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Final rules for 3rd telco out: Bidding may start November 2018

/ 10:49 AM September 21, 2018

The Duterte administration published on Friday the final rules for its new major telco initiative, setting the stage for a showdown between aspiring companies seeking to become the country’s third mobile player in a bidding exercise that could happen as early as November this year.

The release of the terms of reference (TOR), mainly through the efforts of the Department of Information and Communications Technology (DICT) as well as the National Telecommunications Commission (NTC), is a key step in the government’s goal to name a new major telco player before the end of 2018.

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Major revisions

The final TOR outlined a series of modifications from the latest draft, notably on how internet speed was given a heavier weighting in the scoring system, reflecting the government’s desire for faster internet services.

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Moreover, the final rules allowed more flexible terms on the performance security required of the winning bidder.

Under the final rules, the bidder would be allowed to post the 10 percent security, likely to amount to billions of pesos through the five-year commitment period, either as a cashier’s check, draft or irrevocable letter of credit from a local or foreign universal or commercial bank. Previously, the security would be in the form of a 10-percent cash bond or 30-percent surety bond.

The final rules noted that the performance security would also be fixed at 10 percent of the remaining capital and operational expenditures through the commitment period. This means the security will drop annually as the new major player rolls out its services and complies with its investment commitments.

November bidding

NTC Commissioner Gamaliel Cordoba said in a press conference late Thursday that with the publication on Friday, the rules would become effective on Oct. 6, 2018. By this time, bid documents could also be purchased for P1 million each.

Cordoba said the bid submission date would be set on Nov. 5 this year. This would give aspiring groups about a month to prepare their offers.

“Those who are interested should really work double time,” said Cordoba, adding that he hoped the entry of a new player would also accelerate the pace of supporting services such as e-commerce and fintech platforms.

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“We are confident we will be able to accomplish the President’s mandate to us,” Cordoba said.

Long road to final approval

The TOR has undergone multiple revisions since the first draft was released in February this year. Its final version received the blessing last week of a multi-agency oversight committee whose members, just months ago, were in disagreement over crucial items on the bid mechanics.

The method that eventually prevailed was the highest committed level of service (HCLoS) model. Under this model, the winner will be the company or consortium that offers the best population coverage, highest internet speed and investment over the five-year commitment period.

The final TOR was the result of the work of a wide array of local government agencies, the International Telecommunications Union and comments submitted by ICT advocates, non-government organizations and the third player aspirants themselves.

Criteria tweaks

These inputs also led to the tweaking of the weighting of the three criteria in the final TOR. Modified was the weighting for minimum average broadband speed, which was increased to 25 percent from 20 percent in the latest draft. The weight for national population coverage was maintained at 40 percent while capital and operational expenditures, previously at 40 percent, went down to 35 percent.

Bidders would be scored to a maximum of 500 points for their bid commitments based on those three criteria over the five-year period.

For national population coverage, the minimum requirement for the first year is 10 percent while the maximum is at 50 percent.

To illustrate how the scoring system works, bidders will receive points for exceeding the minimum but they will not win added points beyond 50 percent coverage for the first year. Offers below the minimum “shall no longer be processed further.” By the fifth year, the NTC expected a minimum coverage of 50 percent while the maximum was set at 90 percent.

The minimum average broadband speed, defined as applicable to both fixed and mobile broadband services, was set at 5 megabits per second. Bidders can receive points for every added 2 Mbps above the minimum and only up to 55 Mbps. Bids below 5 Mbps will not be considered.

In terms of capital and operational expenditures, the minimum in the first year was set at P40 billion while the maximum was at P140 billion. Bidders earn points for every P10 billion above the minimum per year.

By the fifth year, the NTC will award points for a cumulative committed spending of P140 billion up to a maximum of P240 billion.

Cordoba explained that there would be no discretion involved and the winner would be based on the point system. Provisions were also made in the event of a tie. Under the rules, if the tiebreaker mechanics still result in a draw after the third attempt, a measure based on chance such as “draw lots” could be employed.

New players interested

The goal of the selection process is to determine which company or consortium will receive a set of mobile frequencies.

It can use these to provide services such as voice calls, text messaging and mobile internet streaming, putting it in direct competition with the services offered by incumbents PLDT Inc. and Globe Telecom. Based on the final TOR, radio frequencies in the 700 Megahertz, 2100 MHz, 2000 MHz, 2.5 Gigahertz, 3.3 GHz, and 3.5 GHz bands will be awarded.

The DICT had previously identified local companies such as Converge ICT Solutions, EasyCall Communications Philippines, NOW Corp., Philippine Telegraph and Telephone Corp., TierOne and Transpacific Broadband Group as among those keen on submitting offers.

Foreign groups include China Telecom, South Korean companies KT Corp. and LG Uplus, Norway’s Telenor and United States-based AT&T. A spokesman for Hanoi, Vietnam-based Viettel earlier confirmed its interest in an email.

Qualifications

The qualifications of an aspiring third telco were mainly intact from the previous draft.

A company or consortium must have a congressional franchise that is not a related party to any dominant telco, must have no uncontested liabilities to the NTC as of Oct. 1, 2018, and must have a paid-in capital of at least P10 billion.

Moreover, it must have at least 10 years experience in provisioning, delivery, and operations of a telecommunications service on a national scale. The NTC said the definition of national scale would also depend on the rules of other countries, in the case of foreign telcos.

No sale to PLDT & Globe

As with previous drafts, the rules indicated that a third telco cannot sell or become a related party to the dominant player, or one with a market share of at least 40 percent. Should this occur at any point in time, the new major player will mandatorily return all awarded radio frequencies to the NTC “without condition.”

Moreover, the annual review of the third telco’s commitments would be conducted by an independent auditor. The auditor should be part of the latest List of Accredited Auditing Firms under Group A of the Philippine Securities and Exchange Commission, the rules showed.

The new major player also faces tough penalties for breaching its commitments more than two times, each with a six-month remedy period, throughout the five years.

Punishment includes forfeiting the performance security and the recall of radio frequencies. Moreover, the NTC will also recall any radio frequency spectrum below 3 GHz should the third telco fail to use these within the timeframe stated in its rollout plan.

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TAGS: bidding, Department of Information and Communications Technology, dict, final rules, Gamaliel Cordoba, Globe, internet speed, National Telecommunications Commission, NTC, PLDT, telco, terms of reference
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