Watchdog on ₱70B 'megadeal': Globe, PLDT need approval

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Management Association of the Philippines President Perry Pe welcomed the "mega-deal," saying it would be the best way for consumers to get high-speed mobile internet as soon as possible.

Metro Manila (CNN Philippines) — The newly-formed Philippine Competition Commission (PCC) already faces a stern test as it reviews the ₱70-billion mega-deal among the major telecommunications players.

PCC Chair Arsenio Balisacan addressed business leaders for the first time on Tuesday — timely, as Globe Telecom, Inc. and the Philippine Long Distance Telephone Co. (PLDT) had just bought out San Miguel Corp.'s (SMC) telco assets the day before.

Related: Globe, PLDT take over SMC's telco assets

Balisacan said the deal has not yet been approved by the competition watchdog — contrary to claims of company officials.

"We still have to give that deemed approval if it's there, but we haven't seen the details yet of the transaction," Balisacan told reporters.

The Philippine Competition Act requires companies to report all mergers and acquisitions worth more than P1 billion to the PCC. Globe and PLDT had done so, but Balisacan said the process didn't end there.

The watchdog will review the transaction to ensure it isn't anti-competitive. However, what the specific thresholds are for the resulting market share have yet to be set in the PCC's implementing rules and regulations, to be released mid-June.

Only then will the review begin, Balisacan said. The law gives the PCC 30 days to review a merger or acquisition. If it finds that it needs additional information from the parties, it can extend the review by another 60 days.

Details about how the review will go and what its implications will be are vague. Balisacan kept mum on what the PCC will study, specifically in the Globe-PLDT-SMC transaction. He also refused to comment on whether the companies could use the telco assets in question, while the review was ongoing.

More importantly, he said there was no deadline for the carriers to file their submissions with the PCC. "It is up to them. We will not demand it from them," he said.

Globe and PLDT notified the PCC on Monday when it publicly announced they would each buy a 50% stake in SMC's much-coveted telco assets.

SMC had initially hoped to enter the telco market itself, with a partnership with Australian carrier Telstra Corporation, Ltd. in the works. The joint venture never materialized, though, and SMC's assets — including the heavily prized 700-megahertz spectrum frequency — ended up in the hands of old players.

Comprehensive review

Balisacan, a University of the Philippines economist and a former Socioeconomic Planning secretary, said the telco "mega-deal" could be reviewed further under other provisions of the law.

The law prevents anti-competitive agreements, such as restricting price competition, controlling production and dividing the market.

It also bans companies from abusing their dominance in the market to drive out competitors. This includes selling products below cost, barring entry of new players, among others.

There is an important clause, though, that could provide a way out for Globe and PLDT.

Arrangements will not be deemed in violation of the law if they are proven to promote "technical or economic progress, while allowing consumers a fair share of the resulting benefits."

Balisacan emphasized this in his dialogue with business leaders, saying: "The competition law does not prohibit bigness. It does not even prohibit monopolies or duopolies. What it prohibits is abuse of dominance. Many utilities are natural monopolies."

Globe and PLDT have dominated the local telco industry since 2011, when the latter bought out Digital Telecommunications Philippines, Inc. (Digitel), which operated Sun Cellular.

When asked whether the PCC would also investigate the Digitel purchase, Balisacan said the mega-deal "and all other related deals" would be assessed.

Community divided

Management Association of the Philippines President Perry Pe was optimistic the transaction would easily pass the PCC review.

"I don't see any reason why it won't go through any approval process or why it should be reviewed extensively because I think it's good for the country," he told reporters.

He welcomed the mega-deal, saying it would be the best way for consumers to get high-speed mobile internet as soon as possible.

The 700-mHz spectrum frequency is said to be more cost-efficient, while providing wider geographical coverage and stronger indoor penetration. SMC had admitted it would take them much longer to put up its own network. It branded its sale of its assets as a "sacrifice" so consumers could finally benefit from the frequency as soon as possible.

John Forbes, senior adviser of the American Chamber of Commerce, was more skeptical.

"If they both announce this the same day, if they both have identical press releases, if it appears that they colluded to do this, that's a genuine thing for the PCC to examine," Forbes said.

He added that the law empowers the PCC to force the sale of assets if it sees that there was collusion between market players.

Boost for Globe, PLDT

Meanwhile, credit rater Fitch Ratings said the mega-deal would boost the businesses of Globe and PLDT, as it allowed them to cash in on the fast-growing mobile internet market.

"The Philippine mobile market is highly saturated, but most users are on 2G networks — which provide telcos with plenty opportunities if they offer faster 4G LTE services," Fitch said in a statement.

It said Globe would likely benefit more, though, given that mobile internet accounted for 76% of its revenue, compared to PLDT's 63%.

Fitch also said San Miguel's exit only underlined how difficult it was to crack the local telco industry. It would have required heavy investments for SMC to put up its own infrastructure, "especially given that PLDT and Globe would be reluctant to share their tower and associated infrastructure."