Consumer advocacy group: NTC holds key to fair resolution of PLDT-Digitel deal

To recap: last March PLDT bought a majority stake in competitor Digitel. The stock-swap deal, pending review by the National Telecommunications Commission (NTC), would give PLDT control over 70 percent of the local telco market — around 61 million cell phone subscribers versus Globe’s 26 million.

I only mention Globe here because I endorse the company’s home broadband services: Tattoo@Home, Tattoo WiMax, and Tattoo Torque. Feel free to take that into consideration as you read what I write about the plans of Globe’s competitors (Smart is a subsidiary of PLDT, while Sun Cellular is that of Digitel’s). Previously, I’ve written against the PLDT-Digitel deal:

What if Smart becomes so dominant that it can expand its coverage to where Globe can’t? What happens to consumers who are locked into one option? A nationwide cellular network is vast in scope, yet like many other things based on technology, it still affords a fine degree of control. The point is that Smart may continue Sun’s low-cost call and text services, but only in areas where it has to compete with Globe.

A consumer advocacy group named Txtm8, however, argues that there’s nothing wrong with PLDT buying the majority of the local telco market, so long as NTC implements a policy document it authored back in 2007.

The document covers Significant Market Power (SMP) obligations, a set of proposed rules that would protect consumers and maintain a competitive environment even if one telco has dominance over the industry.

Interconnection regulation

These SMP obligation rules include the regulation of interconnection fees. This would make sure that Globe and others — including the planned San Miguel telco — could forward calls to Smart-Sun’s network at reasonable per-minute rates.

Smart-Sun wins. By having the most subscribers it would process — and profit — from more interconnection requests. Competitors and their respective customers also win, because they’re sure that Smart-Sun won’t turn interconnection into a cash cow that prevents new players from entering the market.

Interconnection transparency

The SMP rules also prescribe more transparency and expediency for the interconnection process. According to Txtm8, right now it can take years for telcos to negotiate interconnection rates. Since Smart-Sun would reign supreme, it’s in their best interest to keep negotiations going for as long as possible right?

“Indeed it would be pointless if a smaller operator had to wait that long to connect to a telecom operator which effectively controlled the market,” argues Txtm8.

To prevent this, the 2007 NTC document details reference access offers or RAOs. These temporary agreements would let smaller telcos interconnect with Smart-Sun’s network, once the interconnection negotiation process is started.

Again, Smart-Sun wins because they still earn interconnection revenue based on their dominant position. Competitors win because they can ensure good communications for their subscribers as they negotiate a proper interconnection deal with the big player.

Service resale

With the NTC proposal defining a framework where Smart-Sun can resell its services (and it would be under no obligation to do so) to other telcos, “competition is still allowed to exist despite the existence of a dominant carrier.” The example of Txtm8 used to explain this is perfect, so let me quote verbatim here:

“The best example of this is the relationship between Sprint (presently the fourth largest telecom operator in the United States) and AT&T (soon to be merged with T-Mobile to become the biggest telecom operator in the United States). These are two different companies… but Sprint uses the network and infrastructure of AT&T in providing its own services. How? It buys voice call minutes from AT&T wholesale (meaning in bulk at a cheaper price) and resells the same with a small profit to a certain market.”

Another win-win: Smart-Sun would reap the benefits of its dominant position, earning through the resale of its services. Competitors on the other hand can enjoy the reach of Smart-Sun’s network.

Competition, competition, competition

The ultimate point of Txtm8’s document was that the NTC should ensure competition, no matter what the market conditions are. The advocacy group (rightfully) points out that the ruthless competition of the telco industry is what led to plethora of products and services local subscribers enjoy today.

Yet at the same time Txtm8 has no problem with PLDT’s acquisition of Digitel — so long as the NTC applies the SMP obligations it defined back in 2007. Why shouldn’t they, when everyone wins, even the consumer?

More detailed information on what Txtm8’s arguments are found in an online four-page primer, available at http://j.mp/PLDTDigitelProposal.