Telecom oligopoly 1: Smart takeover of Sun

Last year, I made 3 foreign trips, all sponsored by the respective organizers of the conference that I attended. Chicago, USA in May, Sydney, Australia in September, and Jakarta, Indonesia in October. I was amazed by the greetings by the various telecommunication companies (telco) in those areas. Like these below (I'm a Globe Telecom pre-paid subscriber by the way, so these firms below should be Globe's foreign partners):

1. 5000: Welcome to Rogers Wireless! To call our customer care simply dial 211 as you do at Home. Enjoy your stay in Canada! (Detroit, 5/19/2010)

Nope, I did not go to Canada. After my conference in Chicago, I visited a Filipino friend in Michigan, his place is near Detroit, and he toured me around the Motor City. I didn't know then that only a river separates Detroit and the Canadian city of Windsor. There were greetings from US telcos I guess, but I deleted them already.

2. Vodafone: Welcome to Vodafone in Australia. To call home, dial (+)(country code)(number) or (0011)(country code)(number). For emergency services, dial 112. *charges apply. (Sydney, 9/27/2010)

3. SIM-WELCOME: For FREE wireless internet surfing at Wireless@SG hotspots, dial *186 for free account. Dial *777 for other visitor services. (Singapore airport, 10/06/2010)

4. Maxxis: Maxxis welcomes you to Msia! The current FOREX rate at 06-10-2010 is 14.0593 PHP = 1 MYR. If you need help, you can always call embassy at +60321484233. (Singapore airport, 10/06/2010)

5. Axis: AXIS welcomes you to Indonesia! Enjoy the best 3G services including data access and BlackBerry service with AXIS. To call home, simply dial +. Have a pleasant stay with AXIS. Dial 838 for AXIS Customer Care. (Jakarta airport, 10/06/2010)

6. 62811: Welcome to Indonesia! Dial 211 for your Customer Care, the same way as you do in the Philippines. Have a pleasant stay with Telkomsei. (Jakarta airport, 10/06/2010)

7. INDOSAT: Dear Globe customer, welcome to Indonesia. Thank you for choosing Indosat. Dial 001 or 008 for international calls. (Jakarta airport, 10/06/2010)

That's 5 greetings from 5 different telcos from 3 countries in 2 Asian airports in 1 day. Cool!

The reason why I also got greetings from a Singaporean and Malaysian telcos was because the conference sponsor in Jakarta booked me in Singapore Airlines. So my route was Manila-Singapore-Jakarta and back, Jak-Sing-Mla.

If one is a Smart telecom (in Manila) subscriber, one would also receive similar greetings from different telcos in Singapore, Malaysia and Indonesia.

My Filipina friend who works for a foreign publication and frequently goes to Jakarta says that telco competition there is dynamic, it's a lot cheaper to call a callphone in Manila from Jakarta than from within Manila. She also noted that most media people in Jakarta have Blackberry or Iphone or other wifi-enabled phones.

And this points us to the lack of sufficient telco competition in the Philippines. Before, there were only two players, Smart telecom (by PLDT head Manny Pangilinan group) and Globe telecom (by the Ayala group). Then Sun telecom (by Gokongwei group) came in. From duopoly to oligopoly. The latter is better than the former, and many Filipino individuals and companies shifted to the 3rd player while the original 2 players introduced various promos to retain their consumer base.

This week though, Sun-Digitel was bought by Smart. So the already no. 1, the already big Smart becomes even bigger. There were fears of the dangers of going back to a duopoly. Some sectors proposed to hurry up the creation of a Fair Trade Commission (FTC) for the government to regulate big, few players in utilities.

I am not a fan of creating a new government bureaucracy to impose another set of bureaucracies and regulations supposedly to encourage competition. What we will end up ultimately if we do that, is less competition and more regulations.

There are two BIG killers of competition in telco in this country. The first is the Constitution. For utilities, foreign equity is limited to 40 percent maximum to "protect local industries." Some sectors though have zero foreign equity allowed by the Constitution. So big, successful foreign telcos cannot come in unless they partner with other companies in the top 10 which are not controlled by the Pangilinan and Ayala groups.

The second killer of competition in local telecom is Congressional franchising. For utilities, they need to get a legislative franchise, a law from Congress, granting them a 25-years franchise to operate. This system is institutionalized monopolization of certain sectors. I heard that big time extortion happens there if a company wants to get a franchise, or if it wants to renew its expiring franchise.

There is a third but minor killer of competition, and that is certain regulations by the National Telecommunications Commission (NTC) and the Department of Transportation and Communication (DOTC). A fourth but also minor restriction are the local governments (provinces and cities), which have the power of granting (or denying) permits for construction of cell sites, among others.

So add up those four levels of regulations and it is not easy to understand why a 4th or 5th player in local telecom is almost impossible to come in. So if we put up the FTC, that will be the 5th layer of bureaucratic regulations.

Meanwhile, I am hoping that after the Gokongwei group has given up in the telecom sector, to use the money to expand on their other businesses like Cebu Pacific (airline) Robinsons (malls and real estate), etc., some really big investors will come in to become at least the 3rd player.

Government, oh government. Always playing double talk on competition when all they want actually is more regulation and more monopolization.