The unthinkable might be the fastest and best solution to PH telecom woes
THE possibility that telecom giant Smart, the bread-and-butter of the Philippine Long Distance Telephone Co. (PLDT), could be legally out of business by the end of March next year was discussed in wonderfully gory detail in Bobi Tiglao’s column yesterday (“Smart’s operations could stop end-March 2017”).
Even though it is not news—both PLDT and Smart have dutifully reported the possibility of a forced shutdown in their corporate disclosures for some time—the idea that half of the country’s telecommunications services could suddenly just stop working in a couple of months’ time must be a nasty shock to complacent policymakers and the public alike.
That PLDT could cease to exist—and it would, given that its Smart subsidiary accounts for about 68 percent of its revenues—is unthinkable, but as Tiglao pointed out, it cannot legally be avoided. In order to comply with existing laws, Smart would need to publicly list 30 percent of its shares, which it simply does not have time to do before its 25-year franchise expires on March 27. Even if it were possible to rush that process, listing that many shares all at once would almost certainly be a financial disaster for the company; stock investors are inclined to pay a good price for companies with promising prospects, not ones whose shares are being offered in an emergency sale.
Apart from the share listing issue, Smart also faces the challenge of getting both houses of the legislature to approve a new franchise. With Congress adjourning and not reconvening until January 16, there may not be enough time to do that, even if Smart’s failure to comply with the telecoms law were (again) overlooked. Moving with alacrity is not a habit of Philippine lawmakers; after all, Congress has been dithering over “emergency powers” for the President to solve the traffic congestion problem for six months.
As Tiglao pointed out, any option to keep Smart operating beyond March 27 is necessarily extralegal; either Congress rushes a renewal of franchise and disregards the public listing requirement again (which is exactly what Liberal Party lawmakers tried to do just after May’s election), or President Duterte intercedes and allows Smart to continue operating by fiat, or the government simply ignores the expiration date and allows Smart to stay in business without a legal franchise. Conventional wisdom, at least as it is here, is that Smart—and by extension, its parent PLDT, a corporate stalwart of the Philippine economy—is simply “too big to fail.” The implications of failure are alarming. About 50 million customers would suddenly be left without service, including many businesses, among them many BPO companies. Smart’s competitor Globe is simply not capable of absorbing that many new customers, so until a new player enters the market, a process that might take up to a year under the best of circumstances, the ensuing chaos would have a significant negative impact on the economy. Picture the power crisis of the late 1980s to early 1990s, only with telecommunications instead of electricity, and you have some idea of what the collapse of Smart would look like.
If, however, the sentiment of the public, the business community, and the current government that the telecommunications sector should be more competitive is to be honored, letting Smart fail—and take down the anachronism that is PLDT along with it—is exactly what the Philippines needs. Trying to avoid the disaster would only further entrench the regulatory dysfunction that has allowed the telecommunications duopoly to flourish; despite provisions like the 30 percent public float requirement, the current laws were written around the existence of PLDT, and preserving that existence would, as Tiglao aptly explained, further bend the spirit and letter of the law to suit the conglomerate. The risk exists that revamping the law to allow the entry of new players might result in an unfavorable situation in the future, in the way the haste to correct the power crisis after the term of Cory Aquino created an environment for regulatory capture, but having that experience should inform efforts to salvage the telecommunications sector. There will be pain, but if the short-term trouble leads to something sustainably better, it will be a fair price to pay.