For those intent on sabotaging a merger and acquisition between Philippine Long Distance Telephone Co. (PLDT) and Digitel, ordinance has been concentrated that evokes populist passions on one end and fears of anticompetition on another.
Good money has been spent to foment fears. After all, in terms of affordability, Digitel has been a popular alternative. On the other hand, in terms of market share, the PLDT flagship has the highest degree of patronization.
Between the two, there are issues that span from popular pricing to statutes that neither apply nor even exist in local jurisprudence. Across these, coiling through, there is an unspoken agenda, only recently revealed, that betrays the campaign to scuttle the merger.
Those who oppose the merger invoke antitrust laws. And yet in local jurisprudence, there are none. The statutory model are the antitrust laws of the United States, derived from the Sherman Antitrust Act of 1890 and the Clayton Antitrust Act of 1914, both passed to “bust trusts.”
Of the two, the Sherman Antitrust Act specifically referred to trusts. Under Section 1, it declared “every contract, combination in the form of trust or otherwise, or conspiracy in restraint of trade or commerce as illegal.”
The term antitrust is derived from the use of trusts to conceal business conspiracies where the power of these trusts, correctly or incorrectly, became synonymous with “bigness” and monopolies. Never mind the clear distinctions among natural, coercive and benevolent monopolies.
Rather than antitrust, what we have locally is a smattering of provisions scattered among statutes that respond to restraint of trade practices. Later, we will see the profound wisdom of our laws.
Of the handful dealing with the PLDT-Digitel merger, three are relevant. The Corporation Code addresses the question of mergers, but not levels of competition or market share. The other two are the Revised Penal Code (Republic Act 3815) and the Civil Code (RA 386).
RA 3815 defines unfair competition and provides remedies following the Constitution where, cognizant of classical economic thought, it imposes regulations against abuse but does not outlaw monopolies.
Classical economics set by Adam Smith and Thomas Malthus, among others, views an economic arena along a dynamic and extended timeframe allowing free markets adjustment leeway. It legitimizes big business and the “invisible hand” that eventually addresses inequities in the social sphere. Understandably, militant socialists recoil against this as they do the merger.
Under classical laissez-faire, antitrust legislation would be pointless. All firms pursue market share. Competition over an extended period forces firms to dominate through skill, technology and innovation. Should a firm greedily inflate prices and abuse its dominance, it creates opportunities for others to compete and the classical economic paradigm of “a perennial gale of creative destruction” erupts and erodes that dominance.
Neoclassical economics espoused by the Chicago School of Economics shows a similar concern for sustained economic efficiencies. From the 1970s onward, antitrust enforcement has been rationalized by the realization that economic efficiency must be insulated from inordinate social and political passion. Rather than deny dominance, enforcement imposes on dominant companies to conduct themselves appropriately.
Our Constitution reflects such wisdom. Section 19, Article XII of the 1987 Constitution provides that “The State shall regulate or prohibit monopolies when the public interest so requires.”
Note the insightful ambivalence. Because the Constitution does not outlaw monopolies or legitimate acquisitions—issues invoked against the merger—RA 3815 is inapplicable, absent clear criminality or restraint of trade proven in a court of law.
Likewise, RA 386 provides for damages arising from the abuse of market domination or unfair competition. As in RA 3815, to apply, abuse must be inherent in the merger.
Dominant market share is not enough to prove abuse. Dominant market shares in other industries provide not only rational pricing but also quality products. San Miguel beer has a 98-percent market share. Philip Morris after its merger has 90 percent of the market. Oil refiners Petron and Shell combined have a 77.2-percent market share. Mercury Drug accounts for 62.7 percent, while Zuellig Pharmaceuticals has 80 percent.
Economies of scale are at the crux of the matter. In opposing the merger, a spurned Digitel suitor betrayed their agenda by claiming they no longer enjoy economies. This is revealing. To foment fears, merger critics claim monopolies lead to higher consumer costs.
They don’t.
Firms with dominant market shares enjoy economies of scale that allow efficiencies in distributing fixed costs over a wider base, hence allowing lower pricing. Rather than increase prices, mergers tend to bring these down.
Senate hearings revealed that telecommunications competitors seriously made efforts to purchase Digitel. They lost. Given their desolated economies and prospectively diminished margins should they attempt to match and undermine a player enjoying economies of scale, we now see why spurned suitors and sore losers in the Digitel deal are popping veins.
