Proactive competition rules urged in telecoms sector

A proactive set of rules promoting competition is needed in the Philippine telecommunications industry to assist new entrants and ensure that fair competition is maintained.

This was the recommendation of Dr. Ramonette Serafica, an associate professor at the College of Business and Economics of De La Salle University in her paper entitled, Competition in Philippine Telecommunications: A Survey of the Critical Issues.

Serafica’s paper is part of a project on competition policy initiated by the Philippine APEC Study Center Network (PASCN), whose lead convenor is the Philippine Institute for Development Studies (PIDS).

According to Serafica, simply relaxing market entry rules is not enough to create a robust competitive environment in the country’s telecoms sector.

She noted that although liberalization of the telecoms industry has addressed many consumer woes ranging from poor quality of service to absolute lack of service, some problems have been created as well, thus diminishing the potential gains that could be derived from a competitive environment.

As such, a clear competition policy for the Philippine telecoms sector which defines two elements – access and merger issues – is necessary, she said.

Interconnection

Serafica said interconnection, which enables subscribers of different carriers to communicate with one another, remains to be the most critical issue that emerged from liberalization.

Competition policy for this sector, she said, should address the issue on access to essential facilities, also known as bottleneck facilities, because it is necessary to a competitor’s survival.

She said this is deemed important for effective competition in telecoms because it is neither easy nor efficient to duplicate certain facilities within a reasonable timeframe.

Even the interconnection guidelines under the General Agreement on Trade and Services (GATS) note that unless other operators obtain timely access to the networks of incumbents under non-discriminatory terms and conditions and at cost-oriented rates, then a country like the Philippines, will not be able to reap the benefits of liberalization.

"New operators have complained in the past of unfair conduct by the dominant firm, PLDT. These include, among others, insufficient interconnection, unequal access settlements or revenue-sharing arrangements as well as the use of interconnection as a lever in other commercial negotiations," Serafica said.

Unfair behavior

However, she added that the alleged unfair or uncooperative behavior is not limited to the Philippine Long Distance Telephone Co. as other incumbent operators have also been reluctant to interconnect or grant favorable terms of interconnection to competitors.

She also noted that the existing regulatory set-up poses anti-competitive results. Under the Public Telecommunications Act of the Philippines (Republic Act 7925), access to existing facilities of the dominant operator is negotiated while the rate charged by telecoms companies to their subscribers is set by the regulator.

Given this arrangement, she said a firm could deliberately effect a price squeeze. She also noted that anti-competitive effects also surface out if regulators fail to approve applications for rate adjustments for similar services at the same time.

Another issue that is very important in the telecoms sector is mergers and acquisitions. Serafica suggested that there should be an inquiry into whether a proposed merger will reduce competition or not.

For example, comparison of the pre- and post-merger market shares or industry concentration of the entities involved could be conducted to determine if the proposal should go unchallenged and/or under what conditions it should be allowed.

"Since mergers are supposed to create efficiencies, then such efficiencies must outweigh the potential harmful effects of increased market power for the mergers to be allowed or even encouraged. In turn, whether or not any detrimental effects can be mitigated will depend on the existence of competitive safeguards," Serafica said.