Judging from the way the controversy over the takeover by the Philippine Long Distance Telephone Co. (PLDT) of the Digital Telecommunications Philippines Inc. (Digitel), which wholly owns Sun Cellular) has heated up to near-boiling point, it seems quite obvious that the over P70-billion share-swap deal is still quite far from becoming a “done deal.”
The contract-signing between the Pangilinan group (headed by Manuel V. Pangilinan, PLDT chairman) and the Gokongwei group was, of course, held with a bit of hoopla. It was described as a neat business coup by the Pangilinan group, which outmaneuvered and outbid at least two other groups with the same intention.
It was even celebrated as one of the biggest, if not the biggest, business deals of the past few decades.
But hardly had a day passed after the ceremonial signing than Sen. Joker Arroyo doused cold water on the whole deal. How could a transaction of such magnitude take place, he asked, without the blessings of Congress? It cannot be; it’s illegal, he said.
The veteran lawmaker pointed out that both parties derived their authority to operate from the congressional franchises granted to them. Therefore, both parties should have somehow involved the Congress before concluding their negotiations, if only to ensure that no provisions in their respective franchises were being violated in the merger.
President Aquino’s response to the uproar caused by the deal expressed concern that the deal might put the public at a disadvantage over the long term. He ordered it reviewed by the National Telecommunications Commission and the Department of Science and Technology.
The review, he said, should determine whether PLDT would gain any unfair advantage as a result of annexing Digitel. Even the Ayala-controlled Globe Telecommunications, which would be the only competitor left in the field against a PLDT-controlled Smart-Sun Cellular combine, formally asked the NTC to redistribute broadband frequencies to give it a fighting chance against the PLDT monolith.
It said that the deal would only result in a lopsided distribution of frequencies that would give PLDT a monopolistic clout in the industry.
The way I see it, the proposed PLDT-Digitel share-swap deal is hanging fire even as we speak simply because it has run smack against public policy. The government, therefore, would find it extremely difficult to approve it in its present form.
Also standing in the way is the major issue of legality raised by Senators Arroyo and Francis “Chiz” Escudero.
The bottom line is that safeguards must be put in place to prevent backsliding to the old days when PLDT held sway in this industry for at least three decades. Nobody remembers those days—when the telephone service was as lousy as could be—with the slightest bit of fondness.
The public policy on telecommunications is spelled out quite clearly in Article XII of the Constitution. This bans monopolies that would hurt public interest. There’s a phrase in this article that says, more or less, that no combinations in restraint of trade (such as the proposed merger) or other ways to stifle free competition should be allowed by the government. But the PLDT itself insists that its proposed takeover of Digitel would only strengthen its capability to provide efficient and affordable mobile phone and broadband services to the Filipino public.
And so, for whatever it is worth (and consistent with this paper’s and this column’s bedrock policy of fairness at all times), I am reprinting in full PLDT’s commentary covering the issues raised against the controversial deal as follows:
‘Regulatory blackmail’
There’s a lot of heat—and plenty of smoke—being generated by the bitter fight between rivals Globe and PLDT over PLDT’s takeover of Digitel.
Globe has claimed that a PLDT-Digitel combine would kill competition in the telecom business and inflict higher prices and poor service on consumers. It has asked the government for numerous concessions, including the transfer of 22 megahertz of valuable 3G spectrum from PLDT to Globe for free to create a “level playing field.”
Their basic argument, articulated by Globe lawyer Rudy Salalima, is that a PLDT-Digitel combine would have an overwhelming superiority versus Globe in terms of radio frequency which is measured in terms of mega- hertz (MHz). They are particularly concerned about the frequencies used for 3G, where the ratio would be 1:4.5, in favor of PLDT. In layman’s terms, that would mean PLDT’s highways for 3G services would be 4.5 times bigger than whatever Globe has.
There is something simply breathtaking about that idea. If you ask the experts, 22 MHz is a lot of spectrum. And the thought of losing that much spectrum to competition is obviously not very appealing to the folks at PLDT. This is now what agitates them.
Not surprisingly, PLDT has a different set of arguments and numbers. They say: of course, we have more frequencies for the simple reason that we have more subscribers. PLDT director Ray Espinosa argues that to get a fair picture of the real situation you have to take into account all of the spectrum assigned to an operator, not just a slice of it, and then ask if the operator is maximizing the use of that frequency.
Here are PLDT’s numbers: Smart has a total of 113 MHz of radio spectrum, Globe has 90 MHz, and Sun 42.5 MHz. As of end-2010, Smart had 45.6 million subscribers, Globe 26.5 million and Sun 14 million. You calculate an operator’s efficiency of frequency utilization by dividing the number of subscribers by the number of MHz of spectrum. These are the results: Smart has 403,000 per MHz, Sun has 330,000 subscribers per MHz and Globe has 294,000 subscribers per MHz.
Using that formula, Smart is the most efficient operator, followed by Sun and finally Globe. By insisting on the transfer for free of 22 MHz frequencies of PLDT in its favor, PLDT’s Espinosa says Globe is pushing the government to penalize the most efficient operator and to reward the most inefficient one. Espinosa argues that if Globe is asking for a “level playing field,” it seems that Globe considers itself more “equal” than the others.
PLDT says this is “regulatory blackmail.” PLDT officials say Globe is raising false charges in an effort to extract “special privileges” from government—like the free transfer of radio spectrum to itself.
Frankly, these arguments fly over the heads of most people. Radio spectrum, for example, is vitally important to operators, while monopoly and antitrust issues are crucial concerns for academics and government officials. But what people are really concerned about is what the Digitel deal means for them in terms of better services at better prices. The 15 million or so Sun subscribers, for example, are concerned that the unlimited services they have come to depend upon will be stopped if PLDT takes control of Digitel/Sun. Now, that is a question that matters to a lot of people.
PLDT boss Manny Pangilinan has given assurances that PLDT will keep Sun as a separate company and continue to offer and improve Sun’s unlimited voice call and text messaging services. Of course, these are just words. You never really know if PLDT will make good on its word in the long term. PLDT president Polly Nazareno does, however, make a valid point when he said that “unli” services are here to stay and that PLDT wants to be the best in “unli” services.
PLDT officials have also said that they will use the combined resources of PLDT and Digitel to roll out broadband Internet infrastructure more extensively and more rapidly than would otherwise be possible. Their plan is to extend broadband Internet coverage up to 95 percent of the country’s population in the next three years. We all know that high-speed Internet is so important for business today. Just think of the call-center business, for example. And with so many Filipinos living and working abroad, the Internet has become a vital link to family and friends in the Philippines.
Can the Digitel deal really help bring this about? These are questions that need to be asked and answered, now that the National Telecommunications Commission has started its hearings on PLDT’s application to have the deal approved.
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