• NO NEW PERMIT TO OPERATE YET, THREE MONTHS BEFORE CURRENT FRANCHISE EXPIRES

    Smart’s operations could stop end-March 2017

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    RIGOBERTO D. TIGLAO

    RIGOBERTO D. TIGLAO

    WITH time running out for it to get a new franchise — its permit to operate — from Congress, with its current one ending March 27, 2017, Smart Communications faces the unthinkable: its shutdown, or at the very least a major disruption of its operations. Smart is the country’s biggest mobile phone operator, a 100 percent subsidiary of Philippine Long Distance Telephone Co., which is controlled by the Indonesian tycoon Anthoni Salim.

    That likely scenario could be prevented only if President Duterte rams down Congress’ throat a new franchise for Smart to operate, and in just two months. Congress adjourns this week and resumes sessions only on January 16 next year, to adjourn again on March 17.

    It is virtually impossible for Smart by March 27, 2017 to (1) list 30 percent of its shares in the stock market, which is necessary to prove it complied with its 1992 franchise ; and 2) to get a new franchise from Congress, passed by both the House of Representatives and the Senate. Unless it wants to trample on our laws, President Duterte’s government would have to order Smart to stop its operations as it no longer has the authority from Congress to do so by the end of March next year.

    Smart very nearly in May this year got the last Congress controlled by the Liberal Party to extend its 1992 franchise by another 25 years, even without having to list its shares in the stock market, as required by law for a telecommunications company.

    It was the Liberal Party, through then Senate President Franklin Drilon himself, who had pushed for the new franchise. It would have been one of the last laws enacted by the previous Liberal Party-dominated Congress, which adjourned June 6.

    It was then Majority Leader Alan Cayetano who blocked the passage of the law on May 23— two weeks after the May 9 elections, and when Duterte already emerged as the president-elect—when it was scheduled for third and final reading that day. Only three other senators, including Senator Vicente Sotto III, raised objections to the granting of the franchise.

    Smart’s biggest legal obstacle in getting a franchise has been its failure to list at least 30 percent of its shares in the stock market, as required by law, and by its 1992 franchise.

    Will Congress or Duterte bow down to PLDT/Smart?

    Will Congress or Duterte bow down to PLDT/Smart?

    Section 21 of the Public Telecommunications Policy Act of 1995, or Republic Act 7925, requires telecommunications companies to offer to the public through the stock exchanges 30 percent of their shares by 2000. Section 13 of the 25-year franchise that Congress granted to Smart in 1992 (R.A. 7294) categorically required it, as a condition for its permit to operate, to list its shares by 1996.

    The bill in the current Congress, House Bill 2617, to grant Smart another 25-year franchise was filed last August, with former Liberal Party stalwart Reynaldo Umali as its principal sponsor. The co-author is Rep. Giorgidi B. Aggabao, who was also the principal author of the bill for Smart in the previous Congress.

    Law ignored
    Significantly, and an indication of how compromised legislators ignore laws enacted by their own institution, the two bills filed in the previous and present Congress that would have given Smart another franchise simply ignored the Public Telecommunications Policy Act requiring telcos to list 30 percent of their shares in the stock market.

    For the past 25 years, Smart has ignored the two laws and has made no move at all to publicly offer its shares. In contrast, its main competitor Globe Telecoms, through its precursor Globe-Mackay, has been listed in the stock market since 1975.

    Instead of complying with the law, Smart ignored the two laws through two means.

    First, it argued that its mother firm PLDT’s being listed in the stock market, means Smart was in compliance with the law. However, the Securities and Exchange Commission ruled that argument to be trash since under the Corporation Code, every “corporation has a ‘separate juridical personality,’ a doctrine affirmed by the Supreme Court. “

    Invoking this doctrine, the SEC in its latest decision on the issue, communicated in a November 7, 2016, letter by its chair Teresita Herbosa to Rep. Franz E. Alvarez, chairman of the House committee on legislative franchises–pointed out:

    “Although Smart is wholly owned by PLDT, the former has a separate and distinct personality from the latter. When PLDT listed its shares, the same is incompliance with its own franchise, i.e., Act. No. 3436, as amended by Republic Act No. 76082… Reading section 13 of Smart’s existing franchise, it is the grantee of the franchise (that is, Smart) which is required to list and make a public offering through the stock exchange of its shares.”

    Second, Smart—or its ultimate owner, the Indonesian Anthoni Salim, or his top executive Manuel Pangilinan—lobbied in 2004 for a law that would have declared that a “telecommunications entity shall be deemed to have complied with the requirement of making a public offering of its shares if two-thirds of its outstanding voting stock are owned and controlled directly or indirectly, by a listed company.” That was of course tailor-made to exempt Smart from the Public Telecommunications Policy Act’s requirement that a telco must be publicly listed. Few supported the bill for its clear intention to serve an Indonesian-controlled company, and it was withdrawn without even being deliberated by a committee.

    Ramon Isberto, Smart senior vice president for public affairs, as of press time had not replied at all to my queries on this franchise problem, which I had asked him Monday.

    PLDT itself has been reporting to the US Securities and Exchange Commission its failure to list Smart’s shares as one of the “risk factors” for its profitability. In its most recent report (“Form 20-F”) covering the year 2015, it explained:

    “The Philippine Congress may revoke, or the Solicitor General of the Philippines may file a case against Smart to revoke, the franchise of Smart and DMPI [Digital Mobile, which operates Sun cellular services under the “Sun” brand] for their failure to comply with RA 7925, which requires making a public offering of at least 30 percent of the aggregate common shares of a telecommunications entity with regulated types of services…

    “If Smart and DMPI are found to be in violation of RA 7925, this could result in the revocation of the franchises of Smart and DMPI and in the filing of a quo warranto case against Smart and DMPI by the Office of the Solicitor General of the Philippines.., the occurrence of any of which could have a material adverse effect on our business, results of operations, financial condition and prospects.”
     
    Disastrous for PLDT
    Smart’s losing its franchise as a telco would be disastrous for PLDT: 68 percent of its revenues come from its subsidiary’s mobile phone operations. The timing couldn’t be much worse as next year PLDT would have to book another estimated P5 billion in losses because of the steep fall—and expected continued decline—in the share prices of the German firm Rocket, 10 percent of whose shares PLDT bought in 2014 at its listing price of 42 euros per share. Its share prices are about half now. Its main competitor Globe has also succeeded in getting significant market shares that contributed to the steep 35 percent drop in PLDT’s income in 2015.

    Whoever in government who can solve PLDT/Smart’s problem would be in effect winning something like the US Poswerball lottery in January 2016, an analyst quipped. (Prize there was the record $1.6 billion).

    Why did PLDT make such a horrendous strategic blunder of not listing Smart in the stock market, which would be grounds for it to lose its right to operate a telecom business?

    “Sheer arrogance,” says a member of the House committee on legislative franchises. “This country has been that conglomerate’s oyster. PLDT’s owners and executives thought that it would be a cinch to get another 25-year franchise by hook or by crook. Or perhaps it miscalculated that this congress would still be dominated by the Liberal Party, with its president Manuel Roxas III, since they were just days short of getting a franchise in the last Congress.?”

    “PLDT obviously thought that if it could go around the constitutional limit on foreign investments*, it’s a walk in the park to skirt the public-listing requirement,” he said.

    Smart and PLDT though could still be saved by some executive action by President Duterte. But will he, given his declared disdain for oligarchs?

    One stock market analyst though is still confident that Smart will be saved somehow: “PLDT and Smart are too big to fail. For Smart to stop operations, and for PLDT to crawl on the ground would disrupt business so much, even crash the stock market, and pull down our economy. Some 50 million Filipinos—Smart’s active cellphone subscribers—would overnight be deprived of communications service.”

    “We just have to forget our laws, and let Smart operate,” he added, with a wink. “Accuse Manny V. Salim [sic]of anything else, but you can’t accuse him of stupidity. He’s got some secret solution, or a Plan B,” an investment analyst said however.

    The problem is clearly one of the worst legacies of President Aquino: In the last six years, he could have threatened and prodded Smart to start efforts to list its shares, or face severe penalties and then ultimately, closure.

    He didn’t, and now the nation is hostage to an Indonesian magnate’s firm, ignoring our laws. What kind of spineless country have we become?

    Must read: Bobi Tiglao’s ‘Colossal Deception’

    Cover: ‘Colossal Deception’

    *For more on PLDT’s violation of constitutional limits on foreign investments in public utilities, refer to my book Colossal Deception: How Foreign Firms Control Our Telecom Industry — A Case Study on Corruption, Cronyism, and Regulatory Capture in the Philippines.

    E-mail: tiglao.manilatimes@gmail.com
    FB: Rigoberto Tiglao and Bobi Tiglao
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    38 Comments

    1. PLDT shares fell (and so did Globe’s) because of the PCC questioning their acquisition of the new frequency, not because of a question of shares. The article would have us believe that the ownership issue is still hanging, but it was in fact discussed by the House Committee on Franchises last November and the application of the franchise approved a few days ago.

    2. What the author’s claims is absolutely true… Didn’t you notice the continuous fall of PLDT share’s value?

    3. Facts are stranger than realities to some people. Facts were discussed and presented yet dismissed as crazy and judged as sensational. Facts cant be ignored. Why are there no available shares of Smart in the stockmarket despite 25 year’s leeway? Di kaya huminto lang sa pagbasa ng title then nagcomment na agad?

    4. I highly doubt that this is true remember tatay digong and MVP are together last December 12 so if something big like is going to happen they’ve already talked about it. This is another black propaganda so smart users will transfer to the next big competitor.

    5. Here in the Phils, when the state owns and manages public utility institutions, guess what happens. It’s a lot worse. They end up buried in debt, money siphoned to politicians who know nothing but just talk and talk and talk….. then, they privatize the entity, getting money again.

      You really believe, after all these years, that the state can do better? Do you know how much ‘cut’ goes to a barangay chair, mayor, governor, all the way up – for every major project?

      And these politicians have the nerve to invoke patriotism and nationalism… at least business provide jobs, food on the table…these assholes don’t… although they love claiming they themselves provided.. so they get elected again and again.

      If you think the private sector is worse than the state, at least here in the Phils, man, I don’t even have the right word for it….

      • Ang layo naman ng counter arguments nito. I dont remember the idea of the state being surfaced to take over. It merely presents the case that Smart could lose its franchise due to violation of the law.

    6. subukan nila si Duterte, tignan nten kung uubra mga oligarch. ipapasara yan ni Duterte pag hindi sila sumunod.

    7. Clarissa espinosa on

      If that happens, Sino sasalo sa mga existing subs? Di kaya ni globe. Mas bulok system ni Globe. And if money runs to continue the smart business, sigurado babawiin niya yan sa mga subs niya. Talong talo talaga tayong mga Pilipino no matter might happen.

      • smart can sell its whole business to another telco. maybe to an interested local or foreign company big enough to afford it. congress can expedite giving the franchise or give out a temporary one until the sale is finalized so there will be no major disruption in service. NTC can, at the same time, start selling frequencies to let other players come in. Globe at least at the short term will benefit in this transition phase.

    8. If Globe is cunning enough, it can start offering discounts to Smart mobile line/internet users to exchange their SIMM cards or contracts with Globe. And capitalize on this article. Smart will collapse even before the deadline. on March 2017.

    9. What kind of spineless country we have become Sir? The kind of country that appreciates mediocre leaders like Cory and Noynoy more as long as they speak and look decent. A country run by the “edukado” who has lost all trace of love for country. A people who does not seem to mind being fooled over and over again, where forgiveness is taken to the extreme, where accountability is a word seen only in the dictionary, a place where stupidity is exalted, the only country where democracy is spelled as DEMOCRAZY.

    10. Smart can’t close. first of all,it will ruin (eventually ruin) even our relations with indonesia and even breakaway the asean somehow (co’z indonesia is a major member,along with malaysia.). china doesn’t provide good internet alongside with russia,but south korea & israel does….but anyways,pls. also as much as possible…keep our network settings on default or pick your very preffered network mode & don’t fiddle that much with it,like mods,vpn’s,and freenet materials. (i don’t suppress the rights of the end-user laws) co’z i knew already that estimatedly 70% of filipinos using mobile internet are using freenet,holy shit! come on guys,there’s no such honor amongst thieves! Hey! all of you whose using free internet tweaks that do steal internet speeds from telcos and their paying subscribers,evn if you think that they’ve gave you a service before that didn’t got the value of your money,pls. still don’t do that co’z you know,karma will make you pay for what you did to others. please take note.

    11. We deserve a better service… we need change! So what if there is no more smart or globe etc… a new one will arise, a better one with a much acceptable service. If it fails, replace it again. The government should protect its people, as the people pay the right taxes to the government for the country. If no one obey or follow our law, then why bother implementing one, why bother making laws and telling people to obey when as simple as that, smart ,with a foreign owner insult us face to face… each filipino is being insulted by the way he do things. If we agree and let smart do this again and again, then we the filipinos are all low lives…. we are just a piece of shit, our race is a disgrace …. i hope not, no guts no glory

    12. Francis Mensahero on

      Only way out for Smart is to sell the company to Telstra/SM, Globe or AT&T.

      Else, government will take over the company.

    13. dapat lang sila magsara dahil hindi naman nila tinatrato ang mga subcribers bilang customer nila na nagbabayad sa kanila kada buwan ng maayos. buti ba kung libre ang internet kaso binayaran namin tapos wala man lang matino makausap sa CSR.parang ginagawa ka nilang tanga,iniinsulto at ginagago nila ang mga Pilipino, lalo na yun wala naman idea na naniniwala sa kada reason nila kung bakit mabagal o pawala wala ang internet. please lang turuan ng leksyon yang SMART/PLDT ng matauhan masyado ng mapagsamantala porket alam nila no choice lalo sa sa probinsya ka nakatira. believe it or not madami matutuwa Pinoy kapag tinabla yan smart/pldt basta lang ihanda na ng Pangulo Duterte ang iba pang telcos walang problema suportado yan ng lahat.

    14. If they do not follow Philippine Laws then close it. It is very unfair not just to its “law-abiding’ competitor but also to Filipino people. If we allow this madness, then Philippines will forever becomes hostage of such deception.

      • Myla M. DITUNA on

        Tama po na sumunod ang sinumang investor sa law na pinatutupad ng philippine constitution pagdating sa pag amenda sa mga patakaran sa telecommunication pinangangalagaan lamang ang seguridad ng mga Filipino.. lalo sa video calling ng long distance husband nd wife intimate moment dapat dapat hindi ito broadcast ng telecommunication. May mga website na pinakikita ang different vulnerable videos ng mga pilipina, some of them are not aware na broadcast lalo kapag intimate moment with their husaband or wife.telecommunication responsible to any website na ngpopop out sa loob ng network nila, they are the host of commuication ang visita ay ang dalawang nag uusap lamang.. please study my point of view gengle man.

    15. Screw SMART and PLDT. Let the NBN operate the telco in the country already. China has the most advanced internet technology in our region and we should take advantage of that.

    16. We need a proper service anyway. Smart (and globe!) connection / SERVICE quality is UNACCEPTABLE.
      The Phil telecom market needs international competitors URGENTLY , needs international competition, TelCo providers who understand the job and know how to do it.
      Even in Manila You often have no good connection. They are only good at taking our money.

    17. No need to shut it down. Just turn every subscriber into stock holders and go from there. Otherwise, we should start accepting new telecom players especially those not influenced by NSA, or a national broadband.

      At the very least, we need a publicly owned internet backbone where community internet could flourish in the countryside.

      Down with monopolies!

    18. You’re correct. Smart is not going to stop operations. But as DOES NOT MATTER said, Smart is up to pay hefty bills, or if Smart threatened closure, the government could take over the operations since telco is of national interest.
      Mr. Tiglao is not hallucinating. He is just laying out the straight forward consequences of Smart’s arrogance. But then Smart is smart. Corruption is still the bloodline of the government.

    19. Leodegardo Pruna on

      Government has to act decisively on the matter of SMART. It could demand compliance or takeover whichever would be necessary to put service in running. PRRD and his experts have the key to do the right thing . God save the Philippines from the greedy and manipulators.

    20. “We just have to forget our laws, and let Smart operate,” – what critical thinking do you have? you have poor service and slow internet connection. i hope your company will shut down to stop your arrogance.

    21. Well it could be part of LP’s plot to get the public hating on PDU30. This occurred to me as just a hunch though, as I read “Some 50 million Filipinos—Smart’s active cellphone subscribers—would overnight be deprived of communications service.”. Bad bad hunch.

      • Hanep sa theory. Ang layo at me sobrang lalim na hugot. Blame LP agad, eh what about Smart’s failure to enlist publicly sa stockmarket deapite the 25 year’s leeway? Fault din ng LP?

    22. Marcos is a crony of Suharto who clothe his business interests thru Liem Sioe Leong. How do we know if the money that Salim is “investing” in thecountry is actually owned by Marcos?

    23. does not matter on

      incidentally, fine should be hefty enough to discourage making it as part of their operating cost.

      the fine should be explicit that it does not bar the court from filing criminal charges for Smart continuous illegal operation.

    24. does not matter on

      NO FRANCHISE UNTIL THEY COMPLY.

      They may keep operating but will be paying a very very hefty fine for every day they operate.

      If smart threatens to cease operation, government will take over and nationalize Smart. Legality set aside because it’s an emergency.

      SMART should be smart enough to forego their advance pay to Drillon etal. I hope Duterte will not be cuckolded by his underling and by the senate. It’s time to screw the Indonesian who keeps screwing my prepaid load.

      • Hasnt the president been hinting on this by saying he will allow entry of foreign operators? Di ba dito sya nanggagaling?

      • The other telco is just as bad. We need NBN now. If only the ZTE-NBN was not blocked by the yellowtards, our internet is probably the best in south east asia

      • I highly doubt that this is true remember tatay digong and MVP are together last December 12 so if something big like is going to happen they’ve already talked about it. This is another black propaganda so smart users will transfer to the next big competitor.