Favoring a third telco is bad for competition

The government may have the right intentions in introducing a new player in the telecommunications sector to spur competition and improve services. But rolling out the red carpet for the country’s third major company runs counter to the government’s aim of leveling the playing field.

The possibility of a third major telecom player in the Philippines is perhaps the most-awaited news in the corporate world. The public has read and heard countless public announcements and press releases about the impending third player. The deadlines have come and gone, however, and there is still no clear frontrunner in sight. This only goes to show how significant the industry’s entry barriers are, and how rolling out is easier said than done.

These barriers, be it capital intensity, lack of government support, competition, or even bureaucratic government requirements, bear out the need for the state to do its part in helping the industry and improving the national infrastructure. The much-needed support though, must not favor one company at the expense of the others.

It is unusual to see how the government is throwing all its support to a possible new player, while the current and past telcos have had to fight through intense competition for years—struggling for a share of the market and for state assistance.

The current administration is arbitrarily choosing or dictating which specific foreign country’s telecoms operator it wants to come into the Philippines. This brings up a number of nagging questions. Why specifically China? Why name favorites this early? Is this a case of contract-dealing with possible conflicts of interests or ‘commissions’ to be gained?

Security risks

The security risks presented by Chinese telecoms companies in the Philippines are well documented. It is also worth noting that China’s three major telecoms companies—China Telecom, China Unicom and China Mobile—are all state-owned and that there have been 76 state-sponsored cyber attacks linked to China since 2005, 75 of which are primarily espionage in nature while 44 state-sponsored attacks targeted the United States.

The threat is very real for the Philippines and its investors, especially given Manila’s opposing claims with China on the West Philippine Sea and the presence of many US companies outsourcing or running offices in the Philippines.

Sen. Leila de Lima has already called for a Senate investigation into the ongoing selection process. She recently filed Senate Resolution No. 603, expressing “serious concern over the current administration’s apparent partiality to pick a telecoms firm from China as the country’s third telecommunications carrier.”

She stressed the need for greater transparency in the selection process to ensure that all factors were considered, including the matter of national security, especially since the Department of Information and Communications Technology had been instructed to pick a Chinese telecom company.

Another issue is with regard to spectrum. While many have chimed in on whether or not there is enough spectrum left for a third player, they conveniently miss the fact that this would be the first time anywhere in the world where a new player receives 300mhz of spectrum without a single customer to serve.

Just recently, the government warned that it would reclaim unused radio frequency spectrum from non-operating players. If the assigned companies were not using the spectrum, the government would simply recall it for use by a third or fourth player. So basically, the government will recall unused spectrum and gift it to a company that would not be able to use it either.

Too many concessions

The potential third telecom player will be a privileged competitor. But with the new entrant nowhere in sight or unable to prove itself thus far, all the unreasonable bending-over-backwards by the government may be all for naught.

Those who study the industry know that the popular storyline for the Philippine telecoms market—one of a duopoly with little or no competition—is far from the reality that the companies themselves actually experience. The industry has had a history of tough competition where companies struggle to stay alive against threats from all sectors.

If the government continues to favor one over the others, it will take the industry farther away from that level playing field it is supposed to foster and safeguard.

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Topics: Philippines , Business , China , Telecommunication , Philippine telecoms market , West Philippine Sea
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