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By David L. Llorito, Research Head
Philippine government officials think it was
“pure harassment.” For the two American telecommunications
giants AT&T Corp. and MCI, however, it’s about the “naked
abuse of market power by pldt,” a transgression in the American
corporate economy that carries millions of dollars in fines and
several years in prison sentences.
It’s the reason why—on January 14,
2004—agents of the Federal Bureau of Investigation arrived
unannounced at a business conference in Hawaii and served summons to
several Philippine telecom executives to pressure them to answer
questions from the US Justice Department. It’s an investigation
meant to prove whether the six Philippine telecommunications
companies—the Philippine Long Distance Telephone Co. (pldt), Smart
Communications (Smart), Globe Telecom (Globe), Bayan
Telecommunications (Bayantel), Digital Telecommunications (Digitel)
and Subic Telecom—violated US antitrust and trade regulation laws.
The six telecommunications firms may be in deep
legal trouble if the US Justice Department finds sufficient grounds
for filing an antitrust suit meant to penalize actions that put
artificial restraints on the market economy, impair economic
efficiency and harm consumer welfare. Under the US Sherman Act—the
principal federal law prohibiting monopoly, market concentration and
unfair business practices like collusion—penalties could reach $10
million for corporations and $350,000 for individuals for every
violation. There is also the possibility for a three-year prison
term.
Sources from the Philippine telecommunications
industry say the Hawaii summons came as a surprise because two days
earlier, pldt had told the FCC it had restored its direct circuits
with AT&T and ceased blocking calls coming from the American
telecommunications firm. pldt had also done the same with
MCI/WorldCom a month earlier (November 14, 2003),.
Apparently, pldt tried to mollify the two
American telecommunications giants which, a year ago, had filed
complaints with the FCC regarding pldt’s blocking of the AT&T
and MCI/WorldCom calls to the Philippines “in support of a
unilateral and unjustified 50 percent rate increase” in
termination rates. Termination rates are the fees charged by
Philippine carriers (say pldt) to their foreign counterparts (like
AT&T) for sending calls to the Philippines through the local
carriers’ gateways.
Sources from the local telecommunications
industry told The Manila Times that pldt’s action was a signal
that the conflict between the US and Philippine carriers was turning
for the better. It meant business was returning to normal. AT&T
and MCI can now make full use of pldt’s and other local
carrier’s network. Pldt may now start collecting payments that
were withheld by US carriers since March 2003. Negotiations on the
proposed termination rates could also commence.
One telecom official even showed The Times a
letter from FCC chair Michael Powell to Armi Jane Borje,
commissioner of the National Telecommunications Commission who
resigned last week, telling her “progress has been made to restore
telecommunications services between the United States and the
Philippines.”
“I hope the continuing negotiations between
the US and the Philippine carriers will be successful,” Powell
said in the letter.
A source from one telecommunications firm played
down the Philippine embarrassment in Hawaii, stressing that the
problem may have been just a lack of coordination between FCC and
the US Justice Department. Malacañang apparently believed the same
angle, the reason why it is pressing the Department of Foreign
Affairs to use diplomatic channels to settle the problem.
Legal headache
But corporate law experts like Jose Bernas of
the Makati-based Bernas Law Office say the problem is a legal issue
that local telecommunications industry will have to face squarely.
Bernas told The Times that, while collusion
among industries is perceived to be common in the Philippines,
Americans are dead serious in implementing their antitrust and trade
regulation laws. That is because, Bernas said, antitrust rules are
one of the most important pillars of the US economic policy.
“It’s a key ingredient in the success of the American
economy.”
Collusion per se, Bernas said, is hard to prove
so investigators normally use tests to determine anticompetitive
behavior. These tests may include unity or a common price or
charges, the timing in the raising of charges and the harm done to
the US economy or parties.
Analyzing their complaints, AT&T and
WorldCom (now known as MCI) really tried to put the six Philippine
telecommunications firms on those tests on February 7, 2003, when
they filed complaints with the US Federal Communications Commission
(FCC) about the “whipsawing” of the US-Philippine route that
disrupted calls made through AT&T and MCI from the US to the
Philippines.
A sin called ‘whipsaw’
The FCC defines whipsawing as a “broad range
of anticompetitive behaviors by foreign carriers possessing market
power, in which the foreign firms exploit that market power in
negotiating settlement rates with competitive US telecommunications
carriers.”
That, according to the AT&T and MCI
complaints, is what pldt did when it started blocking calls to the
Philippines on February 1, 2003, after AT&T had refused to pay
the 50 percent increase in termination rates charged by pldt to US
telecom carriers.
As early as November 2002, AT&T recalled
that pldt tried to raise its termination rates by 50 percent to
$0.12 a minute from $0.08 for fixed lines and to $0.16 a minute for
mobiles from $0.12 a minute. The new rates were supposed to take
effect February 1, 2003. Sources indicate that other carriers in the
US as well as those in Canada, Singapore, Hong Kong, Japan,
Australia, Germany, Malaysia, Indonesia and Portugal agreed.
AT&T and MCI, however, refused to give in, saying pldt’s
proposed charges were unjustified.
“Pldt has not shown that this . . . [new] rate
is required by increased termination costs,” said AT&T’s
February 7 complaint.
What riled the two American giants is that other
Philippine carriers (Globe, Smart, Bayantel and Digitel) demanded
exactly the same rate as pldt’s to be implemented on exactly the
same date (February 1)—a possible indicator of collusion.
Their suspicions may have been bolstered when on
January 29, 2003, Globe submitted documents to the US Securities and
Exchange Commission (SEC) stating that it had signed an agreement
with pldt, Smart, Bayantel and Digitel to have a uniform termination
rates for both fixed and mobile lines effective February 1, 2003, as
part of Globe’s interconnection agreements. The rates were exactly
what pldt demanded from AT&T, MCI and other carriers.
On January 30, 2003, pldt informed AT&T
through a letter that “since AT&T disagrees [while other
carriers agree] on the proposed rates, the pldt is constrained to
discontinue accepting AT&T’s traffic.” In its February 7
complaints, AT&T claimed it also received the same notice from
Globe and Bayantel.
On February 1, 2003, pldt and the five other
carriers (Globe, Subic Telecom, Digitel, Bayantel and Smart),
AT&T claimed in its complaints, started blocking calls from the
US. This was carried out, despite the warnings from the Philippine
National Telecommunications Commission (NTC) that doing so would be
“prejudicial to public interest and national welfare,” AT&T
said.
To prove its point of a whipsaw pressure against
US carriers, AT&T showed to FCC a pldt fax message to its US
affiliate, the pldt US, Ltd., stating that “Pldt has to
discontinue traffic from other carriers” and that “traffic via
your route may increase abruptly.” The fax message, according to
AT&T, also promised discounts “should your monthly traffic
volume reach five (5) million minutes.”
Thatm according to AT&T, is a classic
retaliatory and whipsaw pressure meant to play them off against
other carriers and force them to accept the new and higher
termination rates.
“This [is a] naked abuse of market power by
pldt and the other Philippine carriers . . .” stressed the
AT&T complaint. “[T]he Commission [referring to the FCC]
should prohibit all US carriers from making settlement payments to
pldt, Digitel, Bayantel, Globe and Subic until all AT&T circuits
are fully restored. . . . The Commission should also ensure that
pldt US does not use the rate increase to engage in price policies
that harm US competition. . .”
Philippine carriers may have been trying to earn
a larger share of revenues from one of the fastest growing
telecommunications markets in the world. The US-Philippine calling
route generates more than 2 billion minutes of traffic each year and
is the fourth largest US-international route in terms of outbound
minutes.
“This volume of traffic places the Philippines
route immediately below the US-Mexico, US-Canada and US-United
Kingdom and above the US-India route,” said the FCC. “From
1997-2001, US-billed calls on the US-Philippine route has grown each
year by approximately 33 percent.”
FCC decision
On March 10, 2003, the FCC released its verdict
regarding MCI and AT&T’s complaints that shocked the local
telecommunications industry.
“We find . . . that Philippine carriers have
engaged in the whipsawing of AT&T and WorldCom to the harm of US
consumers,” FCC said in its order DA 03-581. “Therefore, we
order all US carriers providing facilities-based services to suspend
payments for termination services to the Philippine carriers pending
restoration of circuits on the US-Philippine route.”
The order added: “As a result of market power
by the Philippine carriers, AT&T suffers an unfair competitive
disadvantage in the US-Philippines market vis-à-vis US carriers
that are not currently suffering retaliation. . . .These actions
effectively distort any competitive market forces on the
US-Philippines route and deprive consumers of the benefit of the
more market-based termination rates previously negotiated by US
carriers.”
The decision singled out pldt for being the
dominant local exchange carriers in the Philippines controlling 67
percent of fixed lines and 45 percent of mobile lines.
“. . . PLDT did not attempt to demonstrate
that its demand for an increase in US-international termination
rates from AT&T of approximately 50 percent represents an
increase in the cost termination, and there is no evidence . . .
that it is cost-justified,” the FCC decision said.
In its March 10, 2003, findings, the FCC
rejected the arguments of the six telecommunications firms stressing
that the agreements for a common termination rates among themselves
was simply an “instrument by which competitive carriers operating
in different segments of the market [international, local exchange
and mobile] agree to terminate their traffic to their various
networks.”
A day after the FCC findings’ release, Gil B.
Genio, head of Globe’s wire line and carrier business, issued a
press statement expressing “deep regrets” about the FCC order
suspending all payments to Philippine carriers until circuits on the
US-Philippine route are fully restored.
“We believe that instead of helping the
situation, this order further hinders the parties from coming to a
mutually acceptable agreement, since now nonpayment of traffic
becomes the major issue in any talks between the Philippine and US
carriers,” said Genio. “As we have said before, nothing in law
requires Globe to render services to a company that will not pay
it.”
Despite the tough talk, the FCC order had an
immediate impact on the unity of local carriers vis-à-vis the US
carriers AT&T and MCI/WorldCom. The first to cave in were the
smaller ones like Bayantel and Digitel. After 14 days the two firms
decided to stop blocking calls from AT&T.
The rest may have tried to tough it out but
after seven months Smart decided also to restore its direct circuits
with AT&T. On November 15, both Smart and pldt also stopped
blocking calls from MCI/WorldCom. It was not clear when Globe
restored links with the US carriers, but on January 8 it issued a
press statement saying Globe and AT&T had reached a termination
rate agreement for the US-Philippine traffic.
And finally, on January 12, pldt informed the
FCC it had fully restored its direct circuits with AT&T. That
action gave some hope to the local telecommunications executives
about the normalization of business relations between the Philippine
and US carriers. They were wrong.
Two days after, the FBI pounced upon the 30
Philippine telecom executives attending the Hawaii conference and
gave them summons for an antitrust investigation.
Editors Note: This article was written based
on documents obtained from the US Federal Communications Commission
(FCC) and certain secondary sources. This writer sought interviews
with top officials of the local telecom companies but was told that
they would rather not make any comments at this time.
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