IS THERE A BASIS TO GIVE PLDT, GLOBE ASSETS TO 3RD TELCO?

By Philip M. Lustre Jr.

IT was not an attempt of a shakedown to milk the two telecommunications conglomerates – Globe Telecom and PLDT Group - of their resources. In his State of the Nation Address on Monday afternoon, Rodrigo Duterte said he wanted the expropriation early next year of their assets ostensibly to be given to his Chinese friends, who are having a hard time to putting up Dito Telecommunity, the third telco to compete against the two giant telcos.

Camouflaging his intention of their expropriation by saying “the people wanted improvement of the services” of the two telecommunications giants, Duterte appeared bent to deliver the coup de grace in 2021 by strongly hinting to Congress that it would play a role in the enactment of a major legislation that could lead to their expropriation.

Two questions: What is current situation of the third telco to warrant the expropriation of Globe and PLDT assets? Is there a basis – legal or otherwise - to give PLDT, Globe assets to the incoming third telco - Dito Telecommunity?

Expropriation is defined as the act of a government to claim privately owned property against the wishes of the owners, ostensibly to be used for the benefit of the general public.

On the first question, Dito Telecom is currently behind schedule on the rollout of its infrastructure. It is near to impossible to meet its obligations, commitments, and requirements specified in its Certificate of Public Convenience and Necessity (CPCN), which serves as the contract between the government and the telecom firm.

Addressing a Senate public hearing on July 1, Adel Tamano, chief administrative officer, said Dito Telecom was having a hard time fulfilling the terms and conditions specified in its CPCN. Tamano cited the adverse effects of the pandemic caused by the novel coronavirus for Dito Telecom’s inability to meet its commitments in the CPCN. He blamed the delay to movement restrictions caused by strict lockdown measures from mid-March until the end of May 2020.

“The COVID-19 and lockdowns prevented us from our full rollout. With the subsequent easing of different lockdown situations, we are doing our best to get back on track,” Tamano said. Also, the pandemic has affected China, which is Dito Telecom’s main source of technological knowhow and raw materials, including the rolling stocks for its construction and infrastructure works.

Under its CPCN, Dito Telecom’s “technical launch” was scheduled on July 7 this year, but it has to be postponed in November this year. No date has been fixed.

The CPCN requires Dito Telecom to build initially at least 1,300 cell towers nationwide and provide digital service at a speed of 27 Mbp. According to Tamano, Dito Telecom has built 300 cell towers, or a backlog of 1,000 cell sites.

Tamano has promised to speed up the construction of the backlog, but he did not give any assurance of its compliance by November. The original plan was to build at least 1,600 cell towers by July, but this was lowered to 1,300. Overall, Dito Telecom has planned to build 2,000 cell towers by end-2020.

If Dito could build the promised cell sites and provide telecommunications services to at least a third of the country, it is scheduled to provide partial commercial operations by March next year and full commercial operations by July 1, 2021, or the first year of its operations.

According to its terms of reference of its CPCN, Dito Telecom has promised to provide by the end of its fifth year of its commercial operations, telecommunications coverage to 84 percent of the country’s population at a minimum average speed of at least 55 mbps.

Then DICT Undersecretary Eliseo Rio Jr. said Dito Telecom might not invoke force majeure, or protection due to unforeseen events like the COVID-19 pandemic, should it miss its rollout targets. Press reports said the bidding terms of reference allow a grace period in case of a delay in rollout. Section 14 of the terms of reference allows the telecom firm two grace periods of six months each within the five-year commitment period.

The government would not grant special extensions to its rollout commitments despite the COVID-19 crisis that keeps on disrupting the global supply chain. Rio said. Dito Telecom could not seek reprieve by invoking force majeure, or protection due to unforeseen events such as the pandemic, because this was not included in the terms of reference.

Dito Telecom, backed by China Telecom and the group of Davao City-based businessman Dennis A. Uy, is to hold its twice postponed technical launch by November. Its failure to meet its commitments would allow the national government to seize its P25.7-billion performance bond and recall assigned radio frequencies. The terms of reference, however, allow a grace period in case of a delay in its rollout, but not in the schedule to go into commercial operations.

It’s dubious if Dito Telecom was “on track” to meet its commitments amid disruptions caused by the pandemic and the three-month Luzon lockdown. It was reported to have started searching for “alternative sources” of technology and raw materials to start their operations after its deliveries from China got stuck. The firm did not explain any details for alternative sources of technology.

It appears acquisition of existing telecommunications infrastructures and other assets is the most plausible option. The acquisition of Globe and PLDT assets would enable Dito Telecom to meet its obligations under its CPCN.

This is not the only issue that confronts Dito Telecom. Policy issues in the United States could strike Dito Telecom, adversely affecting its planned commercial operations next year. Dito Telecom would have a hard time operating in the country once the China Telecom is banned in the US since there will be a problem in the interconnection in cyberspace.

Several US Departments had encouraged the Federal Communications Commission (FCC) to revoke China Telecom (Americas) Corp’s authorization to provide international telecommunications services to and from the US. “This recommendation reflects the substantial and unacceptable national security and law enforcement risks associated with China Telecom’s continued access to US telecommunications infrastructure,” said the group of departments, which include State, Justice, Defense, Homeland Security, and Commerce, in a statement, along with the United States Trade Representative, in a statement regarding the filling at the FCC recently.

The call is in the midst of the continuous scrutiny being done by FCC to China Telecom in an investigation that was started last year. The US subsidiary of the Chinese state-owned telecommunications company holds the license to grant service in the US since 2007. The FCC united to vote in May last year to deny the request of another state-owned Chinese telecommunications company, the Mother mobile, to grant service in the US.

According to FCC chairman Ajit Pai, the commission was able to determine following the vote that China Mobile was controlled by the Chinese government. It was mentioned in a statement that there could be danger in the possibility of the Chinese government using the approval of the FCC to conduct espionage or spying against the US government.

The telecommunications companies of China are thoroughly being scrutinized by the US. Just last year, lawmakers urged FCC to review China Telecom and the other Chinese telecommunication company, the China Unicom. Also last year, the Trump administration placed Huawei Technologies – the Chinese telecoms company that is the global leader in next-generation 5G technology, on an “entity list” and barred it from buying critical components from its American suppliers.

The US has also urged other governments around the world to exclude Huawei from developing their 5G infrastructure, citing national security risks. In a recent filing, the departments contended that the Chinese government has “ultimate ownership and control” of China Telecom and the company’s US operations.

Such ownership might allow Chinese government entities “to engage in malicious cyber activity enabling economic espionage and disruption and misrouting of US communications” and “provide opportunities for increased Chinese government-sponsored economic espionage,” according to the filing.

The departments also contended in their filing that China Telecom had made inaccurate statements about where its US records were stored, and that it had made inaccurate statements to US customers about its cybersecurity and privacy practices that may fall short of complying with US law.

Concerning the second question if expropriation of Globe and PLDT assets has legal basis, the big answer is none. The 1987 Constitution allows expopriation of private landholdings and ill-gotten assets, but is quiet on private assets to be given to another private entity, specifically a favored one.

The Constitution allows expropriation proceedings on landholdings for public use under its power of eminent domain. In fact, RA 10729, or the Right of Way Act, has been enacted during the incumbency of Benigno Aquino III mainly to hasten construction of road projects and other infrastructures.

But it could not be used to acquire private assets to be given to a favored third party. Expropriation proceedings for PLDT and Globe Telecom assets could not be invoked because they have been rightfully acquired and do not in any way constitute ill-gotten wealth.

Acquiring their assets mainly because they have failed to provide “adequate services” is a weak argument and does not rest on solid legal, albeit moral, grounds. Duterte does not possess the legal trumpcard to proceed with what he had announced in his SONA. They could be regarded as ramblings of a confused mind that has gone berserk.

Acquiring PLDT and Globe Telecom assets to be given to the favored Dito Telecom is a highly politicized move that would only destroy the reputation of the Philippines in global business. It constitutes a barrier to entry; it would discourage potential investors to enter because the country’s rules on investments do not appear sound, fair, and impartial.

At best, Duterte could only allow the entire processes to unfold without fear or favor. If Dito Telecom could not meet its commitments and obligations, the national government should acquire the P25.7 billion which the third telco has earlier posted as performance bond.

Shortcutting the entire system to give a free ride to his Chinese friends would not work. It would certainly bring disrepute to the Philippines. It would only damage its reputation in the international community.