Third telco player handicapped without govt intervention



The good news last week is that President Rodrigo Duterte issued Administrative Order No. 11 creating an oversight committee (headed the secretary of the Department of Information and Communications Technology, Eliseo Rio) to quarterback the entry of the third telecommunications company in the Philippines. The creation of the committee was obviously meant to accelerate the entry of a new major player, which is expected to provide much-needed competition in the Philippine telecommunications market dominated by the PLDT-Globe duopoly.

And with competition, consumers benefit from low prices, more choices and high-quality goods and services, right? Not necessarily.

First of all, the entry of a new player does not necessarily make for a competitive market. According to economic theory, for a competitive market to exist, sellers in these markets must offer similar products or services. In other words, there should be no substantial difference in the products and services among competitors, and consumers see the products and services available in the market as substitutes for one another.

Where a new entrant in the market does not (or is unable to) offer comparable products or services as the existing players, its existence will not bring about real competition sought by consumers. This is exactly the same scenario faced by Filipino consumers, if and when the third player decides to enter the telecommunications market.

For one, many crucial radio frequencies used for mobile communications are already monopolized by the PLDT-Globe duopoly. The entire 900-MHz and 1800-MHz frequencies (also known as the “GSM frequency bands”), for instance, are controlled entirely by PLDT and Globe. This means the third telco player would have no access to these “workhorse frequencies,” which is commonly used for traditional text messaging and voice calls. With the legacy business like voice calls and text messaging comprising around 60 percent of a telco company’s income, the absence of a GSM band can mean the loss of billions of pesos in potential revenue that the third major player sorely needs to survive and thrive.

Also, since the 2G mobile network operates solely on this GSM frequency band, this means the third telco player would be unable to provide basic (and cheaper) 2G services to consumers using 2G-enabled mobile phones (think of your Mom’s old Nokia 8210 cell phone) still used by many Filipinos.

That’s not all. PLDT-Globe now owns almost the entire 700-MHZ spectrum previously used for analog television broadcasting but now repurposed for mobile internet service. This was after San Miguel Corp. sold all its telco assets to the telecoms duopoly for P70billion. This 700-MHz frequency was so coveted by both PLDT and Globe that they launched a massive public relations campaign urging the government to give them their fair share of the spectrum.

Both 700-Mhz and 900-MHz frequency bands are highly sought spectra by telco players because of their lower infrastructure and operating costs for mobile networking. Why?

The 700-MHz and 900-MHz frequency band have lower wavelengths than higher frequency bands such as the 1800-MHz, 2100-MHz, 2500-MHz and 3500-MHz spectra. The laws of physics state that signals on lower frequency bands travel longer distances than in the high frequency band. If an 1800-MHz tower can cover about six kilometers, a 700 or 900MHz tower can cover about 9 to 10 kilometers.

This characteristic also makes signals transmitted on 700- or 900-Mhz spectrum more potent in that it has 40 percent better indoor coverage than higher frequency bands. To make up for this gap, mobile companies operating on higher frequency bands have to spend more setting up additional cell towers to achieve the same coverage as in the 700-MHz and 900-Mhz spectrum. With this inherent characteristic of lower frequencies, it’s obvious why these frequencies are such a valuable commodity for telcos.

Without a 700-MHz or 900-MHz frequency therefore, the third telco player would have to invest 40 percent more on its network infrastructure to keep pace with the PLDT-Globe duopoly. This places the third telco player, or any new entrant for that matter, at a distinct disadvantage.

Aside from the monopoly of the GSM band by the telco cartel, the third telco player will also have to settle for less than half the frequency spectrum held by PLDT-Globe. That’s because PLDT already hold 400MHz of radio frequencies while 325MHz has already been allocated to Globe.

According to National Telecommunications Commission (NTC) data, only 15-MHz is unallocated in the 3G frequency, while only 80-MHz is available in 4G. Meanwhile, some unassigned frequencies remain unutilized after being mired in litigation for years. This leaves the third telco player with a meager 100 megahertz with which to take on the PLDT-Globe duopoly.

So, unless government intervenes and levels the playing field by taking back and re-allocating some of the 700-Mhz and 900-MHz frequency bands that have been cornered by the PLDT-Globe duopoly—and cutting back on licensing and permitting requirements for the new telecoms entrant—the third telco does not stand a chance of competing with the telecoms cartel. With its limited frequencies and huge capital outlay, the new major player would be hard put to offer products or services comparable in price and quality to that being offered by the PLDT-Globe duopoly.

If the newlycreated oversight committee really wants to create a competitive market and improve telecoms service in the country, it should make sure that the NTC selects and assigns sufficient—and more importantly, suitable—radio frequencies to the third player. Otherwise, Secretary Rio risks incurring the ire of President Duterte who previously vowed to have a new major telecoms company up and running within the year.


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