Fallacies, faulty assumptions

Last Aug. 25, the Philippine Competition Commission ( PCC) released its so-called preliminary statement of concern regarding the acquisition by the Philippine Long Distance Telephone Co. ( PLDT) and Globe Telecom of the telecommunications assets of San Miguel Corp. (SMC).

Curiously it came out just a day shy of the Aug. 26 decision of the Court of Appeals granting PLDT’s petition for a preliminary injunction preventing PCC from conducting an investigation or review of the acquisition.

Detailed as it seems, observers note there are a lot of fallacies and erroneous assumptions in that particular PCC issuance.

For instance, the PCC said it found Vega Telecom, Inc. (VTI), an SMC-owned company that was fully acquired by PLDT and Globe, was poised to launch its mobile business under the brand Bell Telecommunications sometime between the second and fourth quarter of 2016. Where on earth did the commission get this?

To understand the story, let us look into how SMC entered the telecom industry beginning with its acquisition of a 32 percent stake in Liberty Telecom.

Liberty’s value was not about the company making money, because it wasn’t. In 2005- 2006, it filed for rehabilitation due to financial difficulties. Liberty owned valuable telecom frequencies it had not been able to utilize due to lack of funds and it needed a white knight. The frequencies included the 700 megahertz spectrum, which at the time Liberty got them was intended for UHF TV broadcasts.

It was only in 2015 when Liberty, already controlled then by SMC and Qatar Telecom, exited rehabilitation 20 months ahead of schedule.

It was sometime in 2008 when Qatar Telecom, through subsidiary wi- Tribe Asia, acquired 27 percent of Liberty. By the end of 2008, its ownership rose to about 34 percent.

SMC then entered into a joint venture with QTel for opportunities in the wireless broadband, mobile and mobile broadband businesses in the Philippines. In July 2009, SMC formalized its entry into the telecom industry by acquiring 32.7 percent of Liberty through Vega.

It is also worth mentioning that by 2015, the SMC group already controlled four telecom operators, namely Bell Telecommunications (BellTel), wi-Tribe (Liberty Telecom), Express Telecommunications ( Extelcom), and Eastern Telecom (ETPI).

By the end of 2010, wi-Tribe Phl had 11,000 subscribers which was a promising start and SMC had high aspirations for the company. Unfortunately, wi-Tribe registered staggering losses and nothing happened of plans to launch a viable third telco player in the country.

Sometime in September 2015, Australian telco giant Telstra confirmed it was holdings negotiations with SMC for a prospective wireless joint venture. Telstra was keen on using the 700 Mhz spectrum to deploy 4G LTE technology in the Philippines. It even announced it was investing $1 billion into the local venture.

And then in late 2015, Globe and Smart called on the National Telecommunications Commission to auction off the 700 Mhz spectrum held by SMC, arguing it should be redistributed since it has not been utilized for a long time, and that one company should not be holding too much of that spectrum.

By March 2016, Telstra and SMC announced they had failed to resolve commercial arrangements, thereby ending the planned telco joint venture in the Philippines.

Subsequenly, SMC president Ramon Ang was quoted in the media as saying that he would still push through with his plan to enter the telco business as a third player even if he had to do it without a partner.

And then on May 30, PLDT and Globe caught everybody by surprise when they announced they were acquiring on a 50- 50 basis the telco business of SMC. The value of the transaction is estimated at P70 billion.

According to PLDT, the acquisition will significantly benefit their customers since it would further improve internet and data services. It said customers would progressively experience faster internet and higher call and data quality across the fixed and mobile networks of PLDT and Smart while capacity and coverage, both indoor and outdoor, would be expanded and enhanced.

It also explained that Smart would be able to serve better the regional and rural areas of the country by utilizing the 700 MHz spectrum.

While PLDT and Globe will acquire the 700 MHz spectrum, they will also cause the acquired companies to relinquish certain radio frequencies and return them to the government. The radio frequencies to be returned by Vega Telecom would be sufficient, together with those already held by the NTC, to allow for a third-party operator to enter the market, they said.

So what was the PCC talking about when it said that Vega, through Bell Telecom, in fact was planning to launch a telco venture this year?

PCC in its preliminary statement has said the transaction is likely to substantially prevent, restrict, or lessen competition within the relevant markets in the Philippines. What PCC isn’t saying is that SMC sold its telco assets to PLDT and Globe? If the transaction isnt’ allowed to materialize, how could SMC increase competition when it already gave up in the first place? It has tried for many years to launch a viable third telco player, but it has not been able to do so. And now, PLDT and Globe have a chance to use these valuable frequencies for the public good and PCC wants to stop this?

It is good the Court of Appeals stopped the PCC from investigating the acquisition, which in the first place, should have already been deemed approved had the PCC applied its own rules. Now, PLDT and Globe could start laying the groundwork for the utilization of these frequencies which have been idle for so many decades.