PLDT warns of lower capital spending

A huge portion of the planned P150-billion investment of Philippine Long Distance Telephone Co. (PLDT) over the next five years may no longer be spent if government pushes through with plans to impose additional obligations on telecommunications companies that possess so-called significant market power (SMP).

PLDT chairman Manuel Pangilinan likewise warned that government could be importing Western concepts "which might not be good for us, although they may sound good in the international press."

The National Telecommunications Commission (NTC) is currently conducting public consultations on a draft circular that will call for the adoption of a new regulatory regime that will prevent companies with SMP from using this power to curb competition.

Being the market leader in the landline, mobile and Internet business, PLDT is the most likely candidate to be classified as an SMP operator. The NTC is still looking at the possibility of including the company with the second largest market share within the coverage of the SMP circular.

The NTC is looking at imposing four core obligations on SMP operators. These include unbundling of offerings; allowing any licensee to purchase services that it provides to end- users on the same price, terms and conditions that the SMP supplier offers to end-users; undertaking a separate accounting of interconnection and access operations; and an obligation to specify the terms and conditions under which the SMP supplier offers to provide access to its network.

Pangilinan cited the disastrous consequences on telco operators in Hong Kong (PCCW) and the United States (AT&T) when their respective governments changed their regulatory framework.

"Even if we open up our network, what will be the cost of opening up," he added.

He also stressed that if there is nothing wrong with revisiting the policy framework, the NTC should make sure any new framework that it will adopt will not undermine the advances already made in the country’s telecommunications sector.

In a position paper submitted to the NTC, PLDT 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 incumbent operators to do so as well, PLDT said.

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 infrastructures 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.

PLDT cautioned the NTC that without clearly articulating the problems it is seeking to solve, and substantiating those claims with clear evidence, the NTC is at risk of triggering unintended consequences in a well-functioning, competitive market, and potentially disrupting an industry that not only contributes disproportionately to the country’s investments and employment, but also enables the growth and development of other strategic sectors.

The company emphasized that instead of promoting investments in communications 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.

Based on experiences, other developing markets such as Mexico have abandoned plans to impose SMP obligations, having determined that such a scheme would put the country’s infrastructure development at risk, the company added.