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MANILA, Philippines – (UPDATED 6:15 PM) The National Telecommunications Commission (NTC) on Wednesday approved the share-swap deal allowing Philippine Long Distance Telephone Company (PLDT) to acquire a majority in Digital Telecommunications Philippines, Inc. (Digitel), subject to certain conditions.
According to PLDT’s disclosure to the Philippine Stock Exchange (PSE), the NTC had approved the joint application for regulators’ approval, filed by the formerly rival telcos, “for the sale and transfer of initially approximately 51.55 percent of the outstanding capital stock of Digitel to PLDT, pursuant to Section 20(h) of the Public Service Act.”
The disclosure listed the conditions that regulators set for approving the transaction, which PLDT chairman Manuel V. Pangilinan once described in a policy speech as a “game-changer” in the telecommunications industry, something he said was necessary to allow the sector to compete and provide what people need amid evolving challenges locally and globally.
The conditions set are: one, for Digitel to continue the vastly popular “unlimited” offerings that it pioneered in through its Sun Cellular brand, and which have been credited with making mobile service rates very competitive; and two, that PLDT will return to NTC the 10 MHZ 3G frequency of Connectivity Unlimited Resource Enterprises (CURE), a unit of SMART.
The share swap, valued at P69.2 billion, involves PLDT’s acquisition of a majority interest in Digitel from JG Summit Holdings Inc. and other shareholders of Digitel.
As a result of the deal, Orland Vea, concurrent Smart chief wireless advisor, is now the president of Digitel and its cellular unit Digitel Mobile Philippines, Inc. (DMPI). Vea replaced James Go, who got a seat on the PLDT board.
Meanwhile, PLDT chairman Pangilinan was also appointed chairman of Digitel and DMPI.
“PLDT is extremely pleased to welcome Digitel to the PLDT Group. PLDT will continue to provide its consumers with the best value in terms of price, quality and range of products and services and we have committed to continue offering “unlimited” type of services in fulfillment of this promise. In addition, Sun subscribers can benefit from PLDT’s extensive infrastructure and varied service offerings,” Pangilinan said.
Digitel’s Go said the transaction “ensures that Digitel remains in good hands. Together, the PLDT-Digitel Group will be well-positioned to compete not only with formidable existing competitors but with well-funded new entrants as well.”
Lawyer Ray C. Espinosa, PLDT head of regulatory and policy affairs, said the NTC decision will yield substantial benefits for the consumers and the country at large. "The approval reflects the competence and maturity of the NTC as a regulator, as it ably balanced the different interests involved in a way that would allow the parties to proceed with the deal and the NTC to address competition related issues," he added.
Frequency divestment plan
Specifically, the PLDT disclosure to PSE quoted the details of the CURE frequency divestment plan as approved by regulators:
a) CURE will sell its Red Mobile business to Smart Communications, Inc. (SMART), consisting of its subscriber base, brand and fixed assets;
b) SMART will sell all of its rights and interests in CURE whose remaining assets will consist of its congressional franchise, the affected frequency and related permits;
c) PLDT will have a period of nine months to effect the orderly migration of CURE’s customers and an orderly transfer of CURE’s assets to SMART with the least disruption and degradation of service to CURE’s existing customers. Such nine-month transition shall start from the date of promulgation of the NTC decision, October 26, 2011.
d) The divestment sale of the CURE frequency will be made under the supervision and control of the NTC and will be effected through competitive bidding among duly enfranchised and qualified public telcos. A minimum price will be prescribed to allow SMART to recover its investment.
e) The divestment sale will be done within six months after the 9-month transition period, provided the October 26 decision shall have become final and executory.
The disclosure signed by PLDT corporate secretary Ma. Lourdes Rausa-Chan said that with the NTC green light, both telcos “can now proceed to complete the transaction (the full terms of which were announced and contained in our disclosure to the Exchange on March 29, 2011), and allow Digitel to have access to the expertise and resources of the PLDT Group so that Digitel can deliver even better, more extensive and affordable” services to customers.
New total spectrum for PLDT-Digitel
With PLDT losing the 10Mhz of CURE frequency, the Group’s total spectrum is now at 25Mhz, broken down into Smart, 15Mhz and DMPI, 10Mhz. NTC director Edgardo Cabarios said, “the 25Mhz frequency is very much enough for an operator to run a 3G network.” Globe has 10Mhz.
PLDT’s announcement two weeks ago that it was open to giving up the 3G frequency of CURE had been seen as a breakthrough in the long-drawn approval process at the NTC, where hearings had dragged for months as rival telcos, chiefly Globe Telecom, and certain consumer groups raised concerns about monopoly and risks of predatory pricing, with the feared discontinuance of Digitel’s market-changing “unlimited” service and rates.
As a result of the long-drawn hearings, the closing date for the transaction was reset twice by PLDT and Digitel: from the original June 30 to July 31, then to August 26. For a time there was talk the whole deal may simply be scuttled.
Globe, which had earlier courted Digitel but failed to swing a buyout because initial talks fell on price issues, had said that if the PLDT-Digitel deal goes through without at the very least, a fair divestiture of spectrum assets, “the resulting PLDT behemoth will hold lopsided majority of all available telephony frequencies. This should be cause for everybody’s grave concern.”
The PLDT, specifically regulatory and policy affairs head Espinosa, had repeatedly assured regulators that the resulting entity from the share swap would not mean a shift to monopolistic practices, or an end to the consumer-friendly “unli” offers of Sun Cellular.
In a policy speech, Pangilinan also stressed that far from “killing” Sun Cell, as rivals were then claiming, PLDT would in fact use its modern, widespread infrastructure to expand the services of Sun, thus benefiting more people.
Pangilinan is the chairman of TV5, where InterAksyon.com is the online news portal. Espinosa is the network’s president and CEO.
No monopoly, NTC assures
NTC chief Gamaliel Cordoba on Wednesday assured the public the ruling will not result in a monopoly, or cause unhealthy business competition that will harm millions of telecom users.
Cordoba said his agency initiated steps to prevent abuse of market power by imposing the conditions on the transaction.
“The NTC is pushing for the promulgation of the Rules on Significant Market Power (SMP) providing for stricter regulations aimed to discourage abuse of dominant suppliers,” Cordoba said, adding that the rules will be issued within the first quarter of 2012.
The Commission is also working to finish by yearend the guidelines for domestic Internet peering, in a bid to boost faster internet connection by requiring internet service providers to deliver and receive traffic between end-points in the Philippines without going across the national borders.
Regulators also do quarterly monitoring of the quality of service to ensure that telco services comply with NTC standards.
Last Monday, the NTC promulgated memorandum circular no. 02-10-2011 reducing interconnection charges for mobile text message from 35 centavos to 15 centavos.
In addition, the NTC is currently fulfilling interconnection between PLDT and Globe landlines, so that s ubscribers will no longer be billed long-distance charges for province-wide calls between the rival networks.
Auction of frequency; Globe’s reaction
NTC’s Cordoba said PLDT will not be allowed to join the auction of the 3G frequency of CURE.
Globe and other phone firms directly and indirectly owned by San Miguel Corp. (BellTel, Liberty Telecoms and Express Telecommunications Inc.) are known to be keenly interested in the CURE frequency, even as PLDT still has a pending complaint at NTC urging it to compel Globe to stop using “illegally” the frequency of Altimax Broadcasting.
Reacting to the NTC move, Globe Telecom lauded NTC chief Cordoba and Deputy Commissioners Delilah Deles and Carlo Jose Martinez for their decision on the PLDT-Digitel merger.
Globe head of corporate legal services group Froilan Castelo said, “The approval of the joint application with condition to divest PLDT’s 10Mhz 3G frequency is a progressive step for the NTC in promoting consumer welfare and fair competition. Given the length of time this deal has been discussed by several authorities in the government, the media, and private sector, the decision of the regulatory body upholds its support to the industry, ensuring equal opportunities among players to compete, and allowing consumers to enjoy quality services from their chosen service provider.”
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