The Market Monitor Minding the Nation's Business
By Riza Lozada
Local telecommunications giants Philippine Long Distance Tele (PLDT) and Globe Telecom can still “cure” the defects of the P70 billion mega deal with San Miguel Corp. (SMC) on the acquisition of radio frequency assets without a long-drawn legal battle with the government, government think tank Philippine Institute for Development Studies (PIDS) said in a study.
The Philippine Competition Commission (PCC) is looking into possible violation of the recently enacted Philippine Competition Act (PCA) in the deal.
The PCC worries that the buyout of San Miguel’s telecommunication assets will leave only two main players in the industry which are PLDT and Globe Telecom.
This move, according to Philippine Institute for Development Studies (PIDS) Senior Research Fellow Erlinda Medalla, has “brought a cloud of doubt as to the motives” of the transaction which she said can “clearly reduce competition to just two players” in the industry.
Medalla said it is not too late for PLDT and Globe to work with the PCC and the National Telecommunications Commission (NTC) to ensure that there is, and will be, no violation of the PCA and that mergers and acquisitions would produce benefits.
In 2015, the PCA was enacted to promote fair competition in economic activities and penalize anticompetitive conduct.
“This can be done during the transition period, where the firms can ‘cure’ any violation if any, or may request for binding ruling from the PCC. This could entail agreeing on conditions that would yield benefits for consumers, like platform sharing and interconnectivity, and increased services and greater utilization of their assets (including those newly acquired),” she added.
Prior to this, competition policies and laws were scattered in about 30 different laws, with most of them having outdated provisions and were hardly implemented, the study noted.
Medalla explained that the main purpose of the PCA is to prevent firms from unfairly obtaining market power. That is, prevent companies from unfairly excluding other firms from engaging in economic activities, which would then have the effect of lessening competition.
While the enactment of the law is a big leap, much needs to be done to establish a truly working competition policy. Case in point is the SMC telco acquisition, which was announced nearly a year after the PCA was enacted, Medalla said.
“The timing (and haste) of the PLDT and Globe acquisition of the San Miguel telecommunications assets is arguably suspect,” Medalla wrote in her paper.
She said the memorandum circulars, issued by the PCC while the review process was on going for the implementing rules and regulations of the Act, “provided a technical loophole for the transactions to proceed”, adding that there were concerns that the transactions may “have not been fully transparent about the terms in the co-sharing agreement and the conditions set by the National Telecommunications Commission (NTC)”.
She noted that “once a firm has obtained dominant position, it is more difficult for competition policy and law to police such firms against anti-competitive behavior.”
To counter this, she suggested to have “rules on Mergers and Acquisitions (M&A), to vet the firms against possible anti-competitive impact and make sure that the dominant position created by the M&A produces efficiency or welfare gains”.
The study recommended at least three major players in the industry to promote competition.
In the near future, however, challenges “arising from structural barriers, such as the cost of obtaining various permits and licenses (both local and national), the cost of obtaining rights of way, the available spectrum or bandwidth, and the foreign equity limitation” might make things more difficult, she said.
To address this, Medalla emphasized the need for liberalization, competition, and regulatory reforms on the part of the PCC, NTC, and other government agencies, such as the National Economic and Development Authority and the Department of Information and Communications Technology.
Also, the author argued that while the acquisition by PLDT and Globe is a “done deal”, the government should make sure that this transaction benefits the consumers. Particularly, she urged government to ensure that “PLDT and Globe increase and widen their services”.
She also proposed that NTC and Congress reduce the barriers to entry, especially in allocating bandwidths and spectrum, and granting of telecommunications franchises, respectively, and impose stringent conditions on consumer protection and quality of service suppliers.