PCC: Boon or bane?

SPECIAL REPORT

(Part 1)

MANILA, Philippines — Somewhere in the bustling business district of Ortigas, there is an inconspicuous, grey building along San Miguel Avenue that is hardly noticeable and easy to miss.

The Philippine Competition Commission (PCC), the government’s anti-trust body, occupies some of its floors. Indeed, it doesn’t even have its own office.

Yet, inconspicuous as its office is, the PCC is overwhelmingly powerful whether businessmen like it or not. Inside the boardrooms of some of the country’s top corporations, businessmen are cracking their brains on how best to deal with the newly formed government body.

Telco deal

It’s no secret that even before PCC chairman Arsenio Balisacan could even hit the ground running last year, the PCC already had to battle against the telecom industry’s duopoly, PLDT and Globe Telecom.

In 2016, at a time when the PCC was still in transitory phase, PLDT and Globe Telecom embarked on a co-acquisition of the telco assets of San Miguel Corp. for P69.1 billion.

The PCC insisted it should be allowed to review the deal, but the telcos said that under the transitory rules of the PCC, the deal “only needed a notice” to the commission and that the deal is already deemed approved.

However, the PCC maintained that the telco deal is only deemed approved, if the notice is sufficient.

The case is pending in court.

Aside from telco players, other businessmen are quietly sighing in frustration over the fact that they have to deal with the PCC. They consider it an unnecessary layer in the labyrinthine Philippine bureaucracy that is already difficult to navigate.

Uncertainty

The head of one of the country’s biggest conglomerates said having to go through the PCC causes uncertainty for businesses.

“Supposedly, it’s only one month but even after that one month, if they deem that it’s not complete, then the review will continue. That causes uncertainty,” the CEO told The STAR in an interview, but declined to be named, saying it may affect the company’s future dealings with the PCC.

The official acknowledged that having a transaction scrutinized by the PCC has its advantages, but it also brings uncertainty.

“It adds too much risk to the transaction. While the review is ongoing, the transaction is at a standstill. The operations are halted. You don’t know if you will have a new boss or not,” the CEO said.

The same source said PCC’s definition of “having control in a company” isn’t very clear.

“For other companies, it’s accounting control. There are instances when you have majority control, but you do not manage it. Or is it being able to control the board?”

Another executive, a top-ranking official from a property company that had to deal with the PCC, said they experienced the same problem.

“The submissions we made were always inadequate. So (the approval) of our transaction took some time,” said the executive who also declined to be named.

The same source said they had to explain to their foreign partner that they needed more time.

30-day period

Balisacan, however, explains that the prescribed period for review, as mandated by law, is up to 30 days for Phase 1, and up to a total of 90 days if the review moves to Phase II.

“Most are cleared within 30 days. If there are concerns, we would move to Phase 2, so it’s 90 days in total,” he said.

The countdown can only begin once the parties submit complete application requirements. This is when the formal “notification” happens.

Balisacan said the pre-notification process takes time because the lawyers hired by companies to deal with the PCC sometimes move slowly.

Mandate

The PCC, created under Republic Act 10667 or the Philippine Competition Act, is an independent, quasi-judicial body mandated to implement the national competition policy by regulating anti-competitive conduct and protecting the well-being and efficiency of competition markets for the benefit of consumers and businesses.

Specifically, it seeks to protect consumers by giving them more choices over goods and services at lower prices in the market and to promote competitive businesses, large or small, that will, in turn, encourage economic efficiency and innovation in the country.

It was established with the premise that markets with enough competition directly benefit the poor. This is because competitive markets offer a wider variety of goods and services at the lowest possible prices.

“This means that the poor, with their limited income, have expanded choices and can afford to buy more with the same amount of money.

It also protects small business owners, including farmers and other small-scale entrepreneurs from unfair and predatory business practices that bigger businesses might implement,” the PCC said.

Companies embarking on mergers and acquisitions with a transaction value of at least P1 billion need the approval of the PCC.

“Parties to the merger or acquisition agreement where the value of the transaction exceeds one billion are required to notify the PCC of such agreement. They cannot consummate the same without the approval of the PCC. The PCC is also empowered to promulgate other criteria – increased market share in the same relevant market in excess of minimum thresholds that would trigger this notification requirement,” the PCC said in a primer.

The one-billion threshold

At least three businessmen interviewed by The STAR said the one billion peso threshold is too small.

“That’s practically everything,” said one businessman.

For big conglomerates and foreign companies looking for acquisitions, that threshold is small.

Balisacan said the threshold could change if the commission deems it necessary.

“(The one billion threshold) is mandated by the law, but the law nonetheless empowers the PCC to update the threshold as we deem necessary,” he said.

“We will revisit this eventually, but for now it’s not a very high priority, we can update it anytime,” he said.

Balisacan acknowledged there are indeed some initial concerns on the one billion threshold. One concern is that the PCC may be deluged by applications because the amount practically covers almost all major possible mergers and acquisitions of companies.

“But there shouldn’t be a problem because the law prescribes a maximum (review period) of 90 days and so far, we’ve been able to comply,” Balisacan said.

Abuse of dominant position

Another role of the PCC is to ensure that entities do not abuse their dominant position by engaging in conduct that would substantially prevent, restrict or lessen competition.

These include predatory pricing, imposing barriers to entry in an anti-competitive manner and unfair exercise of monopsony – a situation where there is one buyer and many sellers.

For mergers and acquisitions, a comprehensive review includes a determination of the relevant market whether there will be substantial changes to the market structure and the potential impact of the transaction on public welfare.

Some key factors that may be considered when determining the effect of a merger or acquisition on competition in a relevant market include number of competitors in a market.

For instance, the PCC said a market with only a handful of players may raise a red flag. Fewer players in the market could have an implication on the level of competition.

Furthermore, mergers that significantly decrease the number of competitors in the market require a closer review of possible anti-competitive effects that could harm consumers.

Mergers among competitors need thorough review for potential lessening of competition, especially when costs of entering a market are high.

There are many examples of barriers to entry, including high cost of infrastructure investments and regulatory barriers.

If the merger results in a market with fewer competitors who have similar market shares, the potential for collusion is high.

These are just among the roles of the PCC, but businessmen insist the PCC is just a thorn in their side.