Anticompetitive arrangements by property developers and internet service providers

What used to be a slow trend towards digitalization rapidly accelerated as a result of the coronavirus outbreak. Based on recent company disclosures, Converge ICT reported a 75% increase in new subscribers while GlobeAtHome’s subscriber base rose from 3.5 million to 3.7 million. PLDT, Inc. also reported that it connected a record 1.13 million new fiber customers, exceeding its original targets.

Filipinos had to find ways to adapt and continue being productive despite being restricted to their homes. For this reason, access to the internet is essential for Filipinos to continue their work, business, studies, and connect with their loved ones. However, there have been reports wherein some Property Developers have entered into arrangements wherein only a singular internet service provider (ISP) of the developer’s choice can operate within their respective areas. These anti-competitive arrangements prejudice the rights of consumers by depriving them of their right to choose an ISP of their own preference. In choosing their ISPs, considerations such as speed, reliability, and price play an important role in a subscriber’s decision-making.

As more Filipinos shift towards digitalization under the “new normal,” it is timely to remind consumers and businesses alike of the policy of the State to penalize anticompetitive agreements such as exclusivity arrangements between property developers and ISPs, and update them of the actions taken by government.

Section 15 of Republic Act 10667 or the Philippine Competition Act (PCA) of 2015 prohibits an entity’s abuse of its dominant position by engaging in conduct that would substantially prevent, restrict, or lessen competition. Abuse of dominant position refers to the conduct of an entity with a dominant position that substantially prevents, restricts, or lessens competition in the market. An example of conduct constituting abuse of dominant position is when “a dominant firm restricts output or refuses to supply, or restricts access to/use of/ development of a new technology, to the detriment of consumers.”

In March 27, 2019, the Competition Enforcement Office of the Philippine Competition Commission (PCC) filed a Statement of Objections against two property developers for entering into an arrangement wherein internet services in their condominium projects were solely provided by one ISP chosen as their in-house provider. According to the Competition Enforcement Office, the property developers “abused its dominant position in the provision of property management services by preventing other ISPs other than the in-house provider from providing fixed-line internet services to their residents … with which they have complaints regarding its quality and prices.”

In response, the property developers admitted their anticompetitive conduct and committed to implement measures which would “1.) cease the anticompetitive conduct and prevent its recurrence; 2.) restore competition, and, 3.) effect deterrence.” The property developers undertook to post notices stating that the in-house provider was no longer the exclusive fixed-line ISP and that residents were free to avail of services of other ISPs, invite other ISPs to offer or market their services in their condominium projects and, allow customers of the in-house provider to opt-out of their subscription contracts at no cost, among others.

In a decision dated Sept. 30, 2019, the PCC found the foregoing commitments sufficient to address the harm to the condominium’s tenants and that they would restore competition. The property developers were directed to cease and desist from their admitted conduct of abuse of dominant position and to pay an administrative fine of P27 million. In a press release dated Oct. 2, 2019, PCC Chairman Arsenio M. Balisacan called this decision a landmark case for the PCC which “successfully resolved to stop an anticompetitive practice, restore competition in the affected market, and set an example to deter other businesses from employing similar exclusive dealings.” He also warned other businesses from abusing their market power. He added: “[T]his case shows that the PCC is serious about addressing anticompetitive practices that have long been considered par for the course in different industries. Unscrupulous businessmen can only expect the PCC to pursue more cases of a similar nature in the future.”

Staying true to its commitment, the PCC announced on March 3 that it “has taken several property developers to task for their exclusive dealings with internet operators through the issuance of Enforcement Advisory Letters (EALs).” To date, eight developers voluntarily complied with the PCC EALs and opened their properties to other ISPs.

Mr. Balisacan highlighted the importance of a consumer’s freedom to choose their own ISPs and asked the public to report similar cases of developers having exclusive dealings with internet operators. He says: “[A]s remote work, distance learning, and e-commerce have become part of the new normal, PCC understands the value of consumer choice for fast, stable, and affordable internet connection. The lack of competition in this space forced by exclusivity dealings by property developers is an issue that we are determined to solve. We encourage the public to continue reporting to us similar cases and for developers to open their doors to different ISPs.”

In the same press release, the PCC announced that it is working on issuing a joint circular “with various relevant housing and ICT regulators for all property developers to prohibit exclusivity arrangements in internet, telecommunications, and cable TV services.”

Healthy market competition benefits consumers through lower prices, more product choices, and better-quality goods and services. It motivates companies to provide better services to consumers and innovate products. The entry of new market players also causes excitement among consumers, such as the announcement of Trade and Industry Secretary Ramon Lopez that Elon Musk’s SpaceX is already processing Starlink’s application to provide low orbit satellite internet service in the Philippines, the first in Southeast Asia.

With the entry of additional ISPs and the recent amendments to the Public Service Act allowing 100% foreign ownership of public services such as telecommunications, the proactive stance by the PCC in the issuance of a joint circular expressly prohibiting anticompetitive exclusivity arrangements by property developers and internet service providers is a welcome development.

The views and opinions expressed in this article are those of the author. This article is for general informational and educational purposes only and not offered as and does not constitute legal advice or legal opinion.

Luke Morgan B. Codilla is an associate of the Angara Abello Concepcion Regala & Cruz Law Offices (ACCRALAW), Davao Branch.

(6382) 224-0996

lbcodilla@accralaw.com