentrating telecoms assets in the hands of fewer market players contribute to “technical or national progress” or benefit the consumers in the end?