Meeting the challenge of a new telco player
by Atty. Johannes Benjamin R. Bernabe
March 6, 2019

 

The search for a third telco may have presumptively concluded with the selection of Mindanao Islamic Telephone Co.  (Mislatel), and the approval given by the Senate to the transfer of controlling interest therein to a consortium led by Udenna Corp. and China Telecom. However, the challenge to ensure that the third telco lives up to the expectations of consumers for fast and reliable Internet and better overall quality of telecommunication services remains to be hurdled.

Indeed, while Mislatel will benefit from the assignment of relatively large swathes of 5G frequency—which is supposed to be the next big thing in terms of delivering hyper-speed Internet—it is not as if the technological hardware needed to provide this service is immediately available. Some experts say it will take another two years before smartphones that can use this frequency will become widely available. In the meantime, Mislatel practically has no 2G frequencies to work with. These frequencies are needed for the delivery of basic call and text functions to consumers, especially those who do not use smartphones. Though some insist that this situation is not a big deal, given that mobile phone users are ditching their old phones for the increasingly affordable smartphones, the latest figures show that at least 1 out of every 3 Filipinos are still not smartphone users. This means that while it awaits deployment of the much-hyped 5G technology, Mislatel is foreclosed from a third of the market.

These circumstances highlight the importance of two issues many pundits have been pushing for: first, the implementation of a credible spectrum-management plan that will allocate frequencies rationally and in a pro-competitive manner among telco providers. Currently, Smart has approximately a total of at least 400 megahertz (Mhz) of bandwidth, while Globe has about 325 Mhz. Mislatel has been assigned around 210 Mhz, 120 of which pertain to the 5G, thus leaving it with only 90 Mhz to work with, at least in the first couple of years of its operation. Many have questioned the inequity of these allocations, and the Philippine Competition Commission itself had initiated a review of whether the assumption by Smart and Globe of frequencies previously held by San Miguel Corp. subsidiaries was likely to substantially lessen competition. (Note: The conduct of this review was challenged by Smart and Globe before the Court of Appeals, and the case is now pending before the Supreme Court.) A sound spectrum-management plan should preclude hoarding and sitting on bandwidth by telcos that have no reasonable use for these, but rather incentivise optimal use of these frequencies by other telco players. The legal definition and parameters of what constitutes “use” should be reviewed such that mere procurement of equipment without otherwise implementing a preapproved rollout program will not justify retention of assigned frequencies.

Second, the lack of available or sufficient frequencies in certain bandwidths, such as in the 850-900 Mhz range, which is used for the delivery of 2G calls and texts, suggests for many that “national roaming” whereby other telco players can co-use the frequencies held by incumbents, should be allowed by the government, at least during the period that the spectrum- management plan is not yet fully implemented. Indeed, in other jurisdictions such as the European Union, competition authorities have recognized the validity of agreements that provide for the ability to roam on other telco providers’ network. This ties in with the doctrine of “essential facilities,” where the control over a product by a dominant incumbent(s) leads to certain obligations, including allowing access to the facilities or product held by the incumbent(s), which has been applied in the telecom sector in numerous countries.

The memorandum of agreement between the Department of Information and Communications Technology and the National Grid Corp. of the Philippines, which enabled Mislatel to have access to the nationwide physical infrastructure of NGCP, including the “dark fiber” or unused fiber optics built into it, is certainly a tremendous assist in lowering the start-up cost for Mislatel as it dispenses with the need for constructing its own backbone and helps it attain competitive viability in short order. So does the Common Tower Policy being pursued by the DICT, bogged as it is by issues on whether Smart and Globe can continue to build their own towers and a limit on the number of tower companies should be imposed. The Mobile Number Portability Act recently signed into law by President Rodrigo Duterte, which ensures that the “switching cost” from one telco to another is minimized insofar as it enables consumers to retain their phone numbers, is another boon to Mislatel. This is particularly relevant as, given the oversaturation of mobile-phone subscriptions in the Philippines, Mislatel expects to garner customers from existing Smart and Globe subscribers rather than new users.

The Duterte administration has notably pushed aggressively for the introduction of a third telco to challenge the duopoly of the dominant incumbents, Smart and Globe. How much further is it willing to go?

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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 March 6, 2019 here.)