Who’s afraid of PLDT?
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The impending acquisition of the Philippine Long Distance Telephone Co. (PLDT) of Digitel Telecommunications Philippines Inc. have raised concerns on some sectors particularly from one its rival in the telecommunications industry, Globe Telecom Inc. who even asked the government to take a look into the PLDT-Digitel deal.
Globe’s concern is not without merit, as PLDT will be getting 51.55% of Digitel, after which, it would undertake a mandatory offer to minority investors, for a total consideration of P74.1 billion. A deal that would put PLDT in full control of Digitel, and perhaps, as everybody feared, the telecommunications industry in general.
While PLDT’s Manny Pangilinan assured lawmakers that the market will remain competitive as they would still operate both PLDT and Digitel as separate entities, it still cannot allay the concern of an impending monopoly by the telecom giant.
“Will consumers be given a choice?” a question raised by Globe’s corporate communications head Yoly Crisanto, implying that with the wide market reach of PLDT as a result of the deal, it could possibly dictate market price in the industry.
It could be recalled that there was a time when PLDT had monopoly of the telephone service in the country, and its service then was far from perfect. But there were no other players then. Consumers had no choice.
But now, consumers DO have a choice.
Outside the PLDT-Digitel merger, there’s still Globe, who we hope would be out to improve its services and offer better rates and fight head on with the giant that is PLDT.
Then there’s San Miguel Corp., whose late entry in the telecoms industry via its subsidiary Liberty Telecom Holdings, Inc., does not really make a pushover. It fact, it vowed to be a strong competitor in the industry.
In my simplistic way of thinking, I believe, the PLDT-Digitel deal could be beneficial to the consumers, as long as the other players are able to hold their own, offer better services and more affordable rates and not follow PLDT’s lead should it decide to dictate prices.
Consumers are still the judge… and given a choice, consumers will definitely choose the better service provider without regards to size of the company’s assets.
Comments
2 Comments on Who’s afraid of PLDT?
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Philippines: Netizens Follow Telecom Merger Deal Issue · Global Voices on
Mon, 6th Jun 2011 4:17 am
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Keefe of Txtm8 Tayo Consumer Group on
Mon, 6th Jun 2011 8:08 am
[...] does not see anything wrong with the merger. The PLDT-Digitel deal could be beneficial to the consumers, as long [...]
Hi. I’m Keefe, a representative of Txtm8 Tayo Consumer Group. We’re writing in relation to the PLDT-Digitel shareswap. We noticed that you’ve taken an interest in the issue, and are glad that you’ve written about it. Kindly also allow us to share our views with you for when you choose to write about it again.
Below is an FAQ that we tried to make as streamlined as possible. Should you be interested in elaborations, debate, or whatever other purpose, I may be reached at keefedelacruz@gmail.com. Thank you. Have a nice day.
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Q: Who the heck is Txtm8?
A: As a consumer rights advocacy group, Txtm8 has consistently advocated the rights of telecommunications subscribers. It has conducted forums and talks opposing the imposition of tax on text messages, undertook a study and wrote a thesis on the effects of a lack of competition in the telecomm industry, lobbied with the National Telecommunications Commission (NTC) to lower the access charges of telecommunications firms.
Q: Why is the organization relevant?
A: In spite of the fact that half of Filipinos earn less than P200 a day, 80 million of us own cellphones. It has practically become a necessity. Most of us can’t imagine life without their cellphones. So it’s really no surprise that Smart and Globe are raking in billions in net income (i.e. after taxes and other expenses). Yet, prices are high and services are not up to par (choppy calls, poor signal strengths, inadequate nationwide coverage, etc.). Despite the fact that the ubiquity of mobile phones makes the telecomm sector one imbued with public interest, the people don’t mind because, after all: the system is usable, we’re only paying piso-piso, and the public has more important things to worry about. Enter Txtm8.
Q: Ok, so whaddaya want from me?
A: We wish to be able to share our opinions on certain issues and our bases for them, in the hope that you would agree with our views and could write about it in a way that’s geared to your blog’s audience, so that bit by bit the public might also be informed that they can and should demand more from our telcos. There are many areas of concern, but for the moment, the issue of the day is the PLDT-Digitel share swap. In the US, when AT&T decided to merge with TMobile, the net was up in arms and it’s what prompted the Federal Communications Commission (FCC) to take action on the matter.
Q: PLDT and Digitel traded shares, so what?
A: Recently, PLDT and Digitel negotiated a deal whereby PLDT (which already owns Smart and Talk N’ Text) would own 51.55% of Digitel (which owns Sun). PLDT now has controlling interest in Digitel – it gets to call the shots on how Sun Cellular is run! As a result, PLDT holds 70% market share in the mobile telecomms industry, and 84% of the radio frequency spectrum!
Q: What’s your stand on the PLDT-Digitel deal?
A: We are not against big business; it has its potential benefits, as is PLDT’s wont to argue – big businesses can enjoy economies of scale and can afford to lower prices.
What we are against are its dangers, which far outweigh its potential benefits. And these benefits are only theoretical, speculative at best. On the other hand, the dangers are real – our telecom history shows that the 60-year PLDT monopoly of the fixed-line(more popularly known as the landline) system only bred gross inefficiency and high costs.
Q: What potential dangers?
A: The effects are interconnected. PLDT can easily use its grossly dominant position to crush Globe, it’s only remaining competitor. One of the many things it can do is use Sun to charge absurdly low rates for calling and texting. Subscribers will flock to this. Even if Sun will lose money because of this, it will survive on the cross-subsidy given by the mother PLDT, while Globe flounders to try to compete with these rock-bottom prices. It will be good for the public in the short term, but in the long run, PLDT will want to recoup whatever the predatory pricing scheme cost – something which it will be able to easily do, surely at the expense of the consumers, once Globe is out of the picture. In that event, the public will have no choice but to subscribe to PLDT (Smart or Sun), regardless of how much it chooses to charge for mobile services and how poor the quality of those services are. And all the “opportunity” for “innovation” will come from one enterprise, contrary to the undeniable logic of the adage that two (or more) heads are better than one.
Q: Isn’t that speculative?
A: See there’s big and there’s BIG. And PLDT is so BIG that whatever action it takes will affect the whole industry in a drastic manner, whether or not it intends to. And it’s so big that the changes it makes might be irreversible, and any corrective measures by government would then be too late. So the opinion that it might be speculative is beside the point. It is like the colossal bus along Commonwealth that does not really intend on hurting anyone, but a slight bump from it and cars and people get seriously and sometimes irreparably injured.
Q: If we aren’t against it, what do we want to happen?
A: The present policy of the government is to let private enterprises duke it out; the government intervenes only upon disputes or complaints filed.
But PLDT becomes so big that the effects of any abuse on its part – even if unintended – becomes irreversible after the fact. So government intervention is now necessary before the fact.
Q: What kind of intervention?
A: Heavy-handed intervention would stifle competition and defeat the very purpose of deregulation in the telecom industry. On the other hand, a light-handed approach as is currently practiced is obviously inadequate.
We consider the imposition of SMP obligations to a feasible middle ground.
Q: What are SMP obligations?
A: A Significant Market Power (SMP) obligation are conditions imposed on and commitments required of a player that has become so dominant in a market that these requirements would need to be implemented so that the other players would be able to compete viably – to even the playing field so to speak. SMP obligations are not penalties for success. They are necessary safeguards that protects smaller players, promotes free competition, which will ultimately benefit the consumer. The practice of governments imposing SMP obligations has been adopted with great success by countries such as Singapore.
Q: What SMP obligations in particular?
A:
1. Effective Interconnection Rules
a. Interconnection is inevitable
Everyone has friends/family/colleagues on different cellular networks. Therefore, interconnection is part and parcel of telecommunications. It’s when caller/SMS-sender is from one network (e.g. Globe or other new competitor) and the recepient of the call/SMS is from another (e.g. Smart). The network of the former pays an “access charge” or “interconnection rate” to the network of the latter. Currently, the networks are free to negotiate different charges for different networks. The status quo are P0.35 per SMS sent and P4.00 per call made (much more expensive than the interconnection rates of our Asian neighbors).
b. Government intervenes only when there is a valid dispute; otherwise, the telcos are free to negotiate interconnection rates as a private matter
Larger networks with bigger infrastructure and with larger subscriber bases (i.e. PLDT which holds the Smart, Talk n’ Text, and Sun – a 70% goliath) get to dictate interconnection rates that smaller or newer networks (Globe or aspiring competitors) have to pay to access the former’s more established network. To illustrate: if PLDT continues to charge a new network P4.00 for a call which a new network will bill a consumer P6.50 for, thereby earning at most P2.50 for that call, the new network will find it impossible to earn and compete.
c. Without regulation, the larger telco will become larger, and the smaller or newer networks will hemorrhage market share
The multiplier effect, based on the premise that same-network calls are more cost-efficient both for the network and the consumer, is that subscribers will tend to favor same-network calls/SMS and encourage personal contacts to subscribe to the same network. Therefore, the larger more established network will grow, at the expense of the smaller or newer ones that will eventually cease to become viable.
d. As to interconnection, government intervention is imperative
The NTC should require honest to goodness interconnection and prescribe maximum interconnection rates that networks can charge each other (and pass on to the consumer)
2. Publication of RAOs for better transparency;
In relation to interconnection rates/access charges and their negotiation, the NTC can come up with and implement Reference Access Offers (RAOs) binding on the telcos. An RAO will be the effective agreement between telcos who have not successfully negotiated mutually beneficial interconnection rates yet. That way, even while negotiations are ongoing, interconnection will already be possible; and bigger, more established telcos cannot impose unduly restrictive agreements against smaller newer players.
3. Provide unbundled telecommunication services;
As it is, established telcos that grant access/interconnection to newer telcos require that the latter take and pay for the facilities of the former wholesale, even the components that the latter do not actually need. As an illustration: if a call is made by a subscriber of the new network to a subscriber of the established network from point A to point D, and the new network already has a line from point A to point C, but will need the line of the established network from point C to point D, the new network has to pay for access to the line of the established network from point A to point D, not just C to D. Unbundling makes this setup fairer
4. Allow re-sale of services;
This permits a new telco to purchase services from established telcos and resell them as its own. This way, the new telco does not need to invest heavily in redundant infrastructure. Instead, it can improve the services it offers by innovating on end-consumer pricing schemes, support services, other technologies, etc. In the US: Sprint, a smaller telco purchases services from AT&T, the dominant telco, and the former repackages those services to cater to a youth-oriented niche market. Thus, the smaller telco can compete viably.
Q: Isn’t this unfair to PLDT (which presumably has done good business for it to be able to afford to buy out Digitel), because it benefits Globe (which one can say is sour-graping on having lost the battle for telecomm supremacy?)
A: Whatever action the government takes, while it may benefit Globe, is ultimately meant for the consuming public to which the government and the telco (being in an industry imbued with public interest) are answerable to.
And since PLDT controls 70% of the market, it is only reasonable that 70% of the regulatory resources of the NTC be focused on PLDT. Any other setup would be absurd considering the limited resources of the NTC.
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