Telco auction – beneficial or detrimental to public interest?

WHILE millions of Filipinos see the merit of introducing a new major player in the local telecommunications industry, some are wondering if an alternative set of Terms of Reference (TOR) on the selection of a third telco player would truly benefit subscribers or further aggravate their suffering in the long run.

Last week, the Department of Information and Communications Technology (DICT) published two versions of a draft TOR which are meant to set guidelines on how the government will select the country’s third telco player.

The first TOR selects the participant who earns the highest points for meeting a set of requirements. The selection criteria shall be composed of national population coverage (40 percent weightage), minimum average broadband speed (20 percent weightage), and annual capital and operational expenditure (40 percent weightage), computed annually over a five-year period referred to as “commitment period.”

The annual minimum levels for each of the criteria are 30 percent for national population coverage, 5 megabits per second (Mbps) for the minimum average broadband speed, and R40 billion for the capital and operational expenditure.

The second set of guidelines, however, puts emphasis on the financial strength and capability of the participants as it auctions off radio frequency spectrums, setting the minimum bid amount at R36.58 billion. This is pegged from the spectrum user fees being paid by existing telecommunications companies.

The participant that offers the highest bid amount for a 5-year commitment period will be selected as the new major player and awarded use of the frequencies. But after the period, the third telco player will also be subject to the applicable spectrum user fees pursuant to prevailing rules and regulations.

Now, with a staggering amount of upfront costs required from participants, not to mention the estimated R200 billion needed to roll-out their nationwide network, I don’t know if there is anybody else left who is interested in becoming the new major player.

Once selected, the new major player, already with depleted resources, also faces an uphill battle against bigger and more established telco players, putting it at a huge disadvantage that is tantamount to fighting with one hand tied behind its back.

This early, the auction-based selection method is seen as “anti-investor” which can potentially limit the number of participants or even deter the participation of other investors.

There is also a growing number of people who are becoming skeptic about the auction method because the winning bidder may sooner or later recoup incurred costs at the expense of subscribers. This can easily translate to excessive subscription charges and other fees, that are worsened by substandard service.

Given these scenarios, auctioning off available radio spectrum frequencies may have its benefits. But in the end, I hope that concerned sectors will realize the detrimental effects of this method of selecting the third telco player where the subscribing public is at the receiving end of the line.