February 23, 2012
PLDT-Digitel Merger: Changing the Game for the Better or for the Worse? [A Belated Post]

It‘s a quarter past midnight, but Pilo and his wife, Elena, are just starting their day. While Pilo is busy loading their freshly harvested lettuce onto their jeep, Elena exchanges text messages with their runner, Jun, at the bus terminal downtown. She asked Jun to reserve a space for them at the 1 A.M. bus. Jun texts her back. He forewarns her that there are more loaders today than the usual. The couple immediately leaves for the terminal. They arrive just in time. Their cargoes are quickly transported to the public market. At 12 noon, Elena calls their suki vendors to check the sales of their lettuce. She is delighted to hear that they are already sold out. 

This anecdote is all too familiar now, but was unthinkable in the 1990s. Today, almost every Filipino—regardless of age, income, and location—has a mobile phone. It’s hard to imagine that this remarkable feat in telecoms, one of the largest and most dynamic businesses in the Philippines today, started just over 10 years ago. Reform in this sector was strongly anchored in tearing down the barriers to market entry and allowing other players, “elephants,” to compete with PLDT, the country’s long-time incumbent telco. With more providers to choose from, consumers became king. In no time, telecom services dramatically improved and became more affordable.

But with the recent acquisition by PLDT, still the largest telco, of Digitel, the third–ranked telco that introduced Sun Cellular and its 24/7 unlimited call and text in 2003, things are likely to change. In October 2011, telecoms regulator National Telecommunications Commission (NTC) approved the PLDT-Digitel deal based on some preconditions, which include continuing Digitel’s nationwide unlimited voice calls and SMS, PLDT divesting itself of the 10MHz of 3G frequency held by its unit Connectivity Unlimited Resources Inc. (Cure), and continuing the provision of high-quality service to subscribers. Knowing what we do about regulation in the country, these preconditions are as good as gone. It is interesting to see how PLDT, who now controls 70 percent of the telecoms market, would change the game. Would the merger reverse the benefits that consumers have already learned to enjoy or would it further invigorate the sector through what PLDT claims to be the unhampered use and expansion of telecom infrastructure and services?

The PLDT-Digitel deal was a relatively painless battle, considering strong opposition from rival and second-ranked mobile operator Globe Telecom, Inc., consumer advocacy groups, and the Executive branch of government.

The merger story began in March 2011, when JG Summit announced a PHP69.2-billion share-swap agreement with PLDT for it to give up shares in Digitel for a 12-percent stake in PLDT. Digitel owns Sun Cellular, the brand that introduced the now-market-standard 24/7 unlimited voice call and text (SMS). The deal would allow PLDT to control 70 percent, adding 18 percent to its standing, mobile market share.

Rumors of the deal, which insiders said took only 10 days to close, spread like wildfire and immediately elicited market response. A day prior to the announcement, stocks were up by nearly 1%, with Digitel jumping by 18 percent (to PHP1.83 per share) and PLDT gaining by 0.59 percent (to PHP2,036 per share). A day after, even shares of rival Globe Telecom, Inc. soared to its highest in five months on assumptions that the PLDT-Digitel merger would boost telecoms pricing.

But consumers did not sharing in the optimism. Advocacy groups, TXTPower and Txtm8, opposed the deal and questioned its impact on the quality and affordability of services, which would affect the country’s 89 million-strong mobile phone subscribers.

Globe, which controlled 30 percent of the mobile market as of 2010, naturally opposed the PLDT-Digitel merger, arguing that it would place the largest telco at an “unfair disadvantage” and violate an NTC memorandum circular (07-08-2005), if PLDT’s frequency allocation would remain unchecked. Globe pointed out that PLDT, which owns leading mobile operator Smart, has already obtained 50 percent of the 2G bandwidth and 56 percent of the 3G spectra with its acquisition of Digitel, resulting in a “stock-out” scenario in the telecoms industry that would disallow existing and future competitors from competing cost-effectively.

The government, with no less than the President, expressed concern over the impact of this game-changing merger and sent two strong signals of its position: submission of an Anti-trust bill to Congress as a priority legislation and the sudden creation of an Office for Competition in June 2011 to investigate monopolies. It remains to be seen how the new competition authority figured in NTC’s approval of the PLDT-Digitel merger.

Congress, which approves telecoms franchises, was more accepting. In August 2011, the Senate Committee on public services upheld the merger’s validity, saying that it was consistent with existing legislative franchises, legal, and a regular business transaction.

Filipinos are bracing themselves for any changes in the services they currently enjoy. Although the NTC set certain preconditions to ensure consumer welfare, its performance has shown a lack of teeth in implementation, which, as recently reported, causes the government billions in uncollected fees and penalties. Still, the NTC is determined to allay consumers’ fears, or at least project so. Last month, a regulatory win was gained when the Court of Appeals ruled in favor of the NTC to make the “six second per pulse” billing system mandatory. The telcos have vowed to bring the issue to the Supreme Court—a portent to a protracted court battle, which industry players have long used to delay or avert regulation.

On the brighter side, this can also be an opportunity for a third elephant—with the resources and market experience to compete—to come in, one like Sun Cellular, which would introduce fresh, innovative services that can shake up the market anew. Let’s drink to that possibility!

June 15, 2011

Another good thing about technology: taking photos of your beloved pet and sharing them with the whole world! My pug turned 1 year on June 7. He can be quite a handful, but always melts my heart with his cuddly cuteness! :)

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