The Market Monitor Minding the Nation's Business
By Riza Lozada
Local users will have to put up a little longer with the notoriously slow pace of the country’s internet, as the much-awaited improvement expected to be ushered in by a deal among the country’s three biggest telecommunications companies (telcos) may be delayed for some time.
This is because a protracted and potentially expensive legal battle looms between the Philippine Competition Commission (PCC), on the one hand, and the country’s biggest telcos, on the other, as the anti-trust regulator has stood firm on its power to review the P70-bilion deal involving the Philippine Long Distance Telephone Co. (PLDT), Globe Telecom and San Miguel Corp. (SMC). The telcos previously said they had complied with all legal requirements and considered the transaction approved.
The deal essentially involved a swap of shares that would allow the buy-in of PLDT and Globe into SMC’s Vega Telecommunications and, thus, give the two telco giants access to the prized 700 megahertz frequency that is needed to speed up internet services.
The implementation of the transaction is eagerly anticipated as it is expected to vastly improve the internet services that had been suffering as a result of the previously unhealthy competition among the telcos.
“We entered into this transaction as a solution to harmonize the spectrum assets in the country and immediately unlock the benefits of the underutilized frequencies,” Globe President and Chief Executive Officer Ernest Cu said of the deal.
“Ultimately, our goal is to provide our customers with a better experience on our mobile data and home broadband services progressively over the next 12 months. Coupled with our execution excellence as the preferred brand for Filipinos’ digital lifestyle choices, the additional frequencies will provide the much-needed capacity to improve mobile browsing speeds that our customers would enjoy,” he added.
In a statement last Friday, PCC said it issued separate letters to Globe and PLDT to “formally put the parties on notice that we will pursue a comprehensive review of their acquisition of SMC’s telco businesses.”
“We shall approve or disapprove the subject transaction after the conduct of such full review,” PCC Chairman Arsenio Balisacan said.
He said the PCC assessed the documents submitted by the involved companies and “based on the totality of information available to us, including public statements made by the parties, we believe there is a basis to conduct this review by virtue of the powers granted to the PCC by the Philippine Competition Act (PCA).
But a PLDT official said the parties to the deal believed they acted within the watchdog’s own rules, which is why they believe the deal to have been deemed approved.
Lawyer Ray Espinosa, head of PLDT’s Regulatory Affairs and Policy office, cited PCC’s Memorandum Circulars No. 16-001 and 16-002, which state that companies only needed to notify the regulator of a transaction for it to be considered approved.
“The circulars say that, given prior notice, the deal is approved. We will cooperate with the PCC in the spirit of transparency, but we are not changing our legal position. As far as we are concerned, we have complied with the circulars,” Espinosa said.
The circulars require that all mergers and acquisitions exceeding P1 billion be reported to the PCC, including notification of the parties involved, description of their businesses, type of transaction, its terms, and its execution plan.
The circulars state that after satisfying such reporting requirements the transaction “shall be deemed approved.”
But the PCC said in its Friday statement that the circulars cited were “transitory in nature and do not dilute the authority of the PCC to conduct substantive review under the PCA, especially where national interest and public policy require it.”
A “comprehensive review,” Balisacan said, includes a determination of the relevant market, whether or not there would be substantial changes to the market structure, and the potential impact of the transaction on public welfare.
“The review is intended to ensure that the transaction will, in the end, result in sustained gains for the public by not restricting competition,” he added.
The PCA and its implementing rules give the PCC 105 days to make a decision on such an issue—15 days to review the submissions of the parties, 30 days to study the merger or acquisition and, if necessary, 60 more days to complete the review process.
A deal is only considered approved after the PCC has given a go-signal, or if the regulator fails to make a decision in the 105 days granted to it.
The PCC said it intended to make maximum use of these rules to assess the validity of the P70-billion PLDT-Globe deal.
PLDT and Globe initially rejected PCC’s request for them to “refile” their notification of the joint deal to buy out SMC’s telecommunications businesses. Balisacan had told them their initial filing was found to be defective and deficient.
The PCC then received “new submissions consisting of new materials not previously produced in their initial notice to the PCC.”
“We note, however, that the parties continue to deny that these constituted a refiling,” Balisacan said, adding: “We emphasize that the transactions have not been deemed approved.”
“As conveyed to the parties, they are directed to, and should be guided by, Section 17 of the PCA which provides that ‘an agreement consummated in violation of this requirement to notify the Commission shall be considered void and subject the parties to an administrative fine of one percent to 5 percent of the value of the transaction,” Balisacan said.
“They are also reminded that the PCA has been in effect since August 2015. The law is not only about mergers and acquisitions; it also makes illegal anti-competitive agreements and acts that can be considered abuse of dominant market position, which are separately penalized by the PCA,” he said.