Drop plan on Chinese telco, IBON urges Duterte

November 30, 2017

by IBON Foundation

Unreliable services including slow internet connection amid high costs will not necessarily be solved by allowing a foreign player in the country’s telecommunication (telecom) industry. Research group IBON made the statement following Malacañang’s announcement last week that the President has invited China to field in its own telecommunication company (telco) to supposedly challenge the duopoly of the Philippine Long Distance Telephone Company (PLDT)-Smart Communications and Globe Telecom.

IBON urged President Rodrigo Duterte to reconsider the plan pointing out that the poor services that consumers of telcos endure today arise from the defective policies of privatization and deregulation of the telecom sector in the past three decades. These paved the way for the consolidation of market power by PLDT and Globe. Further liberalization of the industry by letting China or any other foreign entity, for that matter, to operate a third telco could only create additional problems for consumers and even complications for national security, it said.

Despite their very high profit margins, the reigning telco giants are apparently not investing enough in infrastructure development to meet the growing needs of consumers and improve their provision of telecom services, especially in the country’s remote areas which are less commercially viable. From 2000 to 2015, the average profit margin of PLDT is 40.2%; Smart, 50.4%; and Globe, 46.5 percent. For comparison during the same period, the average profit margin of the country’s biggest 1,000 corporations is only 21.5%, the group said.

IBON noted that the 2017 report of the United Nation’s (UN) International Telecommunication Union (ITU), which it released this month, shows that the Philippines’ Internet and Communications Technology (ICT) Development Index (IDI) ranked 101st out of 176 countries, a slot lower than its 2016 ranking (100th). IDI measures the level of development of, among other indicators, ICT infrastructure in a country. The Philippines has fallen substantially in IDI ranking in the past two decades while the telcos are reaping high profit margins. In 2002,  for instance, it ranked higher at 79th out of 154 countries surveyed by the ITU. This means that other countries are developing their telecom sector much faster than the Philippines does.

Another aspect that must be considered in allowing a foreign company to operate a telco is the issue of national security, IBON said. According to a 2006 study on the US telecom industry published by the US National Academy of Sciences, telecom “provides vital infrastructure for national security” covering natural disaster, homeland security, and communication of vital intelligence, among others. The study added that there are “potential risks associated with a reliance on overseas sources for innovation, technologies, applications, and services”.

To prepare the policy environment for greater telecom liberalization, the Duterte administration is about to issue the 11th Foreign Investment Negative List (FINL) that will ease restriction on foreign investment in public utilities, including the telecom sector, among others.

Malacañang also identified as one of its urgent and priority legislative measures the amendment of the Public Service Act that will exclude telecoms from what are considered as public utilities and thus be exempted from the existing constitutional restriction on foreign ownership. This will lead to increased foreign participation in the supposedly “national” telecom sector with already existing limited foreign shares in the duopoly of PLDT (Salim group) and Globe (Singapore Telecom, Inc.).

Liberalization of the telecom sector is inconsistent with the stated goal of the Duterte administration to make ICT infrastructure and services “available, accessible, reliable, trusted, and affordable,” IBON stressed. It urged Malacañang to instead increase the state’s role in the telecom sector not just in the area of regulation but in actual participation in the industry. As disclosed by the National Telecommunications Commission (NTC) itself, the Philippines is the only country in the Association of Southeast Asian Nations (ASEAN) where the government is not involved in the construction, ownership and operation of telecom infrastructure. Telcos in ASEAN are either fully owned by the state or with substantial government stake. ###