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Third telco bidding aftermath: Your questions answered

/ 08:40 AM November 12, 2018

The government’s third telco initiative, supposedly on the road to finalization with the selection of a provisional winner last Nov. 7, is heating up.

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Two disqualified bidders, Philippine Telegraph & Telephone Corp. (PT&T) and the Sear Consortium backed by Ilocos politician Luis “Chavit” Singson’s LCS Group, have filed separate appeals that could threaten the tandem of businessman Dennis A. Uy’s Udenna Corp. and China Telecom, collectively known as Mislatel Consortium, which was awarded provisional third telco status last Wednesday.

Mislatel Consortium was given provisional status because it emerged as the sole qualified bidder in the third telco race spearheaded by the Department of Information and Communications Technology (DICT) and National Telecommunications Commission (NTC).

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It took the DICT and NTC, alongside a host of government agencies, international experts and local advocates, the better part of 2018 to craft the bidding rules, which have been lauded for their transparency and objectiveness.

It came after President Duterte, fed up with what he said were poor services offered by incumbents PLDT Inc. and Globe Telecom, followed through on a promise to invite competition in the telco sector.

Still, certain qualifications of the provisional winner are being questioned, raising the specter of further delays.

The issue is multi-layered and the Inquirer has taken note of confusion among some readers. The Inquirer compiled this guide to give readers an update on what has transpired so far and to answer some burning questions its readers may have:

  1. What happened on bidding day, Nov. 7? 

There were three bidders that submitted offers: PT&T, Mislatel Consortium, and Sear Consortium.

Sear Consortium, which has foreign partners, was disqualified for having no valid letter of credit covering the P700 million bid bond. The bond is a security to ensure that only serious players will join. Sear officials said that day that their foreign bankers wanted more clarity from the NTC on the forfeiture terms.

PT&T, despite its long history as a telco, was also disqualified because it was unable to secure a certification from the NTC for the technical requirement. PT&T stumbled on the NTC’s definition of national scale, which it had questioned before the Makati City court.

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As the sole remaining bidder, Mislatel was allowed to proceed, its bid documents were opened and having been deemed qualified, was named provisional winner also on Nov. 7.

Through the NTC’s five-year commitment period, Mislatel will spend P258 billion to build a telco network, cover 84 percent of the country’s population and bring up the minimum average internet speed to 27 Megabits per second on its first year, going up to 55 Mbps in the succeeding years. Mislatel scored 456.8 points out of a possible 500 points under the NTC’s grading system.

  1. Is Mislatel the third telco? 

Not yet. The third telco selection committee will need a three-day verification period before declaring the provisional winner as the new major player.  But it doesn’t end there. Based on the rules, the selection committee needs to submit its recommendation to the NTC En Banc, which will review the resolution before issuing the so-called confirmation order.

The rules also state that the NTC En Banc may choose to withhold the confirmation “until the resolution of any petition or appeal.”

The NTC En Banc may proceed with confirming a winner if the issues raised in the appeal do not affect the declaration of a provisional winner. In this case, however, the appeals directly relate to the qualifications of the provisional winner.

  1. How long does the appeal process take? 

Based on the NTC’s bid rules, a participant may first file a motion for reconsideration (MR). Both PT&T and Sear Consortium have done so last Nov. 9. The selection committee has three calendar days to decide on the initial MR.

If the selection committee denies the MR, participants have the option to pay a non-refundable P10 million fee and file a verified petition before the NTC En Banc within three calendar days of receiving the denial from the selection committee.  The NTC En Banc has three calendar days to resolve the verified petition.

  1. What does PT&T want? 

PT&T wants to overturn the selection committee’s decision to disqualify it for lacking the technical requirement. It argued that the NTC’s clarificatory bid bulletins effectively changed the definition of what it meant to be a national player as stated under the terms of reference. Moreover, it said the clarified rules were “clearly discriminatory against Filipino telco companies.” PT&T wants to have its bid opened — a move that suggested it was confident it offered better terms than Mislatel.

  1. What does Sear Consortium want?

Sear Consortium is batting for the disqualification of Mislatel Consortium, which would then trigger a bidding failure.

Sear, through consortium member Digiphil Technology Inc., is pursuing this route because of what it claimed was a prior and still active agreement with Mindanao Islamic Telephone Co., which is the telco franchise holder of Mislatel Consortium.

Sear Consortium said Mindanao Islamic is in breach of their contract, which includes exclusivity and a right of first refusal. By nullifying the agreement between Mindanao Islamic and Mislatel Consortium, the latter would be left without a valid telco franchise, thus disqualifying it from the third telco race.

  1. Wait, what does exclusivity and right of first refusal mean? 

It means that Digiphil and Mindanao Islamic have agreed to an exclusive partnership unless both parties give consent to join other groups. A right of first refusal means that if Mislatel wanted to partner with another group, it would need to first ask the permission of Digiphil. On the Nov. 7 bid date, it emerged that Mislatel Consortium had tapped Mindanao Islamic as its telco franchise partner, however, Sear claimed no such consent was given by Digiphil.

Based on their May 2018 agreement, which was given to reporters, Digilphil paid Mislatel an initial P5 million for a seat on the board and another P5 million for the right of first refusal.

Apart from its appeal to the selection committee, Sear said it would file legal charges against Mindanao Islamic.

  1. What does franchise holder Mindanao Islamic say? 

In a statement, Mindanao Islamic confirmed that it had a previous agreement with Digiphil.

However, it insisted that their agreement made “absolutely no reference to the third telco bid” and that the deal was meant for “small projects” such as satellite communications.

In addition, Mindanao Islamic considered its agreement with Digiphil terminated as of Oct. 5 this year.

It furnished reporters with a copy of the letter, via its legal office, informing Digiphil that because the latter insisted their agreement covered the third telco bid this “constitutes a fraudulent misrepresentation on the part of Digiphil for which reason [Mindanao Islamic] cannot accept and is thus compelled to rescind their agreement.”

Mindanao Islamic, in the same letter, also offered to refund Digiphil its P10 million investment, however, the latter did not accept the amount.

  1. Was there really no agreement between Digiphil and Mindanao Islamic to bid for the third telco? What does the contract say? 

This issue enters the realm of legal interpretations.

Mindanao Islamic said it does not because the specific language mentioning the third telco bid does not exist in the contract.

However, the May 2018 agreement outlined a very broad range of activities that Mindanao Islamic and Digiphil could pursue.

This included providing broadband access to unserved and underserved areas, internet applications and content, telecommunications and ICT-related services. Moreover, it states that the parties are “likewise contemplating in the future to include the provision of cellular mobile telephony”, thus allowing voice calls and voice data traffic and “in general any other business or service that is within the scope of [Mindanao Islamic’s] legislative franchise.”

Lawyers for Sear would likely latch on to that wording to say the agreement does include plans for a third telco bid, which intends to create a new mobile player.

  1. Did Mislatel Consortium know about the Digiphil-Mindanao Islamic agreement? 

As far as we know, the Mislatel Consortium was unaware of the agreement between Digiphil and Mindanao Islamic. The latter did not feel the need to inform their partner, likely because they considered the contract terminated.

  1. Sear Consortium revealed their offer terms in the news and it seemed pretty good. What does it mean?

So far, it has no direct impact on the process. Sear Consortium’s bid remains sealed because it was disqualified. Based on the terms that were shown to reporters, Sear offered to spend a total of P540 billion, bring speeds up to 55 Mbps and cover 100 percent of the country’s population. This allowed it to score a perfect 500. If it was allowed to proceed and it passed all qualification rounds, Sear would have been named the provisional third telco.

Still, there is a precedent for Sear’s actions.

The decision to publicize the offer terms is reminiscent of the 2014 bid for the Cavite Laguna Expressway Public Private Partnership project. The bid would have been won by a venture between the Ayala and Aboitiz Groups, however, San Miguel Corp., which was disqualified due to a typographical error on the validity date of its bid bond, contested the results. SMC also revealed the contents of its bid package, which turned out to be significantly larger than the offer of Ayala-Aboitiz, prompting President Aquino to scrap the initial auction and order a rebid in 2015.

  1. What happens next? 

The NTC appeal process will play out. Based on the rules, it should have a decision on the initial batch of appeals early this week. It also remains uncertain if Mr. Duterte will step into the scene, as he said he would if the third telco process is not wrapped up in a timely manner. /cbb

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TAGS: dict, Mislatel, News, NTC, PTT, Sear Consortium, Telecommunications, third telco
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