Cartels, monopolies forever?

My column last Friday on the book of General Jose Almonte which covered among others, his fight to break-up the PLDT monopoly, drew a reaction from an old friend from my UP days. Raymond Altarejos is now a New York-based entrepreneur who has invested in local call centers.

According to Ray, “if telecom was not deregulated by Ramos, we would have a smaller BPO industry today. . . Cost of an E1 bandwidth went down from $110k per month in 1992 to $30k by 1998. Now, an E1 costs $250 a month. Our BPO industry sprinted ahead as competing carriers raced to deliver fiber optic lines to Visayas and Mindanao. Now Cebu, Bacolod, Iloilo and Davao are vibrant BPO centers.”

Ray’s comment made me search for a column Ciel Habito wrote last year which pointed out how the telecom industry, broken up by FVR seems to be consolidating again.

“The New York Times recently ran an article on how infrastructure inadequacies in the Philippines erode the nation’s growth prospects. Among these is information and communication technology, wherein it was recently widely reported that the Philippines has both the slowest and costliest Internet in the region.

“Not a few see a link between this and the fact that the telecoms industry, coming from the vibrant competition that marked the 1990s, has reconsolidated back to a situation where competition is again widely seen to be lacking.

“It must therefore be government policy to ensure adequate competition in the productive sectors of the economy. Many other countries, our most dynamic South East Asian neighbors included, already have strong legal frameworks that counter monopoly and unfair trade practices.

“Having a competition law is in fact among the agreed measures in pursuit of the Asean Economic Community, and I see it as an embarrassment that we are the only country among the original five Asean members that has yet to enact one.

“Is it any wonder that our rapid economic growth has yet to be felt by the wider mass of the population, and that we also have the most lopsided wealth and income distribution in our part of the world?”

My sentiments exactly! In fact, the passage of that competition law is the subject of frequent discussions between me and Asec Gernomino “Indian” Sy who heads DOJ’s small Office of Competition.

Indy always ends up reassuring me that the absence of a fair competition law is not a hindrance to breaking up monopolies and cartels. Indeed, he asserts that no law is better than a bad law because it gives him leeway to prosecute those who indulge in anti competitive practices.

But former senator Rene Saguisag is not impressed with Indy’s claim. When I wrote about how Indy investigated the garlic cartel and determined that a number of people should face court charges, Sen Saguisag wrote Indy asking when?

Here is a portion of that letter of the former senator to Indy:

“I read Boo Chanco’s column today on the garlic cartel on your finding ‘that a group of importers cornered the supply [of garlic] that enabled them to dictate the high prices.’  If so, when will charges be filed against the cartel for a per se violation of Art. 186 of the Revised Penal Code?”

  The former senator, in a comment in one of my e-groups, quoted from Judge Learned Hand to explain why anti-trust laws are important. “We have anti-trust laws because ‘possession of unchallenged economic power deadens initiative, discourages thrift and depresses energy; that immunity from competition is a narcotic, and rivalry is a stimulant to industrial progress; that the spur of constant stress is necessary to counteract an inevitable disposition to let well enough alone.”

Senator Saguisag laments that “the monopolies and oligopolies continue with the big players enjoying the quiet life to the detriment of the public. That is how I see the biggies plotting to benefit themselves to the detriment of the public not benefiting from a competition for the better mouse trap.

“Art. 186 of the Revised Penal Code criminalize combinations in restraint of trade; to my knowledge there has not been any successful prosecution… Our Sherman Act is in Art. 186 of the Revised Penal Code but it our prosecutors were all absent when the matter was taken up in law school.

 “So I watch what will happen in the garlic cartel case.”

P-Noy provided hope early in his term that he will actively pursue the passage of a specific law that punishes anti competitive behavior. Ciel Habito recalled that in his first State of the Nation Address (SONA) on July 26, 2010, P-Noy said “Our Constitution mandates government to ensure that the market is fair for all — no monopolies, no cartels that kill competition.”

President Aquino declared: “We need an Antitrust Law that will give life to these principles, and give small- and medium-scale enterprises (SMEs) the chance to participate in the growth of our economy.”

In his fifth SONA last July 28, he reiterated: “We are forging a system of fairness… where true competition leads to opportunity and widespread progress.”

But words have not translated to results. Even Indian Sy seems to be having problems prosecuting the garlic cartel. How can he make the telcos behave?

Indeed, even the venerable General Jose Almonte and his fervent commitment to level the playing field of business failed to get FVR to follow through. I suspect he is quietly frustrated.

In October last year, I wrote a column on Dick Gordon’s effort to put up a world class international container port in Subic. He convinced Li Ka-shing to bid to run such a port. That was when there was high anxiety about the future of Hong Kong after the turnover to China and Li Ka-shing was eager to have an alternative just in case.

As Dick Gorden related to me, Li Ka-shing’s Hutchison Whampoa had a better bid and a better business plan. But ICTSI wanted to win the bidding badly to protect its monopoly in the Manila port.

Li Ka-shing won the bidding. But ICTSI used its influence with Malacañang to overturn the decision of the bid awards committee and the Subic board. Malacañang insisted on a rebidding.

Of course FVR’s Palace boys made sure ICTSI won. We all know what happened next. The Subic port was all but abandoned and only now getting some life because of the Manila port congestion.

Gordon observed that “if Li Ka-shing saw the potential of building Subic up, he probably lost his respect for our leaders for their paucity of vision, for feathering their nest over the interest of our country and people.”

Gordon said that during the historic handover of Hong Kong to China, he was asked by a cabinet official why Li Ka -shing seemed to snub FVR in one of the luncheons there. Gordon recalled that “Li Ka-shing actually chided a red-faced FVR in front of other forum participants for ‘screwing’ his company on the Subic port deal.” 

“How sad,” Gordon sighed. “The Philippines had one of the world’s biggest port operators – a big fish on the line to be hauled in, if you will – but its leaders let it go because of patronage. Hutchison, which was quite ready and willing to invest in modernizing Subic Port, pay us rent, and bring in the transshipment operations that would have created so many investments, jobs, and development all over Luzon, was cheated out of the deal of the century and let our country and our poor down.”

“Worse,” Gordon explained, “we ended up with more debt and a well-endowed port but no shipping activity and no economic opportunities for the many who are poor. “Unfortunately,” Gordon said, “because ICTSI wielded its undue influence, a golden opportunity for the country slipped out of our hands.”

That, folks, is rent seeking by the entrenched vested interest. It is allowed by government officials beholden to the economic and social elite responsible for our country’s inability to progress today. And to think it happened under FVR, supposedly the best President we have had in recent memory and with a General Almonte to keep him on the straight path…

If General Almonte couldn’t get FVR to be totally committed to leveling the playing field, it means we have a long fight ahead. That explains why it was easy for our telecom industry to become a duopoly and turn back the clock on the landmark accomplishment early in FVR’s watch.

DOJ’s Indy Sy had better start showing what he can do beside talk to show government isn’t that useless.

Boo Chanco’s e-mail address is [email protected]. Follow him on Twitter @boochanco