By Philip M. Lustre Jr.
THEY are doing it the wrong way.
Because the Duterte administration has started on the wrong foot, it would be difficult for the government to select without hitches the third telecommunications player. It would also be difficult too for the third telco player to start operations within this year or even next year. The regulatory requirements are firmly in place.
Hence, the circumvention of the legal processes could only create future problems for the third telco firm, particularly when President Rodrigo Duterte is no longer in power. Cutting corners is the not the way to do it. It could lead to future disasters.
Consider the following:
First, the proposed creation of a consortium of foreign and local telecommunications to establish and operate the third telecommunications player to compete with the duopoly of PLDT Group and Globe Telecom is not the right approach. What the law says is that the telco player should be a joint venture firm, where the foreign firm owns at most 40 percent of the total equity.
The letter, spirit, and intent of the 1987 Constitution is specific. Foreign firms could only own up to 40 percent of the equity of a public utility, including telecommunications; the rest belongs to local firms. Besides, forming a joint venture firm would take at least six months. Prospective partners have to perform due diligence studies on the corporate fitness, financial muscle, technological and technical competence, and business standing and reputation of involved companies.
Second, the President cannot just issue an executive order to allow the third telco player to operate. It could later be questioned and declared inexistent from the start. Under the law, the telco player has to possess a congressional franchise and a certificate of public convenience and necessity (CPCN) from the National Telecommunications Commission (NTC), the quasi-judicial body that regulates the entry and operations of telecommunications firms in the country.
“We can’t just rush it, if we want a strong telco that can compete with Globe and PLDT,” said Undersecretary Eliseo Rio Jr., the concurrent officer-in-charge of the Department of Information and Communications Technology (DICT). Based on estimates, the new telco player should have this minimum capital structure: authorized, P160 billion; subscribed, P40 billion; and paid-up, P10 billion.
Finance Secretary Carlos Dominguez III earlier said in his Twitter account that the entry of the third telco firm could not be rushed because the prospective firm would need at least P200 billion to start up and compete with PLDT and Globe Groups.
Independent analysts said the third telecom player would require at least P500 billion ($10 billion) for the first five years, but added the heavy financial outlay could be a disincentive for prospective foreign investors because of the uncertainty of recovering the amount within a reasonable period of time. Even China Telecom was reported to have second thoughts of entering the Philippine market.
Fast track entry
The President has directed state agencies to hasten and facilitate the entry of the third telco player, which, he said, should compete with the PLDT-Globe duopoly. In what could be perceived his unfamiliarity on the dynamics of the local telecommunications sector, he wanted the third telco player to start operations by March this year. This was something that would not happen as subsequent developments would show.
Duterte was partial to the state-owned China Telecom to be the foreign firm of the third telco player in joint venture – or consortium - with local firms. But forming a behemoth firm to compete with two conglomerates is not that easy. Involved parties have to engage in a maze of regulatory requirements.
These are not all. Certain regulatory issues have to be laid down even before the third telco player could be formed to enter the Philippine market. The DICT is currently working on the guidelines to use for the selection of the third telco player, although it has been widely perceived these guidelines are all pro forma to suit the entry of the favored China Telecom.
Even Rio would not readily talk on the guidelines, except to stress that the prospective third player should be totally a separate entity from both Globe and PLDT. According to Rio, the third telco firm would not be named before the July 24 State of the Nation Address (SONA) of the President. Most likely, it would be done in August at the earliest. What the President would announce in his SONA are the potential bidders, but not necessarily the winning bidder.
Press reports said four local firms in “consortium with foreign telecommunications firms” have expressed interest to bid as the third telco player. Rio said the foreign firms are China Telecom, LGU+ of South Korea, KDDI Corp. of Japan, and certain unidentified firms from Vietnam and the United States.
“They are still waiting for the final terms of reference (TOR) before they really come out. We are getting interest from four serious interested consortia with foreign partners. Until we have them really confirm, we cannot discuss them,” said Rio, who was in Cebu said in a forum in Cebu City.
Consortium approach
The consortium approach Rio has been saying would not work as Philippine laws and implementing rules and guidelines do not allow consortia of whatever kind to enter into contracts with government. Under the law, only natural persons and “artificial persons” like partnerships and corporations could enter into contracts. A joint venture firm is regarded a partnership and, ergo, could enter into a contract with the government.
Why Rio was using the word consortium in his public pronouncements is not known. Consortium is too loose a word for big ticket projects like the third telco player. The looming project requires a firmer, solid word to describe. The law requires a joint venture between foreign and local partners so that a state contract in the form of a Certificate of Public Convenience and Necessity could be issued.
It would be wrong to say that a mere presidential approval, or the DICT’s, would be enough for the third telco project to operate. It has no legal power, according to legal pundits. Hence, a presidential directive through an executive order, or whatever piece of paper would be insufficient to satisfy the regulatory requirements.
The third telco firm would need a congressional franchise. Aside from the congressional franchise, it needs a CPCN. The NTC, as the quasi-judicial regulatory agency that deals with the telecommunications sector, would have to conduct public hearings to find out the fitness of the third telco player. By satisfying the requirements – legal, financial, technological, marketing, among other things – the NTC could issue the CPCN.
Two groups are being prominently mentioned as local partner of China Telecom: the Buddy Zamora group, which has acquired PT&T, a local firm; and NOW, the Manny Villar firm, which has acquired a congressional franchise. PT&T has a congressional franchise that dates back to RCPI, its old name. PT&T has experience in telecommunications business, but NOW has none.
Incidentally, forming a joint venture firm would take at least 6 months; it could go and drag for a year or two, as in most big firms. China Telecom and its local partner would have to conduct due diligence studies; each party has to determine the fitness of the other party as a joint venture partner.
Each party has to study their corporate and financial standing, prestige, technical and technological competence, and other legal, technical, and financial issues before any joint venture deal is sealed. They have to look into each other’s financial statements and corporate history. They cannot afford to have a half-baked joint venture pact.
Overall, the third telco would need at least two years to operate fully. After satisfying the regulatory requirements in the next 12 months, it has to put the infrastructure in the next 12 months so that it could operate fully. The infrastructure issue is another matter to consider.
