Second of two parts
ON Monday, San Miguel Corporation (SMC) stunned the local market with the announcement that it had agreed to sell its telecommunications assets to established telecom giants PLDT and Globe. The deal, which marks an end to efforts by SMC to create a third telecom player in the Philippines, will see PLDT and Globe split SMC’s assets, including the all-important and as-yet unused 700MHz broadcast band.
The deal, which will further entrench the two telecom giants, but is still subject to regulatory approval, is already being viewed by analysts as a test case for the new Department of Information and Communications Technology (DICT), and in particular, the Philippine Competition Commission (PCC), which will be tasked with judging whether or not it violates anti-competition laws.
At the beginning of this year, enthusiasm among long-suffering telecommunications consumers in the Philippines was sparked by news that Australian telecom giant Telstra was in talks with SMC about a possible partnership, a deal reportedly worth about $1 billion, that would have introduced a third major telecom to the Philippines to take on Globe and PLDT.
The deal, as everyone now knows, fell through when the two parties could not find a workable risk-return balance, in part because of the violent reaction of the two Philippine giants to the potential competition. Both PLDT and Globe opposed the deal, even hinting at taking legal action to prevent it, using SMC’s near-monopoly of the unused 700MHz broadcast band as a basis for their complaints.
The Telstra case illustrated just how entrenched the current duopoly is, and how difficult it will be for new players, even large ones with considerable resources like Telstra, to enter the Philippine market regardless of Duterte’s willingness to open it to foreign investors.
As ICT policy expert Grace Mirandilla-Santos explained in an insightful two-part analysis for Telecomasia last month, telecommunications, being considered a public utility, require a franchise from Congress in order to operate, and these franchises are offered based on the terms of the Public Telecoms Policy Act of 1995. The implementing rules of that act were geared to the capabilities of the main players and presumptive investors at the time—PLDT, which began as a traditional landline-based telephone company, and the then-relatively new Globe, which had come into being just a couple of years earlier with the tie-up of the Ayala Group and Singapore’s Singtel. As a result, smaller and new players were essentially frozen out by prohibitive requirements; Santos pointed out, for example, that one stipulation is that a network provider must be capable of deploying “several hundred thousand” (500,000, according to the act) telephone landlines.
Thus the entire network structure, from cable landings to home connections, is controlled by the duopoly, and the only new entrants who could establish a foothold in the country are those that are already of similar size. Smaller potential entrants, such as internet service providers (ISPs), are also frozen out because they must rely on the big telcos’ networks; the big telcos, being ISPs themselves, can simply limit or even block access to would-be competitors, given the largely unregulated nature of internet services.
In February, the Joint Foreign Chambers, under its Arangkada Project, released a policy brief (of which the aforementioned Ms. Mirandilla-Santos was one of the authors) that identified the broad issues that are obstacles to better internet service, in particular, “the presence of barriers to entry, anti-competitive practices, inadequate infrastructure, weak and ineffective regulation, prohibitive bureaucratic requirements in infrastructure build-out, and the lack of interconnection.” The overall conclusion of the brief was that increased competition – precisely the perspective of the incoming President – was the best path to improved internet service in the Philippines, but that in order to achieve that, all of the foregoing hurdles would have to be overcome.
In terms of actually solving those problems, the outlook is not promising. Policymakers and analysts have expressed optimism that the new Philippine Competition Commission will be able to address anti-competitive behavior, and in the process solve the interconnection (known as “peering”) issue by obliging the telcos to share traffic capacity. Barriers to entry and regulatory shortcomings, however, will require legislation. The most daunting problem, as the policy brief authors see it, is dealing with the “prohibitive bureaucratic requirements,” because these are largely encountered at the local government unit level; as Santos noted, correcting these problems would almost certainly entail amendments to the Local Government Code, which has not been touched in over 20 years.
While the creation of the DICT and the perspective of the incoming government are promising signs of support for efforts to improve the country’s poor internet infrastructure, it is clear that they are just the first steps of many toward actually accomplishing that, and that the hoped-for improvements may not be felt for years.