Frequency earmarked for bidding seen not enough for third telco

The government may fail to attract a viable third telecom player for a proposed frequency auction, given that the remaining spectrum assets under its control excluded services to about half of subscribers in the Philippines, an information and communications technology expert said.

The landmark bidding, which the National Telecommunications Commission (NTC) said could be launched by 2017, would cover mainly 3G and 4G telecom frequencies returned to the NTC following two massive acquisition deals in the last five years.

The most recent was the sale of San Miguel Corp.’s telecommunication unit to industry giants PLDT Inc. and Globe Telecom on May 30.

But Pierre Galla, co-founder at ICT advocacy group Democracy.Net.PH, said the auction was unlikely to move the needle in terms of exerting competitive pressure on both incumbent players.

That was because PLDT and Globe, after equally buying SMC’s Vega Telecom, now jointly control about 80 percent of all telco frequencies, leaving less than 20 percent available for the government to bid out to a new challenger.

“It’s really not enough for a third player to effectively compete,” Galla said in an interview.

Democracy.Net.PH said an auction would likely involve only 15 percent of the total share of telco frequencies, due to unusable “guard bands” deployed to cut interference.

Galla also questioned the quality of the frequencies that would be auctioned off by the NTC.

Some of the “newer” LTE frequencies, like the 700 Megahertz (MHz) spectrum, among the main targets of the SMC deal and portion of which was returned to the government, would be bid out, the NTC said.

But Galla said there were “zero” available frequencies in the more broadly used 900 MHz and 1800 MHz. These were all fully allocated to PLDT and Globe.

In the Philippines, Galla said the 900 MHz and 1800 MHz were “workhorse frequencies,” and were crucial in delivering basic services in data and text messaging.

“At least half of the market in the Philippines needs the 900 and 1800,” Galla said. Data from UK-based We Are Social estimated in its 2016 report that half of subscribers here did not have smartphones.

The limited quality and quantity of frequencies also meant a third player had to invest more in physical infrastructure, Galla said. Coupled with an already limited market, this made it unattractive for new players to enter here and compete against the incumbents.

Democracy.Net.PH made this case further in a paper submitted to President Duterte last week, outlining the technical reforms needed to improve the quality of internet services in the Philippines. This included “refarming and reallocating” spectrum assets.

The ICT advocacy group also said sufficient competition required at least five players with no single company controlling more than 40 percent of the market, citing a 2012 study from the Public Utility Research Center of the University of Florida.

PLDT and Globe said the objective in buying SMC’s Vega was to unlock unused assets at a time when demand for internet services was exploding.

However, they also drew fierce critics, who said it was yet another move by the incumbents to strengthen their industry duopoly.

Democracy.Net.PH also broadly backed a review of the SMC acquisition by the Philippine Competition Commission. The Court of Appeals temporarily halted that probe after PLDT and Globe sought the court’s intervention.

The PCC was looking into potential anti-competition violations before the review was blocked.

Some of the PCC’s earliest findings, however, were in sync with details found in Democracy.Net.PH’s paper.

“It is apparent that PLDT and Globe will have a substantial advantage over other potential competitors in terms of spectrum bandwidth,” the PCC wrote in its preliminary statement of concerns published last August.

It added the lack of 2G frequencies also made it “extremely difficult, if not impossible, for a new player to enter and challenge the incumbents.”

PLDT and Globe earlier announced plans to ramp up capital spending, to the tune of about $1 billion each this year, to roll-out the use of new frequencies to improve mobile internet services in the country.