PLDT warns against NTC proposal imposing additional burdens

Philippine Long Distance Telephone Co. (PLDT) warned of a curtailment of investments in the telecommunications sector if government pushes through with plans to impose additional obligations on telcos that possess so-called significant market power (SMP), in a bid to prevent these companies from using this power to stifle competition in the market.

The National Telecommunications Commission (NTC) is proposing a regulatory regime that would impose four core obligations on operators determined to have SMP. This include an obligation to allow other operators to access an unbundled component of the network without having to buy other components that they do not require as part of the interconnect service; allowing any licensee to purchase services that it provides to end users, on the same prices, terms and conditions that the SMP supplier offers to end-users; undertaking a separate accounting of interconnection and access operations to enable the NTC to determine if the SMP supplier is favoring its own or affiliate’s retail operations over its competitors 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; and an obligation to specify the terms and conditions under which the SMP supplier offers to provide access to its network.

"The PLDT Group alone plans to invest around $1 billion over the next three to four years. To put this in perspective, the Philippines generated slightly more than $1 billion in total net foreign direct investment for all sectors in 2005. The required amount of capital will flow to the sector only if the regulatory framework allows a proper return for those who make the investments. The PLDT Group believes that the NTC will put at risk the flow of investment to the sector by following an SMP regime," the company said in a statement.

It noted that SMP obligations will depress future investment levels by existing infrastructure-based players given the lower expected returns on investment, due to the fact that they would then be required to open up core elements of their network.

In general, more wholesale players may emerge in the market as a result of SMP, but international experience shows they do not add significant value in terms of innovation or coverage, and reduce the incentive of existing operators to do so as well, PLDT added.

In addition, the effects on investment can be even larger as an SMP regime is better suited for markets vastly different from the Philippines, namely, well-developed markets with mature telephony and cable infrastructure such as France and Sweden.

"International experience shows SMP obligations are most likely to deliver intended benefits in heavily penetrated markets, where penetration is high, coverage is extensive and incremental investment needs are low. In markets where the infrastructure is not in place, like the Philippines, SMP obligations can have significant adverse effects. The suitability of the SMP regime, therefore, is related to the level of infrastructure development," it emphasized.

In the Philippines, the entire telecommunications sector accounted for four percent of gross domestic product (GDP). In 2005, mobile operators contributed two percent of GDP, and with spill-over effects considered, the contribution rises to 7.5 percent of GDP.

PLDT also noted that telecoms accounted for six percent of total fixed asset investments in the entire country between 1999 and 2003; employs 20,000 people directly and another 40,000 to 60,000 in supporting industries; paid wages and salaries for direct employment amounting to more than $300 million last year; and accounted for six percent of government’s total tax receipts.

The company emphasized that instead of promoting investments in telecommunications infrastructure, an SMP regime will lay the foundation for interventions such as unbundling and reselling that will dramatically reduce the incentives for operators to invest in such infrastructure.