The Market Monitor Minding the Nation's Business
By Jerry Maglunog and Luis Leoncio
NOT too fast, the newly formed Philippine Competition Commission (PCC) has admonished the three telecommunication giants involved in a P70-billion deal, after they claimed the transaction was “deemed approved” and that all that was needed was for them to file a notice.
PCC Chairman Arsenio Balisacan said the deal – involving the sale of Vega Telecom Inc., the telecommunications unit of San Miguel Corp. (SMC) to the Philippine Long Distance Telecommunications Corp. (PLDT) and Globe Telecoms cannot be automatically “deemed approved.” Expounding, he said: “The mere filing of a notification with the PCC does not guarantee a ‘deemed approved’ status for the subject transaction, even under the transitory rules. Parties to a proposed merger and acquisition cannot make the determination of whether a transaction is deemed approved; this is for the PCC to determine.”
Published reports said PLDT and Globe lawyers argued that the transaction was deemed approved and all that was needed was for them to file a notice with the PCC.
The PCC released last week the Implementing Rules and Regulations (IRR) of the Philippine Competition Act (PCA) that contain anti-trust provisions to break up cartels and monopolies.
Officials of the major firms in the deal argued that since the P70-billion sale happened before the issuance of the IRR, it was not covered by the law.
“This is not accurate,” Balisacan said, adding that the PCC reviews all submissions for sufficiency and completeness of information, and decides, after due consideration, if the subject transaction will be deemed approved.
“If a submission is determined to be insufficient or defective in form and/or substance, for example, the PCC may reject such a submission.
Omission of key terms of the transaction and submission of false material information may also be grounds for rejection,” he added.
Certain submissions may likewise raise serious concerns regarding potential violations of the PCA law, he said. Balisacan said the PCC conducts a full and expeditious review of a notification of atransaction only after receipt of complete information on it.
“Under the law, the purpose of such a review is to prevent anticompetitive mergers and acquisitions. In its review, the PCC exercises all powers granted by the law,” he said.
Provisions in the IRR showed the government, through the PCC, could intervene and subject to an anti-trust procedure the P70-billion deal.
An IRR provision states that the PCC has broad powers over the determination of anti-competitive agreement or contract.
The IRR takes effect on June 18. It says the PCC is empowered to assess the totality of evidence on whether it is more likely than not that the entity has engaged in anti-competitive agreement or conduct, including whether the entity’s conduct was done with a reasonable commercial purpose, such as but not limited to, phasing out of a product or closure of a business, or as a reasonable commercial response to the market entry or conduct of a competitor.
The rules, however, say that the PCC power would be balanced with the need to ensure that competition is not prevented or substantially restricted, and the risk that competition efficiency, productivity, innovation, or development of priority areas or industries in the general interest of the country may be deterred by overzealous or undue intervention.
Last May 29, SMC reported to the stock market a P69.1-billion transaction in which it would sell its telecommunications business to Globe and PLDT.
Balisacan said it was within the powers of the PCC to evaluate all business agreements and transactions that may have potential impacts on market competition.
“In view of the importance of this transaction to the public interest, the PCC will assert all of its powers as provided for in the law,” Balisacan said.
“Because of the strong public clamor for faster, cheaper, and better quality Internet and mobile services, and that these could be stymied by a lack of competition in the sector, the commission has a keen interest in this proposed transaction,” he added.
He did not say what specific actions the PCC would initially undertake but he said that the PCC could look into the deal motu propio (on its own) without the need for the filing of a complaint and that the commission shall assess and take action as appropriate.
“We remind the public and the business community that the provisions of the Philippine Competition Act are fully in effect and do not require the final issuance of IRR to trigger effectivity,” he said.
“We assure the public and the parties that the commission recognizes the urgency of the matter and will move quickly to reach a fair assessment,” Balisacan said. He added that all of the PCC’s actions were directed by its mandate to advance consumer welfare and protect the public interest through promotion of fair competition.
Globe and PLDT said the transaction in which both firms acquired SMC’s telco unit will help them improve the service provided to their combined 96 million subscribers.
The main asset of SMC unit is its right over the 700 megahertz frequency that the two telcos said was needed to improve the deplorable speed of Internet connection in the country.
Under the deal, Globe and PLDT approved the acquisition and signing of a sale and share purchase agreement and other related definitive agreements for 50 percent of the issued and outstanding capital stock of Vega Telecom Inc. from SMC; 50 percent of the issued and outstanding capital stock of Bow Arken Holdings Company Inc. (BAHC); and 50 percent of the issued and outstanding capital stock of Brightshare Holdings Corporation (BHC).
The total enterprise valuation of VTI, BAHC and BHC was estimated at P70 billion, including total liabilities of P17.2 billion. Equity value amounted to P52.8 billion, which translated to an agreed consideration of P26.4 billion for Globe’s 50 percent equity stakes in the companies.
“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.
Ultimately, our goal is to provide our customers with a better experience on our mobile data and home broadband services progressively over the next twelve months,” Globe President and Chief Executive Officer Ernest Cu said.
“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.
SMC President and Chief Operating Officer Ramon Ang said the sale “is a sacrifice we have to make to finally unlock the full potential of our high-quality, mobile broadband spectrum faster and allow consumers access to its benefits through the combined resources, network and expertise of the two carriers.”
PLDT Vice President for Corporate Affairs Ramon Isberto said Smart is ready to utilize any additional frequency assigned to them.
“The biggest benefits will go to the consumers,” Isberto said. Telecommunications firms had blamed the difficulty of improving the quality of mobile data services on continued challenges regarding acquisition of properties to put up cell sites and the intensely bureaucratic permitting process of many local government units.
At present, it takes about 25 permits spanning a period of eight months to get an approval to build one cell site. Also, the inconsistent and at times prohibitive fees across various LGUs are added challenges that increase the cost of ownership of these cell sites.