The Market Monitor Minding the Nation's Business
By Luis Leoncio
The Mergers and Acquisition Office (MAO) of the Philippine Competition Commission (PCC) is inclined to recommend the rejection of the P70-billion mega telecommunications deal among conglomerates San Miguel Corp. (SMC), Philippine Long Distance Telephone Co. (PLDT) and Globe Telecom, as it would practically close the door to a new entrant in the telecommunications industry.
The PCC referred the blockbuster deal to the MAO last July 8 “for review and report” to the PCC.
The PCC directed the MAO to determine whether the acquisition may be expected to “substantially prevent, restrict or lessen competition” within the industry.
In its initial assessment, the MAO said that among the factors it considered was that there are only two dominant players in the market; that telecommunication services are
fairly homogenous; that PLDT and Globe are generally similar in terms of market shares, cost structures, and level of vertical integration; and that there is a good degree of price transparency among the competitors.
The PCC body noted the “probability of collusion” between PLDT and Globe in the deal and that the joint acquisition “may reduce PLDT’s and Globe’s incentives to compete.”
The MAO, in a report, said it has taken into account the past behavior of the incumbent firms, as indications of “previous coordination may serve as evidence that conditions for successful coordination are present.”
It added that recent events suggest it may be easy for PLDT and Globe to cooperate and coordinate their actions.
The report noted that during the announcement of the agreement between PLDT and Globe to jointly acquire SMC’s telecommunications businesses last May 30, PLDT Regulatory Affairs and Policies Head Ray Espinosa said “the story on when we started dating is not important because we are already married.”
If also cited a disclosure to the PCC during its July 8 meeting with Globe that Globe CEO Ernest Cu communicated directly and arranged with PLDT Chairman Manuel V. Pangilinan on the joint acquisition of SMC’s telecommunication assets, shortly after the former received an informal offer to sell the subject assets from SMC’s Ramon Ang.
“The nature of the formation of the joint acquisition suggests the existence of coordination between the two firms, which may be further enhanced by the transaction,” it said.
“Accordingly, the MAO currently believes that the transaction may raise significant
competition concerns due to coordinated effects,” it said.
The MAO believes that there are slim prospects of new entry or expansion to constrain the behavior of PLDT and Globe after the transaction.
“Based on the information obtained as of date, the MAO believes that SMC’s telecommunications businesses would have significant potential to be important drivers of competition in the industry,” it said.
Thus, it said, the joint acquisition of SMC’s telecommunications businesses is likely to further entrench the dominant position of PLDT and Globe in markets where outcomes have not traditionally served consumers well.
Last Aug. 30, the Court of Appeals’ 12th Division granted PLDT’s motion for the issuance of a preliminary injunction on the PCC investigation of the mega deal, even as it also directed the telco to put up a P1- million bond to answer for whatever damages the PCC would suffer should the court decide that PLDT is not entitled thereto.
The writ specifically enjoins the anti-trust body “from conducting further proceedings for the pre-acquisition review and/or investigation of the subject acquisition.”
The CA added that the issuance of the writ was necessary to protect petitioner’s right to be accorded “safe harbor” or protection from challenge under Republic Act 10667 or the Philippine Competition Act.
“After painstaking evaluation of the parties’ arguments, taking into account the pertinent law and jurisprudence, in order to maintain the status quo ante while the case is being judiciously studied and to preserve the rights of the parties during the pendency of the instant petition and no to render ineffectual whatever judgment that may be rendered by this court, it would be more prudent for this court to grant petitioner’s prayer for a preliminary injunction,” the CA ruled.
“We agree with PLDT that due to the ‘deemed approved’ status extended to the subject acquisition by virtue of the transitory rules, at the very least, PLDT has a clear right to be protected from the pre-acquisition review and/or investigation conducted by respondent PCC,” it said.
The CA also pointed out that unless enjoined, the implementation of the co-use agreement, which was approved by the National Telecommunications Commission, might be derailed or jeopardized, subjecting the company to possible sanctions by the NTC.
Globe has filed a similar petition which was consolidated with the petition of the PLDT before the CA 12th Division.
In their separate petitions with the CA, Globe and PLDT sought to prevent the PCC from conducting full investigation of their co-purchase of the telco assets of San Miguel Corp.
Last May, PLDT and Globe entered into sale and purchase agreement for all the issued and outstanding shares and assets of VTI, a subsidiary of SMC.
The parties then submitted details of the transaction as well as supporting documents to PCC pursuant to its rules.
The petitioners argued that the deal has been deemed approved by operation of law since they have fully complied with the terms of the transitory circulars issued by the PCC.
Under a PCC circular, acquisition agreement that exceeds P1 billion, which is to be executed and implemented after the effectivity of the memorandum circular but before the effectivity of the implementing rules and regulations, shall notify the PCC and submit necessary documents.