The PCC and the Third Telco
by Atty. Johannes Benjamin R. Bernabe
October 31, 2018

FILIPINOS will have a taste of more competition in the telecoms market once the third major player begins operations in 2019. This will come on the heels of the Department of Information and Communications Technology (DICT) and the National Telecommunications Commission’s (NTC) widely anticipated selection of the new major telecoms player next month. With the new competitor in play, Filipinos are eagerly expecting faster and more widespread access to Internet service, less dropped calls and, perhaps, even lower telephone bills.

Simply getting to this point where the country can hope for better service brought about by the entry of a third player seemed like a pipe dream even just a couple of years ago, when the planned foray of San Miguel Corp. into the business was suddenly aborted by its sale of its subsidiaries holding valuable frequencies and telco assets to the two dominant incumbents in the sector—Philippine Long Distance Telephone (PLDT) and Globe Telecoms. SMC was almost ready to roll out its telephone and Internet services then, and many believed if any entity can go toe-to-toe with the duopoly, it was San Miguel. If even SMC opted out of this venture, who would dare take on the challenge?

It is a credit to President Rodrigo Duterte and DICT Secretary Eliseo M. Rio Jr. that they have summoned the necessary political will to lay the groundwork for the entry of a viable third player. This includes allocating whatever bandwidth is available, ensuring access to the “dark fiber” or unused optical fiber embedded in the government-owned power transmission grid, and promulgating clear-cut and transparent rules for the selection of the new major player. Sec. Rio, together with NTC Commissioner Gamaliel Cordoba, have likewise tirelessly engaged in various consultative processes with other government agencies and stakeholders to make sure that the terms of reference for selection (TORS) are rational and inclusive of the different perspectives put forth.

For its part, the Philippine Competition Commission (PCC) sought to fine-tune and tighten the disciplines affecting competition under the TORS. For instance, the Commission expanded the scope of what would be covered as “related party” to a dominant player, so that it would include those who are under the common control of the ultimate parent entity of a dominant player, or those who are not able to act or decide independently of other entities related to the ultimate parent entity. This revision made the TORS more consistent with the Philippine Competition Act (PCA). This modification is key because the third player to be selected is barred from merging, combining with or becoming a related party to a dominant player for period of five years from selection. Notwithstanding this prohibition, however, a further tweak adopted in the TORS on suggestion of the Commission is that the third player is allowed to enter, for its own benefit, into co-use, interconnection, infrastructure and tower-sharing agreements with either PLDT or Globe, albeit subject to the PCC’s review and approval. From the PCC’s perspective, exempting these kinds of agreements from the prohibition could allow the third telco to unlock potential efficiencies in the assets held by the dominant telcos.

The scale of investment and technology needed to ensure that the third telco can compete effectively necessarily requires a domestic firm holding a congressional franchise—a legal requirement to operate a telecommunications facility—to combine or partner with a foreign telecoms company. Under the PCA, this business combination or partnership is generally required to be notified to the Commission as part of the latter’s mandate to review mergers of a certain size. However, it would seem akin to putting the cart before the horse if, after complying with all the stringent requirements of the TORS and running the course of the selection process, a selected third telco would then have to submit its merger agreement involving its domestic and foreign partners for review by the PCC. What if the Commission then finds something, which will cause it to prohibit the merger agreement? Will the DICT and NTC have to go through the selection process again or at least provide for a mechanism to enable it to award to another telco applicant?

To rationalize the exercise of its mandate, the PCC has opted instead to ensure the TORS incorporate the requisite competition disciplines and for these to be reflected in a separate undertaking to be submitted by third telco applicants to the PCC. This undertaking is analogous to voluntary commitments to address competition concerns that parties to a merger offer the PCC, where needed, in the course of a merger review. In this way, PCC acts consistent with the law and its mandate while contributing to a streamlined selection process as part of one government forging a unified agenda.   

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Commissioner Johannes Benjamin R. Bernabe served as adviser to the Senate and the House of Representatives in the drafting of, and deliberations on, the Philippine Competition Act. A lawyer by profession, he was a senior fellow at the Geneva-based International Centre for Trade and Sustainable Development and served as the Philippines’s lead trade negotiator on select issues at the World Trade Organization, also in Geneva, Switzerland.

(Originally published on Business Mirror’s Competition Matters column on October 31, 2018 here.)