Competition policy must be done with ‘extreme care, caution’, PLDT tells NTC

The Philippine Long Distance Telephone Co. (PLDT) group has warned the National Telecommunications Commission (NTC) to observe "extreme care and caution" in preparing a competition policy that would govern the information and communications technology sector, to avoid dampening incentives for investments.

"Market dynamics are best suited to ensure continued growth and innovation in this sector. The industry has done exceedingly well in contributing to the broad national objectives and any further regulation should be limited to only necessary minimum to allow the market to reward those who choose to bear risks in investment and innovation. The continued successful development of the sector should not be put at risk unless there is a clear, proven case," the group emphasized.

PLDT, Smart Communications, and Pilipino Telephone Inc. (Piltel) in a joint position paper noted that rapid innovation in the sector, falling prices in real terms, and robust competition among players, are not to be taken for granted and can be easily disrupted by well-intentioned but ill-advised policy interventions.

To ensure that competition in fixed line, mobile, and Internet and data services is effective and sustainable, the NTC earlier prepared a draft policy framework to ensure that "the threat of actual or potential competition is sufficient to discipline the behavior of the incumbent."

The commission is proposing unequal treatment of dominant and non-dominant licensees by imposing significant market power (SMP) obligations on dominant players, mandating unbundling of network elements, allowing resale of services, enforce ex post regulation of prices, among others. According to the NTC, horizontally integrated licensees are engaged in cross-subsidization to stem out the churn from fixed to mobile to the detriment of non-integrated licensees (fixed line service providers that are not licensed to provide mobile services are increasingly disadvantaged by their competitors with mobile service licenses), and that large carriers are leveraging their control of the last mile into the unregulated value-added service market.

In its draft paper, the NTC noted that several licensees have emerged dominant and financially viable in the submarkets, while the market shares of the other licensees have been reduced to almost insignificant levels. These other licensees are thus unable to pose effective competition against the dominant providers.

In the fixed line market, the two largest carriers account for about three quarters of the market, leaving only a quarter of the market to 71 other carriers. In the CMTS, the two largest service providers control 96 percent of the market. In both markets, the market shares of competitors are too small to pose any significant threat on dominant providers.

It observed that the precarious financial condition of non-dominant licensees is less a consequence of the smallness of their subscribers’ base than a product of unregulated price squeezing behavior by the dominant licensees.

The PLDT group noted that telecommunications regulation should adhere to several guiding principles.

First, it stressed the importance of understanding the root causes for the poor performance of certain market participants in determining whether regulatory action is needed. Second, where there appears to be a need for such action, regulators must seek to ensure that the policy actions will clearly do more good than harm. Third, regulators in drawing from experiences of other countries, should ensure that the regulations are suitable to their own market. Fourth, regulators should strive to ensure that their interventions promote improved market performance rather than serve the interests of individual competitors.