Telcos buck government move to impose additional financial burdens on them

The country’s top telecommunications companies are questioning government moves to impose additional financial burdens on them and warned that they might be forced to go to court to stop this "harassment" on the telco sector.

Specifically, Smart Communications and Globe Telecom are criticizing attempts by Congress and the executive branch to review the tax incentives provided by the Board of Investments (BOI) to 3G (third generation mobile communications technology) licensees, as well as moves in both the Senate and the House of Representatives calling for an increase in the fees imposed on 3G licensees.

Just recently, Quezon Rep. Danilo Suarez urged Congress to conduct a probe into the tax incentives provided by the BOI to the 3G licensees, namely Smart, Globe, Digitel, and CURE. These tax incentives mean tax holidays and duty-free importation of capital equipment for operators of third-generation phone service.

Globe was earlier awarded a pioneer status classifying it as a new operator of infrastructure and telecommunications facilities, which means that the company would be qualified for a six-year tax holiday and enjoy other fiscal and non-fiscal incentives. Globe president and CEO Gerardo Ablaza estimates that the mobile phone operator will enjoy up to P2.5 billion in tax benefits.

PLDT wireless subsidiary Smart was likewise given pioneer status for its investments in its 3G network.

Suarez likewise branded as "irregular and anomalous" the award of 3G frequencies to the four companies without a public bidding.

National Telecommunications Commission (NTC) chief Ronald Solis said Congress will be coming up with a report on 3G, which could include a proposal to raise the 3G spectrum user’s fees. There are also rumors that Congress might ask NTC to nullify the award of 3G frequencies because no public bidding was conducted.

The solon earlier filed House Bill 4626 seeking to impose a 10-percent tax on mobile phone calls through 3G networks.

A Department of Finance (DOF) official earlier expressed dismay over the grant of tax incentives to telcos for introducing 3G, saying that these companies would have invested anyway even without these tax perks.

Globe senior vice president Rodolfo Salalima noted that private foreign investments come in based on existing incentive policies and that it will be unfair if after these investments are made, government changes its policy.

He said any changes in substantive laws, such as the Investment Code, should apply prospectively and should not affect investments already made.

The Globe official said since businesses relied on these incentive policies when they made their investments, this has become a contract between government and these businesses as well as a vested right on the part of the latter which cannot just be taken away without violating the non-impairment of contracts clause in the Constitution.

Salalima likewise stressed that before government revisits its incentives laws and policies, it should talk to businesses affected.

"We are already suffering. The Philippines is already ranked low in terms of international competitiveness precisely because of our ever-changing policies. And this list is being consulted by prospective foreign investors before considering a country as a place for investments," he said.

He also pointed out that since incentive laws are meant to apply to all industries, there is no reason why the telecommunications sector should be singled out.

For his part, Smart spokesperson Ramon Isberto emphasized that the existing incentive policies were factored in by telcos in making their investments and changing the rules midstream will definitely impact on costs.

He said telcos should not be treated differently just because they are making money. "Telcos are making money because these companies made very substantial investments over the past six to eight years. Smart and Globe have invested billions of dollars in building out their network and risked all those funds. Without those investments, they will not be making money now and paying all those taxes to government," Isberto added.

As for the proposed increase in 3G fees, Globe’s Salalima said the fees should be reasonable and should not exceed the cost of regulation. "Otherwise, it will no longer be a fee but a tax," he said.

This year alone, the NTC has collected P315 million out of an estimated P375 million for 3G spectrum users fees. Over a 20-year period which is expected to be the lifetime of 3G, the commission expects to collect $300 million in fees from the telcos.

Meanwhile, NTC’s Solis assured legislators that the commission‚s decision not to bid out the 3G frequencies has its basis in law, namely the Public Telecommunications Act. He said that since there are five 3G frequencies up for grabs and only four qualified applicants, there was no longer any need to resort to a bidding.