The transaction that allowed the duopoly in the Philippine telecommunications market to gain access to assets of San Miguel Corp. (SMC) has given the pair more power that experts said, placed consumers at the losing end of the bargain.
Monday saw a whirlwind of events, with telco executives announcing in separate media conferences they have secured access to the prized 700 megahertz (MHz) band, as they coacquired three holdings firms that San Miguel owns.
This, according to officials at Globe Telecom Inc. and PLDT Inc., is crucial to unlocking the secrets to faster and more reliable Internet services in the country.
The P69.1-billion transaction involved the SMC sale of its hundred percent interest in Vega Telecom Inc., Bow Arken Holdings Co. Inc., and Brightshare Holdings Corp. Both companies will equally share in the assets of these companies and their subsidiaries.
These companies control Bell Telecommunication Philippines Inc., Eastern Telecommunications Philippines Inc., Cobaltpoint Telecommunication Inc., Tori Spectrum Telecommunication Inc., Hi-Frequency Telecommunication Inc., eTelco Inc. and New Century Telecoms Inc.
Half of the sale price will be paid at the close of the transaction with the balance paid in two equal installments six and 12 months from closing date.
“This transaction offers a breakthrough opportunity, not only for the companies involved, but also for the industry and the country,” PLDT Chairman Manuel V. Pangilinan said.
When talks between San Miguel Corp. and Telstra Corp. Ltd. collapsed two months back, negotiations for the possible acquisition of the food-to-infrastructure conglomerate’s telco assets subsequently happened.
Duopoly emissaries were deployed for the possible acquisition of San Miguel’s telecommunications business, which holds the rights to operate services via the prized broadband assets.
According to San Miguel President Ramon S. Ang, he is convinced the proposal presented by rival telcos was the most expedient, feasible and in the best interest of the consumers, the stockholders and all parties involved given the current situation.
“This is a sacrifice we have to make to finally unlock the full potential of our high-quality, mobile broadband spectrum faster and allow consumers access to its benefits through the combined resources, network and expertise of the two carriers,” he said.
Better services?
Under the deal, the 90-percent shareholding of San Miguel in the 700 MHz band will be distributed to the two telcos and the government. The telcos will each get 35 MHz, while the remaining 20 MHz will be returned to the government.
Operating mobile Internet services under the 700 MHz spectrum is cheaper and more efficient than operating under higher-frequency bands.
The radio-frequency spectrum is the real estate upon which the telcos develop their respective network to deliver services to customers. The amount of spectrum assigned to a telco has cost implications on capacity, overall network performance, ability to offer new multimedia services and general customer experience of wireless services.
The 700 MHz band has a key role in expanding mobile broadband into the rural areas of the country, enable mobile operators to cut capital and network costs, thereby accelerating rollout and lower the price for end users, according to a report put out by the international telecommunications association GSMA.
Utilizing the 700 MHz spectrum would allow the deployment of a high-capacity LTE based wireless and fixed broadband network to deliver higher data rate and LTE wireless broadband service. With the use of the 700 MHz frequency, broadband prices can go down further benefitting consumers.
“This will enable existing operators to provide significantly improved Internet and data services to the public and to our customers in the shortest possible time. At the same time, it leaves the door open for new entrants into the industry,” Pangilinan explained. “Taken together, this will enable the industry to better support the country’s development efforts—especially significant with the onset of a new government.”
He said consumers should feel the effects of the deal within six months. This will be limited to those using high-end devices, since mobile devices that allow the use of the spectrum is still small.
Globe President Ernest L. Cu vowed that his company—which claims a 70-percent share in the mobile-data market in terms of the data accessed through its network —will deliver better services in the next three to four months.
“Ultimately, our goal is to provide our customers with a better experience on our mobile data and home broadband services progressively over the next 12 months,” he said.
For Mary Grace Mirandilla-Santos, an independent researcher on information and communications technology (ICT) and telecommunications policies, the two companies’ access to the precious 700 MHz band will pressure telcos to deliver their heavenly promises.
“This is a challenge for the two telcos to improve service since they’ve been touting the 700 MHz as, seemingly, a panacea to the Philippine Internet problem. But any industry observer knows that any particular spectrum is not the only missing link to the Philippine Internet problem. Lack of infrastructure, like cell sites, poor interconnection and, most important, the lack of competition, hampers improvements in Internet service,” she told the BusinessMirror.
Thwarted competition
Also as part of the deal is the giving up of the small telcos of certain radio frequencies in other frequencies, such as the 850 MHz 2,500 MHz and 3,500 MHz bands and returning these radio frequencies to the national government through the National Telecommunications Commission (NTC).
“As part of this transaction, both entities have also agreed to return a lot of frequency assets to the government that will allow a third player to enter the market. This supports the stand of the president the telcos should improve service in the country or risk opening the industry to a third party,” Cu said.
Edgardo V. Cabarios, the deputy commissioner of the telecommunications regulator, told the BusinessMirror the companies will return the following frequencies: “20 MHz of the 700 Mhz band, 15 MHz of the 2,500 to 2,700 MHz band, 40 MHz of the 3,400 to 3,500 MHz band, and 10 MHz of the 800 MHz band.”
Despite this, experts are firm in their belief that competition in the market had been thwarted.
“The transaction, for the short term, strengthens the status quo even more—the status quo being the effective duopoly of PLDT-Smart and Globe Telecom. It is even worse for the long term; the ability for a third player and more to enter is now significantly weakened,” consumer group Democracy.Net.PH Cofounder Pierre Tito Galla told the BusinessMirror.
Santos backed this claim, noting that the real winners are the three companies.
“The deal is a win situation for the telcos. San Miguel will no longer have unused telco assets and pressure to invest more to use them. PLDT and Globe will have more concentrated power over a majority of the telco assets in the country,” she said.
Santos added: “For consumers, well, we’ll have to wait and see if we’ll benefit from this one. Let’s see if the two telcos’ service will, indeed, improve. This means better quality of service parameters, faster download and upload speeds, lower latency and lower price—these two in tandem, not separately. But, really, more concentrated market power has never led to a consumer win.”
San Miguel’s supposed entry in the Philippine telecommunications market would have meant stronger and fiercer competition. No thanks to this deal, the possibility of a third player in the near term has been eliminated.
“The deal will result in less competition among current players. For a while, San Miguel effectively projected itself as the potential third telco. In doing so, it also effectively upped the value of its telco assets, which in the past was ignored by the other telcos,” Santos explained.
Galla noted: “As it strengthens the status quo and hampers the entry of new players, subscribers can expect no significant improvements in access, penetration, quality of service and price.”
“Because of the strengthening of the dominant positions of the effective duopoly by the two dominant carriers, pricing may or may not improve. It may even get worse, with the increase in the potential for collusive behavior, predatory pricing and business practices, such as fair-use policies even more skewed heavily against subscribers,” he added.
For International Data Corp. (IDC) Philippines Country Head Jubert Alberto, the transaction is a double-edged sword on the part of the consumers, as this could mean improved services but at very uncompetitive prices.
“IDC believes this could be a double-edged sword. On one hand, this investment will benefit the consumers because the incumbents can have this [made] available nationwide. With this, more consumers are expected to enjoy the improved Internet connection through the combined efforts and established capabilities of the two carriers. On the other hand, the duopoly in the market does not spur competition, hence, would not create significant changes on the pricing,” he told the BusinessMirror.
Review allocation
Since competition has been limited, Galla and Santos proposed a critical but difficult task: for the government—especially the Philippine Competition Commission (PCC)—to “refarm” the soft assets and reassign them accordingly.
“What is necessary for the PCC and the NTC is to review the entire spectrum allocation, not just the 700 MHz band, and review and re-farm the allocation of the 700, 850, 900, 1800, 1900, 2100, 2500 and 3500 MHz bands,” he said.
He said the government provide frequency allocations reserved for the bidding of future players attracting as many as five additional service providers—and have the two existing players bid for frequency allocations across each band, with an upper limit cap.
“Through this, future competition can be assured, anticompetitive practices involving spectrum allocation can be minimized, and the government can earn from fair spectrum auctions,” he added.
Santos explained that a telco does not own a spectrum even when a specific range of frequency has been assigned to it.
“One is simply given the right to use the spectrum. The state, as a matter of public interest, can and should re-farm and reallocate spectrum as necessary. But this goes for all spectra, not just the 700 MHz. The right to use is stated in a Congressional franchise. So this ‘acquisition’ is something that the NTC—or even Congress—should seriously study,” she said.
Instead of negotiations, she suggested for the government to subject valuable bands to an auction, while reserving some for new entrants. Cabarios noted this method was not practical given that the companies are already operating with over a hundred million customers who may be adversely affected by such a feat.
(With reports by Lenie Lectura and Bloomberg News)