Let’s examine the pertinent portions of the NTC decision which TXTmate just received a few days ago:

“… TXTm8 beseeches this Commission to defer its decision on the joint application and to proceed to gather studies on the possible impact of the transaction. We find no technical or legal reason to further suspend the proceedings as the Commission is a specialized agency with ample knowledge and expertise to resolve the relevant and pertinent issues involved in the instant application as recognized by the Supreme Court.”

Hold on. So if it takes the United States months and months of painstaking research just for the FCC Chairperson to say that “the case is to be referred to an Administrative Judge” in order for him to determine if the deal will benefit the public interest, you mean to say that our own regulator, with admittedly limited funding and expertise, can do the same research and still approve the deal in just a limited seven month period?

“In fact, the Commission’s Common Carrier Authorization Department (CCAD) already conducted an extensive study and evaluation on the issues which were raised by TxtM8. The study conducted by CCAD involved the effects of the acquisition in the market including the measures that can be undertaken to prevent abuse of market power. Accordingly, the Commission finds no cogent reason to grant TXTm8′s prayer to defer the resolution on the instant application.”

Where, pray tell, is this study? Oh, it’s not available for public viewing? Why not? Maybe because it doesn’t exist. Or worse, blatantly wrong. After all, during the public hearings, no economic expert was presented, no “public interest” questions were asked. What then serves as the basis of the study? If it exists, why wasn’t this study presented during the public hearings? Consider the recent advice from one economic expert: “this deal shouldn’t have been approved.”

“On July 27,2011, TXTm8 filed “Memorandum Ex Abundante Ad Cautelam”. ln sum, it averred that the subject acquisition is imbued with public interest necessitating the Commission’s imposition of certain conditions to safeguard and protect consumer welfare. TXTm8, however, did not specify what these conditions exactly should be.”

Now this is just plain insulting. We filed a Supplemental Comment (containing the proposed conditions) on June and the contents of this pleading were discussed during the direct and cross-examination held on July. Neither of these facts were stated in the Decision. Even worse, the conditions which we cited were copied verbatim from the NTC’s very own published competition study which was released online in 2007 and removed from public viewing sometime after. In sum, the NTC has effectively considered TXTmate as mosquitoes, easily swatted away.

“Assuming arguendo that the approval of the acquisition will bestow significant market power to PLDT, without any anti-trust law prohibiting business combination and with the Commission sufficiently imbued with the power to regulate any probable cause, there is no sufficient basis to deny PLDT’s acquisition of Digitel on said significant market power alone.”

Fact: Every time the NTC has confronted the telecom duopoly with pro-industry and pro-consumer regulation, the regular has buckled under the pressure. Just look at the NTC’s constantly repeated proposals for true 6-second pulse-billing, reference access offers (RAOs), significant market power (SMP) rules, and the much delayed proposal to reduce voice interconnection fees:

6-Second Pulse Billing (Pro-Consumer)

• If implemented: Anti-theft; pay for actual use.
• As “voluntarily” implemented: difficult to use.
• NTC Directive in 2001; brought to court; tangled in litigation until today.

Reference Access Offers (Pro-Competition)

• Though mandatory by law, actual practice is that dominant operator delays interconnection.
• Memo Circular in 2007, Implementing Guidelines in 2009.
• Announced intention yet failed to implement in 2010.

Interconnection (Pro-Competition + Pro-Consumer)

• If implemented, cost of calls/text cut by half!
• Recycled draft circulars to lower rate.
• Non-implementation since 2008.
• Proposed implementation this year but only SMS actually implemented. Circular for voice calls still being “processed”

IP Peering (Pro-Competition + Pro-Consumer)

• If implemented: faster internet.
• Draft circulars heavily opposed by PLDT in 2011.

The NTC says in its Decision that no monopoly will result and that it has sufficient powers to meet any probable move of PLDT as a significant market power. With due respect, if the NTC was unable to effectively regulate PLDT before the deal, how can it confidently say that it can regulate it now that the telecom behemoth controls 70% of the market?”

To counter the well-founded accusations that the PLDT-Digitel decision smacks of incompetency, the NTC is now promising that significant market power (SMP) rules will be ready by the first quarter of 2012. Forgive us if we don’t hold our breath. The NTC has a poor track record for initiating reforms. All bark, no bite.

The proceedings provided the NTC the opportunity to impose all those pro-competition measures as pre-conditions for approval. The NTC had the opportunity to adopt SMP rules while still affording due process to the telecom operators. It turned its back on all its proposed reforms and decided to impose mere “unlimited services” and frequency recall as the only conditions for approval. Weak conditions.

The decision, at its simplest, is embarrassing.

This decade bears witness to what appears to be the dawn of a new wireless age. But have we ever wondered what makes it possible for us to communicate without wires? How are we able to post a status message, check our email, and chat with a friend while in the MRT? How do signal towers, wireless routers, smart phones, and laptops enable us to communicate? To arrive at the answers to these questions, we can begin by understanding what spectrum is and why Smart and Globe are fighting tooth and nail over it.

We know the wind exists but we do not see it. Similarly, airwaves, though invisible to the naked eye, allows us to place a phone call from a house in Manila to a skyscraper in New York. When we make use of the airwaves to transmit and receive signals, we are actually utilizing what is known as Radio Frequency Spectrum, or simply, spectrum.

The spectrum, however, refers to the whole range of frequencies in which wireless transmissions can be made. Microwaves, TV remote controls, and WIFI, among others, are familiar technologies which utilize spectrum. How do these devices operate without interfering with each other? That’s where the process of spectrum allocation (also called frequency management) comes into the picture.

Illustration of how frequencies are allocated for different uses.

Though the International Telecommunications Union (ITU) is the body which recommends what frequencies are to be used by certain devices around the world, it is our own National Telecommunications Commission (NTC) which actually allocates frequency use here in the Philippines. Some years back the NTC allocated a certain frequency for 3G devices (e.g. cellular phones and mobile broadband dongles) and divided this into five portions, intending for this to be used by five different telecom players. Two are now in control of PLDT, one under the control of Globe, one under the control of Sun Cellular, and one is still unassigned and has been the subject of intense litigation in the last few years. With the looming PLDT-Digitel deal, PLDT will control three out of the five 3G frequencies. Unless the government does something about this, it will inadvertently be made party to this anti-competitive strategy of the PLDT behemoth, giving it control of three of the available five 3G frequencies.

It must be stressed that judicious regulation of the spectrum is crucial in ensuring the fullest use of wireless technology. In addition, spectrum is a scarce and finite resource. How this will figure in the government’s decision with regard to the PLDT-Digitel deal is anyone’s guess. For now, allow me to end by introducing the topic and the problem – matters of immediate concern to anyone owning a cellphone or using the internet in the Philippines today.

Adrian Arugay.

Consider this situation as an analogy – right now a direct flight from Manila to Cebu would normally take one-and-a-half hours and anywhere from P3,000 to P8,000 pesos. Now imagine that authorities controlling the airports in Manila and Cebu refuse to take direct flights from each other. You would have to go through the circuitous route of flying from Manila to another city outside the country, say Hong Kong or Tokyo, before taking a connecting flight to Cebu. The time and cost of flying between the two relatively proximate cities would increase ten-fold! The imaginary situation might seem absurd, but that’s exactly what’s happening with internet traffic in the country, because the internet service providers (the “airports” in our analogy) are not peered or interconnected with each other.

The dominant players in the mobile and landline services (specifically PLDT and eventually Digitel) also control market share and network infrastructure in the provision of internet services to the Filipino consumer. They have consistently refused to peer or interconnect with other internet service providers, most (if not all) of whom are already peered amongst themselves. What happens then is that internet traffic that can be routed domestically if networks are directly peered are instead routed from the Philippines to an offshore network (like in Hong Kong, Japan or the USA) before returning to the Philippines. The result is added cost and less efficient service. Let’s say you are a Globe Tattoo subscriber trying to access a website hosted by PLDT. The time it will take to load that website will be significantly slower than if you tried to access a website hosted by Globe (or another network that is peered with Globe). PLDT and Globe are not peered with each other so the traffic is diverted to another country. The same goes for a Smart Bro subscriber trying to access a Globe-hosted website.

Consumers are also bereft of freedom of choice – they would be forced to choose the dominant player because of the ease of service, without knowing that such is actually a product of the big conglomerate’s strong-arming and anti-competitive practices. In a recent public hearing in the National Telecommunications Commission regarding IP peering, a businessman voiced out at how he has been forced to subscribe to FIVE different internet service providers just to ensure that his internet connection is fast and reliable, knowing that if he subscribed to just one or two, quality service would not be assured. Such a situation is a direct result of networks (the dominant player in particular) refusing to peer with each other.

The excuses of the dominant players are the same ones that they have hoisted upon the public regarding their refusal to lower mobile and landline interconnection rates – that the resulting increased traffic could bog down their networks, that their investments would be compromised by allowing other players to “free-ride” on their networks and that peering, just like mobile and landline interconnection, is a matter of private agreement among companies that the government cannot interfere with.

The government has tried to remedy the situation through the efforts of the DOST, which has proposed the creation of a common internet exchange where all networks will be mandatorily peered with each other. The attitude of the dominant players for such an idea, which could possibly pave the way for faster and better internet across the country, has been cautious and lukewarm despite its far-reaching benefits.

Quality internet service is not just an individual luxury but an important engine for national economic growth, as well as the free movement of information. A confluence of factors will ensure faster and better connection for the Filipino consumer, and one of these major factors is if the dominant player will allow other players to peer with it. It would be a sorry sight if such a breakthrough would continue to be held hostage by the greed and lack of foresight of a mere few who are only out to protect their own interests.

Enrik Revillas.

Your Excellency:

Every single Filipino, whether he or she knows it, longs for telecom competition. As proof, one need only observe the frequency of dropped calls, our internet speeds, the absence of consumer choice, and the quality and high costs of mobile services. May ‘unli-’ nga, pangit naman ang serbisyo. My advocacy group, spearheaded by students from the University of the Philippines, seeks to remedy our telecom woes by pushing for much-needed competition. These reforms deserve attention now more than ever due to PLDT’s imminent control of 70% of the market. Though by law, fostering healthy competition falls upon the National Telecommunications Commission (NTC), our regulator appears to be rushing (or rather, is being pressured to rush) the PLDT-Digitel deal without addressing important public interest questions concerning competition. We humbly plead, Mr. President, for your intervention in this case. In line with this, sir, allow me to highlight just two important points.

The NTC is Disregarding its Own Competition Study. First, the NTC thankfully initiated a consultative competition study some years back. This well-researched document embodies best practices of how regulators in developed and developing countries deal with telecoms wielding Significant Market Power (SMP). According to the study, the regulator should impose SMP obligations upon the dominant carrier for the sake of leveling the playing field and protecting competition. These one-sided obligations ultimately benefit consumers because a dominant carrier is prevented from using its ‘bigness’ to abuse the market. This widely accepted practice is not considered a penalty for success or dominance but rather a necessary safeguard to allow competition to thrive. The NTC is thus presented with a clear opportunity to impose the aforesaid obligations as a precondition for regulatory approval of the PLDT-Digitel deal. And yet, for unknown reasons, the NTC chooses to ignore the contents of its own groundbreaking study at a time when these are needed the most. If the NTC was concerned with the lack of competition back when there were still three competing telecom operators, shouldn’t it be even more concerned now?

The NTC is Rushing the Approval Process. Second, the assessment of the PLDT-Digitel deal involves technical and complicated public interest questions: “Will this deal benefit 85 million Filipino mobile subscribers? Will it spur innovation and efficiency? Will it still allow free competition to prosper”? These questions should be asked by our regulator and answering the same should not be rushed. The NTC, however, has avoided asking these questions and does not appear to be even interested in answering them. A cursory glance of the records will reveal that, during the recently concluded public hearings, the NTC was more concerned about Globe’s delaying tactics and PLDT’s insistence of expediting the business transaction rather than focusing on the important public interest questions. And to make matters worse, the NTC is expected to rule on the issue in a few weeks time. As a point of comparison, the U.S. telecom regulator is expected to take a year or even 18 months to evaluate the pending AT&T and T-Mobile merger. If ever approved, AT&T will control a substantial 41% of the U.S. wireless subscriber market, becoming the largest operator in that country. In sharp contrast, PLDT expects to gain regulatory approval – of a deal granting it over 70% control of the market – after just four months from the time the deal was announced. And the NTC, to our palpable dismay, is agreeing with that schedule.

Our plea, Mr. President, is reasonable. We are simply asking the NTC (a) to postpone its decision in order to assess the substantive implications of the deal; and (b) should it find that the public is best served by approving the deal, the NTC should impose SMP obligations as a precondition to allowing the existence of the PLDT-Digitel behemoth – an obvious and overwhelming threat to free competition as the NTC consultative study will show. Based on the tenor of the proceedings, however, the probability of this happening without presidential intervention seems unlikely. As a last recourse, we’ve decided to write this letter, nurturing the hope that when all else fails the President can be relied upon to apply the “Daang Matuwid” approach to the telecom sector: an industry which we consider the modern-day backbone of families, OFWs, students, farmers and businessmen. Thank you.

Marcelino Veloso III
President, TXTm8 Tayo Consumer Group, Inc.
UP College of Law Class of 2011
Author, Telconopoly, UP Best Paper in Administrative Law (2011)

I. Parties Involved and Date Announced

• USA: merger of AT&T and T-Mobile is announced March 2011.
• PH: PLDT and Digitel deal is announced March 2011.

II. Effect, if deal is approved

• USA: If approved, AT&T will control 41.6% of the market.
• PH: If approved, PLDT will control 70% of the market.

III. Legal framework

• USA: Anti-trust laws exist and regulator can ensure competition.
• PH: Anti-trust laws ineffective but regulator can ensure competition.

IV. Evaluating the merger

• USA: The Federal Communications Commission (FCC) will determine whether the deal will favor the public interest. This is a technical and complicated question requiring intense study since regulator will have to determine market share/concentration (through the Herfindahl-Hirschman Index), spectrum allocation, and the possibility of imposing Significant Market Power (SMP) obligations on a telecom entity with effective control of the market.
• PH: The National Telecommunications Commission (NTC) seems to be focusing on procedure (e.g. “give a semblance of chance to the lowly consumer group and the small telecoms to voice an opinion… and then quickly rule on the issue.”)

V. Expected time for regulator to complete “public interest” evaluation:

• USA: 1 year to 18 months.
• PH: PLDT wants this deal approved by July 2011… a mere 4 months after the deal was announced. And the NTC, based on its recent actions, seems to be agreeing to PLDT’s imposed July 2011 deadline.

Observations:

If it will take the USA regulator (the FCC) a year or even 18 months to assess the ‘public interest’ question of the AT&T and T-Mobile merger… and that this deal will only affect 41.6% of the U.S. wireless subscriber market… shouldn’t the NTC take more time to analyze the PLDT-Digitel deal which will give PLDT 70% control of our own mobile market?

Where are the studies? What proof has PLDT offered that its acquisition of Digitel will benefit the public? Why isn’t the NTC initiating it’s own study of this relevant question? Why is NTC heeding PLDT’s desire to rush the deal? It’s clear that PLDT wants the NTC to approve the share-swap agreement by July… but isn’t the NTC supposed to look after the public interest first before considering the interests of private telecoms?

This is what the PLDT-Digitel deal looks like so far: TXTm8 highlights the NTC-authored 2007 competition policy document while the media and the NTC focus on the “business transaction” and procedures. If this document is implemented, it assures Juan de la Cruz of lowered costs and improved quality of calls, SMS, and internet despite the existence of the new PLDT-Digitel telecom entity.

Benefits of Competition and Market Share in the Philippines

The 4-page primer below further explains the ramifications of the PLDT-Digitel share-swap agreement to the consumers and the entire industry.

Every year for the last five years, the NTC has paid lip service to interconnection reform but has never really implemented its plans. Now that a telecom giant is about to get bigger, we hope that this time around the NTC actually does its job instead of delaying or making excuses.

The NTC was poised to execute a competition policy involving interconnection in 2007. It was eventually pressured to stand down. The Commission drafted memorandum circulars involving interconnection in 2008. Those were immediately shelved after opposition from PLDT and Globe. In 2010, the NTC once again tried to introduce “more lenient” interconnection reforms and again it made excuses for not executing the same after PLDT and Globe entered the picture. With the looming concentration of 70 percent of the market in the hands of PLDT, there can be no more excuses. NTC must do (and actually execute) or die, admitting that it will not stand up to the very entities that it is charged to regulate.

All consumer groups, regardless of their stance concerning the PLDT-Digitel share-swap deal, will probably be in agreement that these proposed rules on interconnection will greatly benefit the Filipino people. For its part, TXTmate looks forward to the implementation of these rules in conjunction with the imposition of significant market power (SMP) obligations against the already-dominant PLDT-Digitel behemoth.

Mars Veloso.

Image Credit: Anthony Mattox

1. The Senate Public Services Committee has undertaken an independent review… and has decided that it was without power to interfere.
2. At least three (3) congressional resolutions have been passed to probe the deal. Unfortunately, Congress is in recess.
3. The Department of Science and Technology (DOST) has been tasked to jointly review the deal with the NTC.
4. The National Economic Development Authority (NEDA) is being pushed to study the effects of the “merger” on the public welfare.
5. And now, via Executive Order No. 45, the Department of Justice (DOJ) has been designated as the country’s “competition authority.”

What is glossed over however from this series of high-profile developments in the media is that the NTC itself is sitting on a gold mine. It has in its possession a relevant, existing, well-researched competition policy document which highlights best practices from around the world to guarantee that competition can thrive even in monopoly-rich environments. Is attention being given to this document? Senators Osmena, Arroyo, and Recto appear to have understood the relevance of this document during the recently concluded senate inquiry. The NTC has acknowledged its existence… and that it is still “being studied.” No mention is made of the fact that this document has lingered in the NTC’s archives for four or five years.

Now that a monopoly is being subtly re-engineered, today is the best time to ensure that the document’s contents become pre-conditions to the approval of the share-swap agreement. Today is the best time to make the relevant government agencies aware that a sector-specific competition policy document actually exists… and that it was created by the very entity charged to enforce it: the NTC!

The execution of such a policy document can serve as the middle ground for the regulator; a virtual “win-win” scenario in the controversial application process now being undertaken by PLDT and Digitel. If properly implemented, the telecom giants win by having their “merger” approved and the public wins by the very fact that true competition is finally allowed to exist in the market. The only question is: will the NTC finally execute? Or will it falter once more?

Mars Veloso.

What exactly does that mean? EO 45 now empowers the DOJ to create an Office for Competition, which will “investigate all cases involving violations of competition laws and prosecute violators to prevent, restrain and punish monopolization, cartels and combinations in restraint of trade.” It will also “enforce competition policies and laws to protect consumers from abusive, fraudulent, or harmful corrupt business practices and monitor and implement measures to promote transparency and accountability in markets.”

The move represents a positive step in the over-all effort to scrutinize anti-competitive policies across a wide swath of industries (including telecommunications), and give consumers added protection. In our case that would be the 80-million-strong (and counting) Filipino cellphone users who will have to deal with the PLDT-Digitel behemoth in the near future. If we are to believe P-Noy’s campaign promise that the Filipino people is his “boss”, then he’s doing a commendable service by issuing this EO.

Though the administration has tried (and is trying) to distance the EO from the current PLDT-Digitel issue, it comes at a most opportune time. Unfortunately, this matter of indescribable public import has yet to come into the forefront of our everyday concerns, with news quietly tucked away in the business sections of our broadsheets. Considering the unusual haste that the deal’s approval has taken in various venues, the day when consumers will suddenly be blindsided by governmental imprimatur of the deal will be coming soon, like a thief in the dead of night. The onus is now on the DOJ to step in immediately and exercise its new powers under the EO. The NTC, the regulator charged to scrutinize the share-swap deal, should likewise take its cue from the presidential issuance to implement its existing competition policy – a document which has been languishing in the Commission’s archives for the last 4-5 years.

In this battle, our side needs all the help it can get. In this respect, TXTM8 owes its gratitude to all its members, as well as concerned netizens who have taken up the cudgels for consumer rights. As a recent example, independent ICT researcher Grace Mirandilla-Santos encouraged people to read the award-winning legal research paper Telconopoly of TXTM8 President Mars Veloso, which has served as the foundation of our advocacy. We hope that with time, more and more people will realize the importance of what we do and what we stand for, and try to pitch in as well.

Will P-Noy’s move be an effective tool against anti-competitive practices? That has yet to be seen. But we hope that this will serve as the impetus towards more concrete steps to blunt the power of monopolies and cartels, such as the legislation of anti-trust laws and the imposition of obligations on dominant market players, such as what TXTM8 has consistently advocated.

Enrik Revillas

Image Credit: Department of Justice.