Frequency auction could deter ‘third player’ bids

THE proposed auction of frequency for the new entrant to the telecommunications industry, the so-called “third player,” might reduce the number of bidders and raise costs for consumers, analysts said.
The analysts and an Internet advocacy group said that an auction of frequency with a minimum bid price of P36.58 billion, could be a barrier to improving service, rather than an incentive for those wanting to be the third player.
The government is deciding whether to allot frequency to the third player through an awarding without a fee or through an auction. The Department of Information and Communications Technology (DICT) supports an awarding of frequency, while the Department of Finance (DoF), a member of the oversight committee for third player selection, is pushing for an auction of frequency.
“The selection process based on HCLOS [highest committed level of service] is clearly more consumer-centric than the one based on the auction for frequency. The second model has several variables that could potentially be counterintuitive to the main purpose of the third telco’s entry (i.e., improve and lower the cost of telco services) and simply just invite controversy,” Sean Agapito, market analyst at IDC Philippines, said in an e-mail interview.
“For instance, the auction of frequency would force applicants to pay out huge capital unrelated to the development of telco services or establishment of new ICT [information and communications technology] infrastructure. This expense could be easily passed on to consumers.”
Jervin S. de Celis, equities trader at Timson Securities, Inc. said that interested parties may be discouraged by the auction requirement and will leave the field to cash-rich companies, or those with a foreign partner.
“I think [that the companies may be turned off by the auction price]. The price of P36 billion is too hefty… so it might become a little difficult for the new entrants to raise cash just to acquire the frequency that the DoF plans to auction, unless the entrant is already cash-rich or has a foreign partner to shell out the needed funds to acquire the frequencies.”
Mary Grace Mirandilla-Santos, independent researcher and lead convener of Internet advocacy group Better Broadband Alliance (BBA) said the higher cost to be shouldered by the new player, which can be passed on to consumers, will be contrary to the aim of getting a new competitor to the incumbents, PLDT, Inc. and Globe Telecom, Inc.
“The objectives of the third telco selection process should be clear: (1) ease of entry for a new player and (2) better and more affordable telecom services for the consumer. In line with this, the BBA is in favor of the (terms of reference) that awards a license and assigns spectrum based on the HCLOS plus highest committed investment (HCI),” Ms. Santos said in a mobile message.
“…If the auction results in a high bid price, it is highly likely that the selected third telco would work to recover the cost by passing it on to the consumer. That would defeat the purpose of putting a new player in place who will compete with the duopoly,” she added.
DICT Acting Secretary Eliseo M. Rio, Jr. has expressed opposition to the DoF’s plan, saying that an auction will be anti-competitive because the incumbents did not have to undergo an auction, only a “beauty contest,” thereby placing a big burden on the new player by forcing it to pay out a large amount that has nothing to do with improving infrastructure and services.
DoF Secretary Carlos G. Dominguez III said the new entrant must pay for the frequency to make it “fair” to the public.
Around 300 megahertz (MHz) of frequency is assignable to a third player. The DICT has said this is sufficient to compete with the incumbents.
Two draft terms of reference (ToR) with the differing approaches to the awarding of frequency are set to be discussed in a public hearing on July 6.
Current requirements for the third player include paid-in capital of at least P10 billion; experience in providing, delivering, and operating of telecommunications services for the last five years; a congressional franchise not related to either PLDT or Globe.; and no uncontested liabilities with the NTC as of Jan. 31, 2018.
The government aims to choose the third player within the year.
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