TelCondition Check: A weigh in on the Philippine telecommunications industry (Part 2)

Is there enough improvement in the Philippines' telecommunication services?

Spectrum Management

DICT said it recognizes that radio spectrum is considered as the lifeblood of the telecommunications industry, as it is responsible for the transmission of various forms of data, enabling phone calls, text messaging, and internet browsing for mobile phones. During the Telco Summit, Salalima iterated DICT and NTC’s recent move to bare the list of assigned frequencies, highlighting that frequencies are valuable and scarce therefore, it has to be allocated as efficiently as possible. The audit results showed that while most companies complied with regulations, a significant number has not been using or paying the requisite government fees for their spectrum holdings. With this, Salalima vowed to go after companies seeking to “make billions” by hoarding frequency assets, adding that spectrum  must  not   be  left  in  the  hands  of  private  companies  that  do   not  use  it  to  benefit  consumers.

The Information Secretary also said that it will take back such frequencies for possible reassignments to telco incumbents, PLDT and Globe Telecom or for the use of a new telco player. Salalima, who was against auctioning off frequencies for state revenues, a common practice in other countries, revealed he preferred assigning frequencies to legitimate players who can show financial capability and market expertise. According to the audit, there were 17 assignments for which assigned firms were not using the frequencies or paying the fees. Both Salalima and NTC Commissioner Cordoba said that these unused and unpaid frequencies are enough to be used by a potential third or even a fourth player.   

Globe Telecom Chief Technology and Information Officer Gil Genio said in his presentation that Globe supports the spectrum management and monitoring program of DICT and NTC.  However, Genio clarified that in the Philippines, where there is lack of cell sites, telco operators need more spectrum to   serve customers effectively.  Genio added it is different from other  countries,  where  there  is  no  site  constraint,   spectrum  slices  as  small  as  10MHz  per  technology  would  suffice.

Both Globe Telecom and PLDT claimed that Internet speed increased following their purchase of San Miguel Corporation (SMC)’s former telecom assets, which included the high-band frequencies necessary to address capacity and the prized 700 Mhz spectrum, a type of low-band frequency noted for its ability to cover wide spaces and penetrate walls at lower costs. SMC also owns physical assets such as cell sites.  

It could be noted that earlier, PLDT and Globe Telecom, Inc. filed separate cases with the Court of Appeals to stop the competition watchdog Philippine Competition Commission (PCC) who initiated a review of the transaction to look into possible anti-competitive practices as a result of the deal. PCC Commissioner Johannesburg Bernabe said in the Summit that the pending legal conflict between the telco giants against the PCC could have been the result of the lack of familiarity with what the PCC is all about. Bernabe noted the importance of the antitrust body to consumers as well as to the business sector, emphasizing that regulators such as NTC and the Energy Regulatory Commission don't have the sole mandate to look into agreements in the light of competition.

Asked when it was even legal for SMC to sell the spectrum–rightfully owned by the state–Salalima said he sees nothing wrong with the buyout as it helped the two telco players improve their services for the benefit of the public.

Cutting the Red Tape
Telco operators argued that insufficient cell sites and telco infrastructure are to be blamed for the slow internet connection. They claim that with the growing number of cell phones and users, number of cell sites could hardly meet the demand. The Philippines has around 16,300 towers compared with Indonesia’s (which shares the country’s geographic features) of over 86,000 towers and Vietnam’s 70,000 towers, based on the latest report of online community TowerXchange.

Both PLDT and Globe Telecom said they can build 1000 cell sites per year, bureaucratic red tape is culpable for the delays in constructing cell towers, thus compromising the quality of mobile communications in the country. The telcos have also complained that capital spending requirements were excessive – they have to secure 25 to 30 permits from LGUs to put up a single cell site. They noted that these permits take 8 months to be processed. Aside from LGU requirements, telcos have to obtain permits and clearances from the NTC, Department of Environment and Natural Resources and Department of Health. They are even required to seek the permission of barangay communities and subdivisions where their facilities are to be constructed. In relation to this, Globe Chief Information and Technology Officer Gil Genio shared that Globe currently has a backlog of 3,000 cell sites amid varying degrees of permitting issues despite aggressive efforts by the company to invest in network facilities. Close to 30 villages and subdivisions have also rejected Globe’s cell site proposals because of health risks, thus preventing the company from proceeding with its network expansion plans.

Other barriers which stifle the expansion of physical infrastructures include the absence of a standardized LGU fees, with “Tower Fees” ranging from P5,000 –P200,000 per tower depending on transactional cost per LGU; Homeowner Associations’ demands to have cell sites removed because of alleged health risks that are not substantiated; Right of way issues for fiber (underground, pole attachments); and DPWH operations cutting fiber cables contributing to service disruptions.

For his part, Department of Interior and Local Government (DILG) Undersecretary Austere Panadero disclosed that the department is pushing for limiting the number of days for the issuance of building permits for additional cell sites. The DILG is proposing that LGUs set policies that would ensure that the process for the building permits be completed in 16 steps for 61 days compared to the current practice of 24 steps for 98 days.

However, ICT Secretary Salalima stressed that turn-around time for the issuance of permits and licenses should be set to seven days. Salalima added that extra two more days may be given for the local chief executive to decide whether to approve or deny a permit, but if no decision has been made, the permit should be deemed approved. In line with this goal, the DICT presented a draft Executive Order (EO) that will mandate LGUs to expedite the processing of license and permits for additional cell sites within seven days. A Memorandum of Agreement pledging for cooperation in the fast-tracking and expediting of public services was also signed by the DICT, DILG, Union of Local Authorities of the Philippines (ULAP), League of Provinces of the Philippines, NTC, Philippine Chamber of Telecommunication Operators (PCTO), Globe Telecom and PLDT during the summit.

Salalima is confident that if this recommendation is followed, the Philippines will be looking at a much improved on the telco services after six months.

Moving forward
Several policy reforms are being eyed to improve the state of the Philippines’s telecommunications industry. One of which is the amendment of the two-decades-old Public Telecommunications Act (RA 7925) by including provision that will impose heavier penalties for erring telcos. Salalima said the measly penalty of P200 per day for non-compliance to NTC regulations is not a deterrent to the telcos, so an initial suggestion on the fine is to set at P1 million to P10 million per day and/or suspension or revocation of their legislative franchises and NTC licenses.  The amendments of the said law will also help NTC be more effective in regulating the industry as well as penalize players when necessary.  In line with this, NTC is urging Congress to give them more “teeth” in imposing sanctions on existing telco players and compel them to improve services and address the country’s slow internet connection.

Stakeholders also seem to agree that it is about time to consider the removal of the protectionist clauses in the Constitution. Peter Wallace pointed out that the Philippines may need to relax the 60-40 rule on foreign ownership to keep up with globalization trends and to not discourage foreign investors from entering the market. NTC Commissioner Cordoba on the other hand said there are four to five players that are “firmly” looking at launching telco services to compete with the two industry leaders. However, Cordoba added that these investors would most likely see an obstacle to their pursuit: the 60-40 ownership provision in our Constitution.

In relation to this, Rep. Joey S. Salceda of Albay discussed his filed House Bill (HB) 446 which seeks to amend the statutory definitions of “public service” and “public utility” under the 80-year-old Public Service Act, or Commonwealth Act 146. Rep. Salceda said that his bill aims to open telecommunications, transport and power industries to full capitalization by foreign players.

Salceda added that his proposed amendments will clarify the ambiguities surrounding the statutory definitions of public service and public utility, which had enabled oligarchs to monopolize telecom sector for a long time at the expense of consumers. These ambiguities concern competition and foreign investments being undermined, because of limitations that should only apply to the operation of public utilities are also often applied to all public services

Beyond the DICT-initiated memorandum of agreements, telcos are also eyeing for the amendment of the Local Government Code to ensure rationalization of the permit system to minimize bureaucratic delays and strengthen stakeholder support for the rollout of network infrastructure to more areas in the country. Telcos are also looking forward to the passage of a legislation that will facilitate ease of doing business in the country.

Lastly, a suggestion to adopt an Open Access Model was also raised.  Genio of Globe said that open access will allow sharing of physical   infrastructure across   multiple operators which can contribute   significantly to   improving cost   effectiveness.  However, he noted that tower  sharing  without  new  sites  will  not  alleviate   congestion  as  current  cell sites  are  in  same  locations. A corruption-free and successful implementation of the National Broadband  Plan   will  help  the  industry make its services available to the public including far-flung communities, unreached by telcos.

Salalima said the National Broadband Network will cost about P75 billion and may be up and running by 2018. He said DICT is already receiving proposals from interested suppliers which includes three Chinese firms and “some Europeans,” among others.