Tuesday, May 24, 2011

The need for a comprehensive anti-trust law - in the spotlight again

"A tale of two telecom industries"
by Cielito F. Habito
Published 24 May 2011 in the Philippine Daily Inquirer

(Original article also available online here).

"THERE ARE remarkably parallel developments transpiring on both sides of the Pacific in two very different economies: the Philippines and the United States of America. Here’s the general scene: A giant telecommunications company has moved to acquire (and thus merge with) another competitor, threatening to achieve a commanding share of the industry, thereby reducing competition therein.

In the US, American Telephone & Telegraph (AT&T) has announced a $39-billion takeover of T-Mobile USA, in a merger that would make the company the dominant player in an industry that has heretofore had four major players. Industry rival Sprint Nextel Corp. is fighting the move, claiming that the merger threatens its very existence as a standalone company, which could bring back the old telephone monopoly (of the then giant AT&T) that US regulators broke up in 1984. Since the AT&T-led American Bell Telephone Co. opened the first telephone exchange in 1877 in New Haven, Connecticut, this single firm had controlled the American telephone industry. The forced break-up led to a lively competition that resulted in lower costs and wider choices for American consumers.

In a parallel development here at home, the Philippine Long Distance Co. (PLDT) has acquired a controlling stake in Digitel Corp. which operates Sun Cellular, whose entry into the erstwhile duopoly of PLDT/Smart and Globe had dramatically transformed the nature of pricing in the industry, to the benefit of consumers. Just as Sprint Nextel is unhappy in the US, so is Globe in the Philippines as it faces the prospect of being relegated to a small minority share (30 percent) of a two-player market. It is arguing for a more level playing field with the National Telecommunications Commission, inasmuch as PLDT would now own a disproportionate share of the telecommunications frequencies on which the companies may transmit their phone services.

Both mergers have yet to be cleared by their respective governments, even as their merits and demerits have been the subject of active public policy debate. But there’s a key difference between the two stories: the legal and institutional framework within which government clearance for the mergers is being deliberated is quite different in the US from the Philippines. In the US, there has long been a strong law against cartels and monopolies, through the Sherman Antitrust Act of 1890, later reinforced by the Clayton Antitrust Act of 1914. The purpose of the law is to prevent the combination of business entities that could potentially harm competition, such as monopolies or cartels. At the time of its passage, “trust” was synonymous with monopolistic practice (which is no longer necessarily the case today). This was because the trust—a centuries-old form of contract whereby one party entrusts its property to a second party— was a popular way for monopolists to hold their businesses, and a way for cartel participants to create enforceable agreements. Internationally, the more common name now for such laws is “competition law” or “competition policy.”

US antitrust laws declare it a felony for any person to monopolize or attempt to monopolize any part of trade or commerce, or to combine or conspire with any other person or persons to restrain trade or commerce, whether in domestic or foreign markets. Other practices deemed illegal include price discrimination between different buyers if such discrimination tends to create a monopoly; exclusive dealing agreements; tying arrangements; and mergers and acquisitions that substantially reduce market competition. The AT&T and T-Mobile merger could fall under the last, giving the US government explicit basis to stop it if it can be established that this will indeed reduce market competition.

The US Senate is currently deliberating on the issue, and some lawmakers have indicated public skepticism over AT&T’s claim that T-Mobile was “not an important competitor,” in an apparent attempt to play down the significance of its move. The US legislators have noted, for example, that T-Mobile often undercuts the prices of AT&T and current industry leader Verizon Wireless—something anyone of us roaming with our cell phones in the US can readily confirm (check your bill: a text message sent home from the US via T-Mobile costs P20, but one sent through AT&T costs P25).

In a similar manner, Sun Cellular had constantly been undercutting the prices of PLDT-Smart and Globe, forcing the latter two into offering the “unlimited” packages that it first introduced.

Whether in the US or here, it seems that the strategic response of the more dominant player was to buy out the underpricing competitor. And just as bystander Verizon in the US must privately welcome the elimination of a “price-spoiler,” Globe must also find some private satisfaction in the elimination of a player that had spoiled the profitable party (i.e., before Sun entered the picture years ago).

Still, the Philippines does not have the comprehensive competition policy that the US has long had, to give it a strong legal basis to stop the PLDT-Digitel merger. What it has are piecemeal laws and executive issuances that had opened previously monopolized or protected markets, especially those introduced by President Fidel V. Ramos in the 1990s to break open prominent monopolies and cartels, notably in telecoms and domestic airlines. But many remain, such as in cement, domestic shipping, port handling services, and other key industries. It is high time Congress acted to correct the glaring deficiency.

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E-mail: cielito.habito@gmail.com"

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