Let the third telco come naturally

There was already a third telecommunications company “telco” to the Globe Telecom and Smart Telecom “duopoly.” In August 2010, San Miguel Corp. (SMC) bought Bell Telecommunications Philippines, Inc. (BellTel) and set up Vega Telecoms, to challenge the emerging duopoly of Globe and Smart (philstar.com, Aug. 17, 2010).
And why did SMC not assert itself as that third telco — for six years neglecting to use its valuable 700-megahertz (MHz) spectrum telco assets? The Philippine Long Distance Telephone Co. (PLDT)/Smart and Globe asked the National Telecommunications Commission (NTC) for the reallocation of the idle SMC frequencies to improve their broadband wireless networks in response to public clamor for better services. The NTC declined their requests (The Philippine Star, Nov. 26, 2015).
But then the partnership talks of SMC with Telstra, the largest, and one of the oldest telecom companies in Australia, collapsed in March 2016. What a surprise when SMC President Ramon Ang turned around and sold Vega Telecoms to the duopoly he was fighting, and with it the coveted 700 MHz spectrum telco assets! (InterAksyon May 31, 2016). Not bad at all for SMC, which got $69 million from the sell-off, 50-50 from PLDT/Smart and Globe (GMA News, May 31, 2016). NTC might have also sold off its avowed objective to topple the duopoly.
Soonest after the 2016 national elections, then-presumptive President Rodrigo Duterte decried the “dismal state” of telecommunications in the country and issued “a stern warning to telcos to provide faster Internet service or foreign investors will be allowed to do the job” (CNN Philippines, May 22, 2016). After his third State of the Nation Address (SONA, July 2017), President Duterte angrily declared that he would unilaterally decide by himself if the third telco is not known by November or December. Information and Communications (DICT) Acting Secretary Eliseo Rio, Jr. said during a Senate committee hearing last week declared that the third telco will be announced on Nov. 7 (CNN Philippines, Oct. 22, 2018).
At least five local firms — Converge ICT, Udenna Corp.; TierOne Communications International, Inc.; LCS Group of Companies; Philippine Telegraph and Telephone Corp. (PT&T) and Now Corp. have bought the P1-M bidding forms. Three foreign firms have also submitted bids: China Telecom Corp. Ltd.; Mobiltel Holding GmbH from Austria; and Telenor Group from Norway (The Philippine Star, Oct. 22, 2018).
Transparency in Public Service (TIPS), a civil advocacy group, said the public might end up shortchanged or have national security compromised with the forced entry of a third telco (Ibid.). The Senate hearing discussed the national security aspect at length (without resolution yet) and the automated selection process objected to by TIPS. The DICT has assigned points for each category (speed, coverage, and financial capability) based on committed thresholds and minimums. “In effect, they (the government) will be making a highly crucial decision based on a promise and a pledge — and simply hope that the companies will keep their word, TIPS worried (Ibid.).
The technicalities of the business bid for evidently have not been sorted out and clearly defined as terms of engagement: how will the frequencies be awarded, redistributed or shared among players in the industry; will the telcos build their own infrastructure — e.g., will towers be shared; what about interconnection charges — mandated or market-driven; and how about other highly technical issues on the handling of the public utility company that a telco is, balancing consumer demand and needs, versus government control. Why are so many bidders seemingly eager to foray in such undefined and weakly regulated territory?
Finance Secretary Carlos Dominguez III said the government should focus on developing stronger regulation on the country’s telecommunications industry instead of looking for a new major player. “The regulation on the local telco industry is not up to par,” he said (philstar.com, Aug. 17, 2010). “What the public is getting is inferior to what the public is getting elsewhere. That is the job of the regulators. Are we asking the right questions or are we rushing into something that may not help (in) the long run because the regulatory environment is not sufficient?” Secretary Dominguez so rightly asked (bworldonline.com Aug. 15, 2018).
The International Finance Corp./World Bank Group (IFC/WB) studied the Philippine telecom industry (May 2018). While penetration is at par with East Asian neighbors, there is indeed a worrisome lag in service quality of both mobile and fixed broadband services, where out of 87 countries ranked in overall speeds and availability of both 3G and 4G networks, the Philippines ranked #86 and #79 respectively.
The IFC/WB study suggests that a third mobile operator in the Philippines is not viable without substantial reforms. The major gap identified is “insufficient regulatory capacity and limited authority to enforce quality and performance standards.” Recommendation is to clarify the roles of respective institutions (DICT, NTC), build up regulatory capacity and strengthen mandates in upholding competition in the market. Based on the observation that inefficient capital investment and sub-optimal regulatory framework have led to poor digital infrastructure, the study proposed streamlining of approval and control systems and asymmetric working policies to ease in new entrants disadvantaged by the foothold of earlier players — such as interconnection, infrastructure sharing, and technology neutrality. The IFC/WB commented that the constitutional 40% foreign ownership cap for public utility might be reviewed for true competition and efficiency in the industry.
The IFC/WB group has offered to review the regulatory framework and operating environment of telecoms jointly with government and with the participation of players in the industry. Only with the commitment from government to make changes in regulations and to strictly enforce these can new entrants be processed under set qualification standards. The industry regulator will assess and choose operators — who will be aided by the IFC in the analysis and funding of their financing/capitalization under the PPP (public-private participation) scheme.
Case studies of near-monopolistic telecom markets in Mexico and Colombia show that regulation is key to keeping competition healthy, and the industry fair and responsive to the public. Both countries suffer extreme congestion of the mobile market while service is poor and expensive. Lack of regulatory enforcement led to failure to achieve targets, and condoned the opportunistic megaplayers.
Like Carlos Slim Helú, richest man in Mexico; from 2010 to 2013, the richest person in the world, according to Forbes magazine, and as of August 2018, the seventh richest in the world. He accounts for 40% of the listings on the Mexican Stock Exchange, while his net worth ($54.5 billion 2017) is equivalent to about 6% of Mexico’s gross domestic product. He owns América Móvil, the seventh largest mobile network operator (more than 360 million subscribers globally) and one of the largest corporations in the world. Slim’s telecom empire reaches almost every country in Latin America.
América Móvil holds over 70% of the Mexican telecom market. But Slim’s enormous appetite for acquisition and monopolist control has been curbed by the firm resolve of Mexican President Enrique Peña Nieto who in 2014 signed a law aimed at increasing competition in the telecommunications arena by imposing a 50% maximum market share. Slim had to bow to tight regulation and careful watching by the Federal Institute of Telecommunications (reuters.com, July 9, 2014).
And the third, fourth, fifth telcos came naturally, in renewed trust and hope for fair competition.
 
Amelia H. C. Ylagan is a Doctor of Business Administration from the University of the Philippines.
ahcylagan@yahoo.com