Reversing competition policy the Philippines way

Dianne Northfield/Tolaga Research
22 May 2012

With 2011’s telecom M&A activity focused on the now failed acquisition of T-Mobile USA by AT&T, the regulatory sanctioning of a mobile monolith and an effective mobile market duopoly in the Philippines received less attention globally.

Market concentration and competition concerns largely led US regulators to oppose the T-Mobile/AT&T marriage. In contrast, in the Philippines, regulators supported their October 2011 decision to allow PLDT's acquisition of third-largest operator Digitel based on the forced divestiture of spectrum.

The concepts of market share and associated market power and dominance were largely dismissed as factors in the review of the case. Already a formidable player with over 50% market share pre-merger, with the acquisition of Digitel, PDTL now holds 67% of the Philippine mobile market based on subscribers. Moreover, the Philippines market has been reduced to a duopoly, with PDTL now engulfing three operators – Smart, CURE (to be divested as discussed below) and Digitel.

Of note, based on the US application of the Herfindahl-Hirschman Index (HHI), the 43% market share that a combined AT&T/T-Mobile would have command is significantly lower than PLDT/Smart’s share of the Philippine market - even before the Digitel acquisition was sanctioned. This control of close to half of the US market formed part of the basis for opposition to the US deal.

Similarly, in the European context, an operator is designated as dominant or holding ‘significant market power’ where it is deemed to hold 40% or greater market share.

In the Philippines, the National Telecommunications Commission (NTC) based its decision to allow the merger on forced divesture of spectrum and its redistribution. In essence a number of parties, including the Senate and the NTC, asserted that the deal was in the public interest with an expectation that the combined expertise and resources of PLDT and Digitel would lead to better quality and more affordable services.

Such was explicitly stated by the NTC in announcing approval of the deal. To quote a representative of the Department of Trade and Industry, “The most critical basis is the monopoly of resources because if you monopolize the resources the tendency is really a monopoly but if the resources are distributed then there is a chance for competition.”

Hence, the concept of monopoly in this merger case was interpreted in terms of control over resources, and the merger divesture conditions, rather than market share.

PLDT is required to relinquish 2 x 10 MHz of 3G spectrum at 2100 MHz within 9 months of the October 2011 transaction approval. In addition to spectrum release, PLDT is required to reduce interconnection rates, to continue to offer Digitel’s Sun Cellular unlimited (UNLI) voice and SMS service plans, on a perpetual and nationwide basis, and to ensure the provision of high quality services to consumers.

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