• WHETHER THROUGH CONSTITUENT ASSEMBLY OR CONSTITUTIONAL CONVENTION

    Plot to lift Charter’s restrictions revived

    10

    RIGOBERTO D. TIGLAO

    RIGOBERTO D. TIGLAO

    THE plot by the once powerful Liberal Party in the last administration to remove the 40 percent limit on foreign capital in public utilities prescribed by the Constitution, has been so quickly revived under the new Duterte government. Little apparently has changed in the malleability of our Congress and politicians in the face of very rich foreign and local corporations.

    Under Aquino, the speaker of the House of Representatives himself, Feliciano Belmonte, led this unsuccessful move in the House of Representatives. Belmonte’s family in 2015 sold its controlling shares in the Philippine Star newspaper for a reported P4 billion—an unexpectedly extremely high price, industry sources claimed—to an entity ultimately controlled by the Indonesian tycoon, Anthoni Salim, whose firms also control the Philippine Long Distance Telephone Co. (PLDT).

    image002As I had exposed in past columns, and based on unimpeachable data, foreign firms own 76 percentof PLDT, 73 percent (mainly by Singapore Telecoms, or Singtel) of Globe Telecom, and 43 percent of Meralco, the power-distribution monopoly in the national capital region. The Indonesian magnate Salim is the controlling stockholder of PLDT and Meralco, and has more than 40 percent of the country’s biggest public utility-based infrastructure conglomerate, the Metro Pacific Investments Corp. (MPIC).

    This is despite the Constitution’s clear 40 percent threshold on foreign equity in such public utilities. What restrictions are they talking about?

    The move to lift the 40 percent limits in the Constitution has a hidden agenda: To legitimize Salim’s, Singtel’s, and foreign investors’ breach of the 40 percent constitutional limits on foreign capital of public utility firms, and to entrench them as the foreign duopoly dominating our telecom sector for as long as they wish.

    The argument that lifting the restrictions will attract foreign investors is utter nonsense. Despite the constitutional restrictions, foreigners in fact dominate these public utilities. These industries have monopoly features that will block, as proven in most other countries, new entrants or reduce them to very minor players.

    Even the giant San Miguel Corp., after several years of working to be the third player in telecoms with the Australian Telstra as its partner, had to give up, and instead sold its telecom assets, which includes its prized franchise over the 700-megahertz spectrum, for P69 billion to the PLDT-Globe duopoly. In a statement, San Miguel explained that it decided to sell its assets because the legal and commercial risks in the investment were far too large to take on alone.

    Lock-in period

    Just one example, how can a new player offering fast fiber-optics-based internet service manage to compete if PLDT right now is requiring that customers availing of the new PLDT Home Fibr have a lock-in period of two-and-a-half years? Even ordinary post-paid cellphone subscriptions have two-year lock-in periods.

    Most countries in the world, in fact, impose such restrictions on these sectors—whether by law or by bureaucratic hurdles. Developed countries lifted their legal restrictions on foreign investments in their public utility sectors, only after their own locallyowned companies had already grown so large that foreign capital is largely unable to compete with them, as in the US, Japan and South Korea.

    It is argued that such restrictions are better imposed through laws, and not through the Constitution.

    But we are a weak state: If foreigners could violate even the Constitution, the basic law of the land, so can they either skirt laws and even block any move from Congress to pass laws inimical to them. The framers of the 1987 Constitution had the wisdom to see that our Congress and regulatory bodies would be so weak and malleable, that it was better to enshrine our nationalist ideals in the Constitution itself.

    One argument for the lifting of the constitutional restrictions is that this would open up local companies to competitors, so that the PLDT and Globe duopoly would be dismantled. This is a very naive expectation, brought on by ignorance of the nature and history of public utilities.

    Due to the huge capital investments required and because of the unique nature of the telecom business, such as its ability to lock in subscribers to its services, the industry is such that the first companies that entered have become a monopoly or a duopoly that bars new entrants, or limits them to a minority share of the market.

    This in fact has already happened in our telecom industry, with a dozen telcos getting franchises to operate as cellphone firms when the Ramos administration liberalized the industry. All of them were absorbed by PLDT and Globe—-boosted by the huge finances foreign capital could tap at a moment’s notice, and apparently by their closeness to the incumbent political power.

    The Delgado family and its partner German telco DeTeAsia thought they could make Islacom the third player in the industry, but bit the dust in 2000, with Globe buying it at fire-sale prices. Other well-financed elite groups such as the Lopezes with Australia’s Telstra as its partner,and the Ortigas and Puyat-Reyeses with Bell Telecom tried to challenge the duopoly but eventually ended up in bankruptcy.

    Richest tycoons

    John Gokongwei, one of the richest tycoons in the country, had been obsessed with becoming a major player in the industry since 1999, when he set up Sun Cellular (Digital Telecommunications). He positioned the newly formed subsidiary as an alternative to the expensive mobile phone services provided by Globe and PLDT, aiming to capture the low end of the market. The duopoly, however, retaliated and offered similar rates through its special “promos.”

    After nearly a decade trying to carve out his own market in the cellphone sector, Gokongwei gave up and sold Sun Cellular to PLDT in 2011. The huge price, P74 billion ($2 billion, although much of it was paid in PLDT shares), is the biggest corporate takeover in the country’s history, indicating how big Sun was. Yet it buckled under the weight of the duopoly in the mobile phone industry. San Miguel Corp. was the last company to realize that the PLDT-Globe duopoly was really a monopoly that even a big firm like itself didn’t have a chance to compete against the two in this particular industry.

    Would there be any Filipino or even a foreign firm willing to invest $2 billion, to start from scratch and challenge PLDT and Globe, which together already have 111 million subscribers, bigger than the country’s 102 million population?

    Such strength of the Philippine telecom duopoly is not unique: It is the same pattern in the telecom industry everywhere else in the world.

    A study of the structure of the telecommunications industry in both 24 OECD countries and 24 emerging markets all over the globe showed that the “general pattern in emerging markets, as in developed ones, is that the first two operators capture a very large share of the market—65 percent or more (often more than 80 percent).”
    “Splitting the residual segment among two, three, or more operators does not always provide a sustainable base for increased competition on a full-fledged basis,” the study concluded.

    Thus, if the constitutional restrictions on foreign ownership in telecoms are lifted, Salim and Singtel’s control of PLDT and Globe will only be legitimized. This strategic public utility exploiting our natural, national resource will, forever as it were, be beyond the Filipinos’ control for as long as these foreigners make profits from their firms, and will remain in the hands of an Indonesian magnate, a Japanese telco giant, and a Singaporean company.

    In nearly all Asian countries, their nationals and state firms control the domestic telecom and power industries, with foreign players, in a few cases, having only minority stakes. These include China, the so-called Asian tigers (Hong Kong, Singapore, South Korea and Taiwan), which have achieved developed-country status, as well as Malaysia and Indonesia.

    Shouldn’t this fact alone alert us that something is terribly wrong with our country, that we do things the more advanced economies in the region avoid doing because they aren’t smart moves—that is, letting foreigners take control of strategic public utilities?

    But there is in fact a national consensus to reserve control of our public utilities to nationals, and this is enshrined in our Constitution. This national policy, however, has been subverted by powerful foreign powers that have even put regulatory bodies in their service. These have succeeded in hiding their control of the telecom industry.

    (This column is an abridged version of Chapter 12 of my book Colossal Deception: How Foreigners Control Our Telecoms Sector – A Case Study of Corruption, Cronyism, and Regulatory Capture in the Philippines.)

    E-mail: tiglao.manilatimes@gmail.com
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    10 Comments

    1. Someone is trying to prove a point. When evidently his point is pointless as far as this current administration is concern, they are planing to have a Economic charter change. Yes this 2016 is a the year of change. We too should change our way of thinking and appreciate on what we have. It would be nice to some how commend them these telcos with the services they’ve provided us and they too giving jobs to Filipino people. Just saying.

    2. The last 6 years have kicked us to the basement of FDIs in ASEAN, so lifting of ownership caps is madness.
      I take comfort that Digong has embraced foreign ownership, and that includes telecoms, so I suspect there is sourgraping involved here. Sorry, Mr. Columnist, better find another whipping boy for your 60s-vintage anti-foreign mindset.

    3. When DBP once wrote Meralco that the bank would foreclose the power distributor in seven days if it still fails to pay its loans, all the loans were paid in a matter of hours after their receipt of that letter. With the promptness of cash availability when the entire finance sector is in a tight fix at the height of martial law, it only goes to show that the real owner of Meralco is Mr. Marcos.

      In business, it is normal for a “rich” guy to hire the use of a popular name to front as the “legitimate” owner of a business venture. Normally called naming rights, a person of interest can always arrange for a popular business figure to be the publicly known owner of the business even if SEC records would show the popular figure as the owner. An assignment of shares or placing such shares in a blind trust “managed” by the real owner can always be made. Hence, I have reason to believe that it IS really Mr. Marcos who owns Meralco, PLDT and even Globe Telecoms thru Singtel. Note that it was Mr. Marcos who gave the seed capital to Singapore when it was in its birth pains in the 70s.

    4. Since this article is an excerpt from his book the writer has been promoting for the longest time, it probably does not take into account the recent Supreme Court ruling confirming that PLDT’s shares were listed in accordance with the law. This means the SC has ruled that PLDT is a Filipino company in substance and spirit.
      Mr. Tiglao’s main beef is that because PLDT and Globe enjoy a duopoly/monopoly because they got there first. (For reasons we have yet to determine, Tiglao seems to consistently reserve his energies for attacking PLDT/Salim but rarely ever mentions Globe/Singtel.)
      Yet his main defense is based more on the emotionalism generated by xenophobic ‘nationalism’ than by the reality that telcos, as he himself admitted, are a costly investment that must either find funding from outside sources or lose out in the telco war. Wherever PLDT gets its support, I am glad they have because I do not relish the prospect of a PLDT reverting to its pre-Pangilinan state of decrepitude. Think, too, of how PLDT provedes jobs and food on the table for Filipinos, something with which obsolete nationalism has not been very forthcoming. There is no question muchimprovement is needed in our telco industry, so to facilitate development of the industry as well as level the playing field for future players, we should slash all those excessive permits, fees and restrictions imposed by local government and the NTC to expand telco networks as stated by the DICT.

    5. Our leaders in government are afflicted with some kind of unknown mental disorder that makes them fall on their knees at the sight and sound of foreigners with lots of money. The country is more or less a hopeless case.

    6. I”m wondering why Mr. Tiglao is so noisy now about this Salim guy when he was so influential from 2002 to mid 2010 with the very powerful little girl then. What happened then?

    7. Lifting restriction will have allowed other foreign companies early on to come in more freely and gave Singtel and Salim a run for their money. Restriction only promotes corruption in the highest level. You can only imagine how MVP went around the 40/60 rule and block competition at the same time.

      Imagine yourself a foreign investor with billions to invest. How would you even begin? Where and how will you go find partners who can provide the counterpart fund? Who among the Filipinos could supply that if not the well-connected, well-entrenched oligarchs? How confident can you be knowing your own investment is not under your control being only a minority shareholder of 40 percent?

    8. Your conclusions and observations are very interesting. Why don’t you gather your economic articles into a book so that our politicians will have a guideline for action. You just don’t know how powerful is a pen.

    9. This is a good eye opener for Juan Dela Cruz. They should be aware and know what was the higher echelon doing affecting the economic interest, security of the country. Plus, what these guys are
      doing is not good for the consumers. Less competition means they can dictate the price of their commodity. I just wish this article was written in Tagalog so that it can reach broader spectrum of the society.