A Philippine Competition Commission (PCC) official agreed with business groups that the telecommunication sector should be excluded from services with foreign equity restriction as it is not a natural monopoly.
PCC Commissioner Johannes Bernabe, in an interview with the BusinessMirror, said that telco services can be fully liberalized in terms of ownership as it is possible for many players to exist in the market.
“This limitation [40 percent equity restriction] is based on a factual determination that a service is a natural monopoly; and as such, that it does not make economic, commercial or technical sense to have two entities providing a service in the same territory. Telco services clearly do not fall into this category,” he explained.
For mobile telco services, for example, Bernabe said that many entities may provide services given their frequency allocation.
He said that it “does not make sense for a certain bandwidth” be assigned to few players only, explaining that about four providers can be given this.
“Even fixed line telecommunications is not a natural monopoly as the existing incumbents in the Philippines show that parallel infrastructure can be laid down and commercially and profitably utilized,” he said. “The third telco recently granted [Dito] and other expanding regional telcos [Converge] show that there can be further overlaps and that the market can accommodate these redundancies.”
His statements came after the opposition of the foreign and local business chambers to tag telco as a public utility—which is subject to 40 percent foreign ownership restriction—under the amendments of the Public Services Act (PSA).
The bill identifies the distribution of electricity; transmission of electricity; and water pipeline distribution systems and sewerage pipeline systems as public utility. But other public services may be considered as public utility given certain criteria, including them being a natural monopoly.
The business chambers said that fully liberalizing the telco sector will allow further foreign direct investments, which are key to improve Internet connectivity in the shift to digitization amid the pandemic.
As such, business groups cautioned against placing foreign ownership restrictions on many services sectors as it may deter investments, defeating the purpose of PSA amendments. The bill amending PSA seeks to limit the definition of public utility, which effectively removes foreign ownership for sectors outside the scope.
“The national security concerns often cited to maintain the equity limitation are adequately addressed by the safeguards,” Bernabe said. For example, public services in critical infrastructure with foreign ownership are subject to vetting by the National Security Council and foreign state-owned firms are not allowed to have a stake in same infrastructure.
