Lawmakers have 3 weeks to extend telco giant Smart franchise

INQUIRER FILE PHOTO

MANILA — Lawmakers are racing against time to approve legislation that would extend by another 25 years the congressional franchise of Smart Communications, a telecommunications giant which corners about half of the country’s mobile market.

Their failure to do so ahead of the March 17, 2017 deadline would cast uncertainty on crucial telco services to millions of subscribers, although the telco operator said there would be no immediate disruption since it held other franchises.

Moreover, the non-renewal of its franchise would hurt investors since Smart and its owner, PLDT Inc., would “fall under general default” on loans given that a valid franchise was linked to their obligations, PLDT chief corporate services officer Ray Espinosa said during aSenate hearing on Monday.

Senators on Monday held their first hearing on Senate Bill 1302, which would extend by another 25 years the franchise of Smart to “establish, install, maintain, lease, and operate integrated telecommunications/computer/electronic services and stations throughout the Philippines for public and domestic telecommunications.”

Sen. Grace Poe is the chair of the Committee on Public Services. The bill was introduced by Sen. Juan Miguel Zubiri after the House of Representatives last January approved their version of the law.

“We have about three weeks left,” Zubiri told reporters on Monday, adding that the final Senate version would be similar to the version passed by congressmen.

“I don’t think there will be significant changes from the House version,” he said.

He nevertheless noted they have been eyeing amendments to the bill.

Zubiri said some of the items under review have been the existing exemption of taxes on the importation of certain equipment like radio telecommunications and electronic communications equipment, machinery and spare parts.

Lawmakers on Monday devoted plenty of time to another contentious issue, which was the exemption of Smart from a rule that required it to sell 30 percent of its authorized capital stock to the public via an initial public offering.

The current version of the bill provides an exemption to the rule if the company “is wholly owned by a publicly listed company.” Smart would then be exempted from this requirement since it is 100 percent owned by PLDT, which is listed on the Philippine Stock Exchange.

Johannes Benjamin Bernabe, a commissioner of the Philippine Competition Commission, said during the hearing the exemption would be unfair to competitors.

“If other franchise grantees in the telecoms market are obligated to comply, then from the PCC’s perspective, that obligation should similarly apply to Smart,” he said.

PLDT’s Espinosa on Monday defended the exemption, saying that Smart has been effectively following the “spirit” of the rule since it was wholly owned by PLDT.

He added there would be no move to list Smart as long as it remained wholly owned by PLDT, led by businessman Manuel V. Pangilinan. PLDT’s main investors include the Gokongwei family’s JG Summit Holdings, Hong Kong-based First Pacific Co. Ltd. and Japan’s NTT Group.

Still, some senators on Monday questioned that exemption, saying that companies directly listed on the PSE underwent greater public scrutiny.

In response to this,  Zubiri said he “will not go against it if they require Smart, in its franchise application, to have a mandatory listing.”

With the potential for amendments, Zubiri said he hoped lawmakers in the House of Representatives would adopt the Senate version of the bill in the interest of time.

Zubiri also insisted he would not allow disruptions to services to Smart’s roughly 60 million accounts after the previous Congress in 2016 failed to approve Smart’s franchise extension.

During the hearing, National Telecommunications Commission deputy commissioner Edgardo Cabarios explained that “only those with a congressional franchise can be given authority” to operate a telecommunications service.

“The authority is co-terminus with the franchise,” he said.

Espinosa noted that their services would not necessarily shut down in case of non-renewal by March 17 this year since PLDT had other congressional franchises, including the one held by Digital Telecommunications Philippines Inc. (Digitel), which has been operating Sun Cellular. PLDT acquired Digitel in 2011.

Espinosa warned that non-renewal of Smart’s franchise would have a broader impact on PLDT, one of two telco providers in the Philippines. Its only competitor is Globe Telecom, owned by Ayala Corp. and Singapore Telecommunications.

“There is a serious implication on both PLDT and Smart because the continuing validity of the franchise of Smart is a continuing obligation under the loan obligations of PLDT and Smart,” Espinosa said.

“The expiration of Smart’s franchise without renewal would result in defualt on all of Smart’s obligations and it would trigger cross-default on PLDT’s obligations,” he added.

Smart was granted the authority to operate a mobile cellular service in 1993. At present, it operates cell sites, cellular/mobile broadband base stations, and fixed wireless broadband base stations across 1,634 cities and municipalities across the country.  SFM