REGULATORS on Wednesday approved the much-awaited deal between Philippine Long Distance Telephone Co. (PLDT) and Digital Telecommunications Philippines Inc. (Digitel) but imposed conditions to ensure there is no abuse of power and there is fair competition between dominant and nondominant carriers.
The deal involves PLDT’s acquisition of a majority interest in Digitel from JG Summit Holdings Inc. and other shareholders of Digitel in a landmark share-swap transaction valued at about P69.2 billion.
Orlando Vea, concurrent chief wireless advisor of Smart Communications Inc., is now the president of Digitel and its cellular unit Digitel Mobile Philippines Inc. (DMPI). He replaced James Go who was given a seat in the PLDT board.
Meanwhile, PLDT Chairman Manuel V. Pangilinan was also appointed chairman of Digitel and DMPI.
Ray Espinosa, PLDT head of regulatory and policy affairs, said the National Telecommunications Commission decision will substantially benefit consumers and the country at large.
“The approval reflects the competence and maturity of the NTC as a regulator, as it ably balanced the different interests involved in a way that would allow the parties to proceed with the deal and the NTC to address competition-related issues,” he said.
Analysts expressed little surprise at the approval of the merger on Wednesday, with the focus shifting to the planned tender offer by PLDT to minority shareholders of Digitel.
“What Digitel shareholders are thinking is whether they will tender their shares at P1.60 or will they wait and see if [Pangilinan] will work his magic and make Digitel go up further in the future,” Joey Roxas, president of stock-brokerage firm Eagle Equities Inc., said in a phone interview on Wednesday.
Digitel shares added 0.65 percent to P1.54 each on Wednesday, although the stock has climbed 3.36 percent since Friday.
Digitel owner JG Summit Holdings Inc. rose 1.78 percent to P25.70 each, while PLDT, which was up 4.39 percent in the last four sessions, added 1.04 percent to P2,330 on Wednesday.
Maria Arlysa E. Narciso, equities analyst with stock brokerage firm AB Capital Securities Inc., said PLDT offers more stability for investors, given the current market volatility.
“We are leaning toward [PLDT] as a stock to hold on to. Aside from a higher revenue stream and bigger market share brought by this acquisition, the stock gives out the highest dividend yield among all blue chips, more than 9 percent,” she said in a research note.
PLDT returns 3G frequencies
In exchange for the regulators’ nod, the NTC approved several conditions, majority of which were sought by Globe Telecom Inc., which is run by the Ayala family that is said to have been close to the mother of President Aquino.
Globe, which also placed a bid to buy out Digitel, had urged the NTC to recall the frequencies of PLDT and reallocate these. It demanded that the PLDT group give up excess 3G frequencies of about 10 megahertz (MHz).
But on Wednesday, Globe lauded the NTC in issuing its decision on the PLDT-Digitel merger and the conditions imposed.
“The approval of the joint application with condition to divest PLDT’s 10Mhz 3G frequency is a progressive step for the NTC in promoting consumer welfare and fair competition,” said lawyer Froilan Castelo, head of the corporate legal services group of Globe.
“Given the length of time this deal has been discussed by several authorities in the government, the media, and private sector, the decision of the regulatory body upholds its support to the industry ensuring equal opportunities among players to compete, and allowing consumers to enjoy quality services from their chosen service provider,” he said.
Globe has been saying that if the deal goes through without, at the very least, a fair divestiture of spectrum assets, “the resulting PLDT behemoth will hold lopsided majority of all available telephony frequencies. This should be cause for everybody’s grave concern.”
The NTC appeared to have heeded Globe’s request.
PLDT was ordered by the NTC to divest itself of 10Mhz of 3G frequency through the sale by Smart of all its rights and interests in Connectivity Unlimited Resources Enterprise (CURE).
With PLDT stripped off 10Mhz of frequency, the group’s total spectrum stands at 25Mhz with Smart at 15Mhz and DMPI at 10Mhz. Rival Globe has 10Mhz.
“The 25Mhz frequency is very much enough for an operator to run a 3G network,” NTC Director Edgardo Cabarios said.
Within six months after the nine-month transition period, the NTC could proceed to auction the 10Mhz of 3G-frequency spectrum. However, NTC Commissioner Gamaliel Cordoba said PLDT wouldn’t be allowed to join.
“We will include that in the terms of reference,” he said in a press briefing on Wednesday.
Among those vying for the precious 3G frequencies are Globe and the phone firms that are directly and indirectly owned by San Miguel Corp.—Bell Telecommunications Philippines Inc., Liberty Telecoms Holdings Inc. and Express Telecommunications Inc.
CURE customers become Smart
Meanwhile, affected customers of CURE shall be migrated to Smart.
“PLDT will have a period of nine months to effect an orderly migration of CURE’s customers and an orderly transfer of CURE’s assets to Smart… The transition period will be reckoned from the date of promulgation of the decision of the NTC approving the PLDT acquisition of Digitel,” the NTC said.
Eagle’s Roxas said the requirement for PLDT to divest certain 3G frequencies through CURE is a “minimal” concession by the telco giant.
PLDT shall also be entitled to fully recover the reasonable costs of its investment in CURE, which was bought by Smart for P419 million in April 2008.
Cordoba said PLDT will be compensated to recover its investment in CURE, which operates Red Mobile.
“A minimum price will be prescribed to allow Smart to recover its investment in acquiring, developing and operating CURE. In the event that the actual proceeds from the divestment sale exceed the cost recovery amount, PLDT will pay the NTC, as fee for supervising the divestment sale, at least 50 percent of such excess less government fees and taxes payable as a consequence of the divestment sale,” the NTC said.
In the event that there will be a delay in the implementation of the divestment sale, CURE will continue to pay the NTC spectrum user’s fee and other related fees which will form part of the cost recovery amount.
But while the divestment sale is pending, the PLDT group shall not be allowed to utilize CURE’s frequency spectrum.
Unli services to stay
Another condition set by the NTC requires PLDT and Digitel to keep unlimited call and text services and implement these across the country.
“PLDT and Digitel promised to retain this but we want it also to be implemented nationwide,” Cordoba said.
PLDT will keep the mobile operations of Digitel separate and capitalize on Sun Cellular’s operations and brand equity to continue serving specific market segments. At the same time, PLDT shall make available to Sun Cellular subscribers its wide range of service offerings, particularly in the areas of 3G and broadband.
“With their combined expertise and resources, it is expected that PLDT and Digitel will attain improved capability in providing better quality and more affordable services to their fixed line, mobile, wireless and broadband subscribers,” the NTC said.
With PLDT’s successful acquisition of Digitel, consumers are expected to begin realizing the substantial benefits to be reaped from the combined expertise, resources and capabilities of the PLDT Group and Digitel.
“PLDT is extremely pleased to welcome Digitel to the PLDT Group. PLDT will continue to provide its consumers with the best value in terms of price, quality and range of products and services and we have committed to continue offering “unlimited” type of services in fulfillment of this promise. In addition, Sun subscribers can benefit from PLDT’s extensive infrastructure and varied service offerings,” Pangilinan said.
For his part, Go said the transaction “ensures that Digitel remains in good hands. Together, the PLDT-Digitel Group will be well-positioned to compete not only with formidable existing competitors but with well-funded new entrants as well.”
Deal won’t result in monopoly
The NTC assured the public that the PLDT-Digitel transaction will not result in a monopoly and bring unhealthy business competition that will be detrimental to the interests of millions of telecom users and subscribers.
Cordoba said the NTC has initiated steps to prevent abuse of market power arising from substantial market dominance that could lead to cutthroat competition, by imposing certain conditions on the transaction that would protect the interest of the consumers.
“The NTC is pushing for the promulgation of the Rules on Significant Market Power providing for stricter regulations aimed to discourage abuse of dominant suppliers,” Cordoba said, adding that the rules will be issued within the first quarter of next year.
The NTC is also working on the promulgation of the guidelines covering domestic Internet peering, which seeks to achieve faster Internet connection by requiring Internet service providers to deliver and receive traffic between end-points in the Philippines without passing the traffic across the national borders. This is expected to be finished by yearend.
Relative to this, the NTC is conducting a quarterly monitoring of the quality of service to ensure that telco services comply with NTC standards. The NTC shall enforce rules on the minimum speed of broadband connections. A monitoring test shall be conducted beginning in December.
Also, the NTC promulgated Memorandum Circular 02-10-2011 on Monday, which reduces interconnection charges for mobile text message from 35 centavos to 15 centavos.
In addition, the NTC is currently fulfilling interconnection between PLDT and Globe landlines. Local interconnection in three provinces of Pampanga, Bulacan and Zamboanga was already resolved, while that in the Quezon, Laguna, Nueva Ecija, Benguet, La Union and Iloilo is expected to be resolved by the end of the year.
When this happens, subscribers would no longer be billed long-distance charges for province-wide calls between the two networks.
(With Miguel Camus) (Photo by Nonie Reyes)
