Government to keep tight watch over major telecom firms

The government is bent on putting under tight watch and stricter regulations telecommunications companies that possess so-called "significant market power," or those who due to their size, either in terms of market share, technological advantage, or other parameters, are stifling market competition.

And if the National Telecommunications Commission (NTC) is able to have its way, local carriers identified as having significant market power or SMP will find themselves being under a different regulatory environment and having to meet certain SMP obligations not required of smaller telcos. Countries like Hong Kong, Malaysia, South Korea, Taiwan, US, and European Union members are imposing these obligations.

Already identified as having SMP in both the local exchange (landline) and mobile phone service business is the Philippine Long Distance Telephone Co. (PLDT) group which includes wireless subsidiary Smart Communications. PLDT and Smart dominate the local exchange carrier (LEC) and wireless business, respectively.

NTC sources disclosed that because the commission has yet to decide on the criteria that would determine who has SMP, it has yet to be known whether Digital Telecommunications Phils (Digitel) of the Gokongwei group, in the case of the landline business, and Globe Telecom for the mobile business are considered having SMP. But a company without significant market share is unlikely to have SMP, the commission said.

According to the NTC, inequality in market power is evident in the local telco sector where the largest two (PLDT and Digitel) among 73 LEC operators account for 75 percent of the subscriber base, while the two biggest cellular operators (Smart and Globe) control 96 percent of the mobile service market.

The commission added that the corporate "bottomline" in 2004 of the two largest carriers showed a net income of P39.2 billion against the net loss of P2.3 billion of the next two largest carriers. "This extreme inequality in market shares and performance to be sure is not necessarily caused by a lack of fair competition. But it provides opportunities for anti-competitive behavior, hence grounds for regulatory attention," the NTC pointed out.

For instance, a large supplier who owns and controls essential facilities or infrastructure too costly to duplicate could eliminate competition by denying rivals access to these. An incumbent supplier with vertically integrated facilities may also be able to cross-subsidize its services and engage in predatory practices.

"A policy is needed to check on the conduct of suppliers whose market power is so extensive that it could not be restrained by competitive processes. That policy entails imposing competitive behavior on these suppliers with SMP to protect their weaker rivals and to achieve effective competition," the NTC said.

The NTC is looking at four obligations to be required of companies with SMP. These are: first, making public a reference interconnection offer (RIO) that specifies the terms and conditions under which such SMP supplier offers to provide access to its network; second, providing access to unbundled network elements including the local loop; third, undertake a separate accounting of interconnection and access operations using an accounting system approved by the NTC; and fourth, allow resale of end-user telecommunications services.

But the commission quickly pointed out that the policy is not intended to level off market power by penalizing largeness or incumbency nor is the policy directed against any supplier who simply has market edge over others. "Rather, the policy discriminates only those suppliers with sufficient market strength to behave to an appreciable extent independently of its competitors and consumers. Since market forces could not discipline their behavior, regulatory intervention is aimed at preempting abuse of market positions by putting restraints on their conduct," the NTC said.

The RIO, the NTC explained, would prevent an SMP carrier from discriminating against access seekers by imposing more restrictive terms and conditions to those with whom it is in closer competition.

In the case of unbundled network elements, the commission said this measure will allow operators to access to the former without having to buy other components that they do not require as part of the interconnect service. The NTC said economic barriers to entry will be lowered by allowing a new supplier to combine components from existing networks with its own.

"And it would promote the development of new products or services since a supplier may be able to combine new technologies with components of existing network. In particular, the unbundling of local loop will accelerate the roll-out of broadband Internet and growth of e-commerce. These advantages outweigh the concern that mandating network unbundling will dampen incentives to build new networks which may be avoided if the price and terms are properly set," the commission added.

As for the planned new accounting system, the NTC pointed out that imposing this would enable the commission to determine if the SMP supplier is favoring its own or affiliate‚s retail operations over its competitor who are purchasing wholesale services from it, or is applying price or margin squeeze to its competitors, or is not charging cost-oriented prices for interconnect services.

The NTC likewise plans to oblige the SMP supplier to allow any licensee to purchase services that it provides to end-users on the same price, terms and conditions that it offers to end-users, and to allow the licensee to resell the services without being required to disclose that the services are those of the SMP telco.

The commission emphasized that this close monitoring of the conduct of certain suppliers may be withdrawn in the long term as market competition becomes effective and sustainable.