Antitrust body: Telco buyout bad for consumers

September 8, 2016 at 08:55

Antitrust body: Telco buyout bad for consumers

By:  | 12:40 AM September 1st, 2016

The Philippine antitrust body warned of increased “cartel-like” behavior between industry giants PLDT Inc. and Globe Telecom after their purchase of San Miguel Corp.’s telco unit.

This was among the early findings of a review of potential competition law violations before the Philippine Competition Commission (PCC) was ordered by the Court of Appeals to suspend its study.

The PCC said PLDT and Globe’s joint acquisition of SMC’s Vega Telecom last May 30 would eventually hurt consumers via higher prices in the latest industry battleground—lucrative smartphone internet services.

This was due to the fact that the quality and quantity of limited and essential radio frequencies would be concentrated in the hands of the duopoly, making it “extremely difficult, if not impossible, for a new player to enter and challenge the incumbents.”

The PCC just released its so-called preliminary statement of concerns, which was dated Aug. 25. The document, prepared by its mergers and acquisitions office, outlined scenarios where PLDT and Globe likely violated provisions outlined under the Philippine Competition Act, which took effect in 2015.

The document also serves as a springboard from which the PCC would launch a more detailed investigation into the P70-billion transaction. That investigation was off the table for now after the Court of Appeals, in an Aug. 26 resolution made public this week, temporarily put a halt to the probe. The court wants to first review arguments raised by PLDT and Globe that the deal should be “deemed approved” based on the PCC’s transitory rules.

In its statement of concerns, the PCC nevertheless gave a rare view of the Philippine telecommunications industry through the lens of competition.

It outlined so-called theories of harm, or potential scenarios were competition is prevented or substantially restricted.

The PCC said there were at least seven such scenarios in the PLDT-Globe acquisition of Vega. That deal also included the acquisition of two SMC-linked companies holding added radio frequency assets.

These scenarios included effects on the loss of potential competition in retail mobile services as well as the effect on current and potential competition on fixed broadband and fixed voice services. PCC also cited less options for wholesale customers of mobile services and fixed broadband services and the possible “collusion” between PLDT and Globe.

PCC said SMC, via Vega, was a “credible” threat to the duopoly, partly due to its large spectrum holdings, and was potentially a “disruptive competitive force and may be regarded as a maverick firm.”

The wide gulf between radio frequency assets controlled by PLDT-Globe after buying Vega and what was returned to the government to be auctioned off to a possible third player was also outlined in the report.

Before the transaction, PLDT and Globe held 30.4 percent and 22.5 percent, respectively, of all available telco frequencies while SMC directly held another 30 percent ( 37 percent when considering assets held by Bow Arken Holding Co. and Brightshare Holdings Corp.).

After the deal, PLDT and Globe obtained 42.8 percent and almost 35 percent, respectively, or about 78 percent of all available telco radio frequencies.

The concentration of assets was a concern to the PCC because of instances of coordination between PLDT and Globe, including how they launched the Vega acquisition and how the ownership of the assets were later structured.

“This setup increases the risk associated with cartel-like behavior,” the PCC said.

Meanwhile, PLDT and Globe returned some of the acquired frequencies to the government but PCC noted the 140 MHz now available to a possible third player was still not enough.

“The amount of available spectrum post-transaction may not be sufficient for a new player to exert competitive pressure on PLDT and Globe,” it said in its preliminary report.

“In the long term, consumers will likely face higher prices and reduced choices as the incumbent firms will have minimal incentives to pass on cost savings to consumers given that it will unlikely face strong competitive constraints,” the PCC said.

PLDT and Globe claimed the acquisition was necessary to improve the quality of mobile internet in the Philippines. A PLDT spokesperson declined to comment while a Globe official was not able to issue a statement as of press time.

SMC earlier wanted to offer a “cheaper and better” mobile internet service to customers within 2016. That bid was weakened after talks collapsed with potential partner Telstra of Australia last March. Sale negotiations with PLDT and Globe started shortly after that, SMC president Ramon S. Ang had said.


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