P70-B telco deal a test case to PCC, says foreign business

THE COUNTRY’S foreign business chambers—the eyes and ears of overseas investors here—welcomed the Philippine antitrust body’s decision to review the P70-billion acquisition of San Miguel Corp.’s telco unit despite the threat of a legal challenge from buyers PLDT Inc. and Globe Telecom.

The American Chamber of Commerce of the Philippines Inc. and the European Chamber of Commerce of the Philippines were among the first groups to raise worries about the surprise deal before the Philippine Competition Commission.

Their letter was sent to the PCC days after PLDT and Globe on May 30 said they were jointly buying SMC’s Vega Telecom, which controlled valuable radio frequencies including those in the powerful 700 megahertz band for better mobile internet coverage.

A public disagreement erupted between the newly-created PCC, led by chair Arsenio Balisacan, and PLDT and Globe, the Philippines’s two major telco players, in the weeks since the deal was announced. The row was mainly over whether the mega transaction— sealed before the PCC’s own implementing rules were issued on June 3 this year—required the regulator’s approval.

The disagreement culminated in a PCC announcement on Friday that the acquisition was not deemed approved. PLDT and Globe were furthermore told the deal would be scrutinized under a “comprehensive review” by the PCC.

“The PCC commissioners understand that this is a defining moment for the PCC and fair competition in the Philippines,” Henry Schumacher, the European Chamber’s senior advocacy adviser in the Philippines, said in a text message over the weekend.

PLDT and Globe said their next steps, which earlier included possible legal action,  needed to be discussed internally. Both, nevertheless, have started to upgrade their cell sites to transmit the acquired frequencies, since a co-use agreement was already approved by the National Telecommunications Commission on May 27.

Schumacher was a signatory in a letter jointly filed by the European and American chambers as they advised the newly-formed PCC to “show its teeth” at this early stage. Balisacan took his oath as the first PCC chair in Jan. 27, 2016.

“We believe that this is the first test case of how the Philippine Competition Act will be enforced, and the business community will be much influenced by the decision of the PCC,” the foreign chambers said in their June 1, 2016 letter to the PCC that was obtained by the Inquirer.

PLDT and Globe’s  argument for automatic approval centered on a technicality under the PCC’s own transitory rules, or its memorandum circular 16-002 issued last Feb. 16, 2016.

This covered transactions after the Philippine Competition Law took effect but before the implementing rules and regulations were in effect. As noted, the guidelines were issued on June 3 and would take effect by June 20, 2016.

The circular detailed that parties to an acquisition valued at over P1 billion only needed to issue a notice to the PCC with the relevant deal information for it to be “deemed approved.”

The deal can only be challenged if the notices contained “false information.” PLDT and Globe lawyers certified their notices contained no false information.

However, the foreign chambers said the spirit of the memorandum circular was meant to “bridge the gap between effectivity of the law and the promulgation of the IRRs.”

“Accordingly, it cannot be used as an instrument against the very principles that the law seeks to protect,” the foreign chambers said.

They also raised concerns about the appearance of “collusive” behavior between the PLDT-Globe duopoly in  a deal that “can be considered tantamount to horizontal agreement prohibited under the law.”

“The PLDT/Globe acquisition may also send a negative signal to potential market entrants that the telecommunications duopoly will work together to block any new entry,” the foreign chambers added.

This was despite a key feature of the PLDT and Globe acquisition to return an allocation of the acquired frequencies in the 700 MHz, 850MHz, 2500 MHz and 3500MHz bands to the government. Both telcos said these were enough to allow the entry of a third player in the market.