‘Third player’ best guarantee for improving telecommunications service, BMI says

REDUCED interconnection rates can improve the operating environment of telecoms, but a new entrant remains the best incentive for improving service availability and quality, BMI Research said.

BMI Research, a Fitch unit, said that lower interconnection rates could lower total costs for consumers but given that data connections will quickly replace legacy connections over the long term, a new entrant will still be needed for better competition and to challenge the duopoly of PLDT, Inc and Globe Telecom, Inc.

“Although decreased interconnect rates could lower total costs for subscribers and improve the operating environment for telecoms operators, strict capital and ownership requirements will continue to delay the bidding process for the third telecoms operator. On balance, a new entrant would provide the best incentive for improving service quality and accessibility of telecoms services,” BMI said.

“While the review will improve the operating environment for a potential third telecoms player and lower costs for 2G subscribers, data connections will rapidly substitute legacy connections in the long run, suggesting that more needs to be done to improve the telecoms operating environment for better service quality and competition,” it added.

“We still believe that the Philippines is in urgent need of a new telecoms operator to present competition to the duopoly and to motivate investment in enhancing telecoms infrastructure.”

The Department of Information and Communications Technology (DICT) has directed the National Telecommunications Commission ( NTC) to reduce interconnection charges for both mobile voice and short messaging services (SMS) between telecommunications companies to reduce consumer costs and benefit the incoming “third” telecommunications player.

Interconnection charges currently amount to P2.50 for voice calls and P0.15 for SMS.

DICT Acting Secretary Eliseo M. Rio, Jr. said the department does not want to wait for the passage of a law that would remove interconnection charges.

The Senate passed on second reading the “Lifetime Cellphone Number Act” or Senate Bill 1636, allowing for users to retain their phone numbers even if they change network providers. The bill also includes a provision on the removal of interconnection fees.

BMI said the proposed cuts are positive. “We have a positive view of proposed reductions in interconnection fees if followed with decreases in retail prices, which will help lower total costs of ownership (TCO) for subscribers; the regulator did so when it reduced SMS retail prices from P1.00 ($0.02) to P0.80 ($0.015) after it slashed SMS access charges to P0.35 ($0.007) in 2011. Sharp declines in interconnection costs for both PLDT and Globe followed the most recent decrease in call interconnect charges in January 2017.”

The firm, however, said that the impact will be felt to a lesser extent in the Philippines compared with the impact of similar moves in India.

“The impact of the reduction on operators is less pronounced in the Philippines, as both players should have roughly equal volumes of originating and terminating calls/SMS, but the effect is more noticeable in India, for instance, as operators such as Reliance Jio have a significantly larger amount of outgoing call traffic, and benefit largely from lower costs of connecting internetwork calls,” BMI said, referring to Reliance Jio Infocomm Ltd., the new telco on the market. Reliance has challenged incumbent Indian operators Bharti Airtel Ltd., Idea Cellular Ltd., and Vodafone.

Mr. Rio had said that the earliest period for naming the “third player” is the end of August.

Among the existing requirements for the third player are: paid- in capital of at least P10 billion; experience in providing, delivering, and operating telecommunications services in the last five years; a congressional franchise not related to either PLDT or Globe.; and no uncontested liabilities with the NTC as of Jan. 31, 2018.

BMI has said that the capital requirement is a big hurdle for potential investors.

Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., has a majority stake in BusinessWorld through the Philippine Star Group, which it controls. —