• Rep Tinio: Smart franchise a competition killer

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    The franchise set to be granted by Congress to Smart Communications, Inc. (Smart) dooms its future competitors since such franchise guarantees that incentives granted to future telecommunications firms will also be enjoyed by Smart, a lawmaker warned this week.

    Rep. Antonio Tinio of Alliance of Concerned Teachers party-list, chairman of the House Committee on Public Information, was referring to House Bill 4637, which amends the Act Granting Smart a Franchise by allowing the company to operate and maintain telecommunications services in the country, including electronic communications, for another 25 years.

    Electronic communications services include: wired, wireless, fixed, cellular/mobile, or integrated telecommunications/computer/electronic services, including Value Added Services, or technologies related to such service which are at present available or made available through technical advances or innovations in the future, and fixed and mobile statistics.

    Tinio lamented that House Bill 4637 seeks to kill future competition because of its Equality Clause (Section 16) which provides that Smart will also enjoy any advantage, favor, privilege, exemption, exception or conditions to be granted on future grantees of franchises from Congress.

    “What is the implication of this? This makes it practically impossible for a new [telecommunications firm]player to come in. The government grants incentives to develop competition. But with this equality clause, the government has surrendered that power,” Tinio said in an interview.

    There are only two telecommunications firms in the country: Smart, which is owned by the Philippine Long Distance Telephone Co. (PLDT), and Globe Telecom.

    “Smart is already an industry giant, and yet their new franchise is future proof. How would a new player compete with a giant if the incentives that the new player would get in the future will also be enjoyed by the established ones like Smart? This [equality clause]dims the possibility of a new player coming in, to the detriment of the consumers,” Tinio added.

    The House of Representatives approved House Bill 4637 on the second reading last December 13, which means that it can be approved on third and final reading once Congress resumes session in January 2017.

    “This is still in the House. It will still go to the Senate so we must stay vigilant. We still have a chance to stop this,” Tinio pointed out.

    Aside from the equality clause, House Bill 4637 also exempts Smart from paying real property taxes, customs, duties and tariffs concerning its telecommunications and electronic communications equipment, machineries and spare parts needed in connection with the business of the grantee, including the structure and facilities in which they are installed.

    Instead, Smart will have to pay Value Added Tax on all gross receipts of the business transacted under the franchise in lieu of any and all taxes of any kind, nature, description which includes but not limited to: local business taxes, local franchise taxes, tower fees, local communications taxes levied or may be levied, established and collected by any city, municipality, provincial or national authority.

    Last but not the least, House Bill 4637 virtually allows Smart to transfer its generous franchise from Congress to new owners because of lengthy exemption on the provision that prohibits the grantee to lease, transfer, sell, grant the usufruct or assign the franchise, rights or privileges or its controlling interests without the prior of approval of Congress.

    These exemptions include: when transfer is done through a stock exchange; for purposes of qualifying persons for election to the board; when transfer is to a corporation that is controlled by the same stockholders controlling the grantee; any transfer or issuance of shares of stock in the implementation of the requirement for the dispersal of the grantee’s ownership; any transfer or sale of shares to foreign investor or investors; any issuance of shares to any foreign or local investors pursuant to any increase in the grantee’s authorized capital stock; any transfer to another corporation which is a grantee of a congressional franchise for telecommunications services and any combination thereof where such transfer, sale or issuance is effected in order to enable the grantee to raise the necessary capital to carry out any of the purposes for which the grantee has been incorporated and organized.

    “This [franchise extension]will ensure the uninterrupted telecommunications services of Smart Communications,” the Committee Report on House Bill 4637 said.

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