Moves to retain telcos as public utility bucked

The country’s largest business groups have strongly opposed moves to maintain the telecommunications industry as a public utility or subject it to minority foreign ownership as they cited interest from SpaceX, Japan's KDDI and Kobashi groups to enter the country that could provide competition in a domestic industry that is controlled by China's Huawei.

This was the position by the country's largest business groups - Federation of Filipino Chinese Chambers of Commerce & Industry, Inc., Makati Business Club, Management Association of the Philippines, Philippine Chamber of Commerce and Industry, Philippine Exporters Confederation, Inc., U.P School of Economics Alumni Association, and Foundation for Economic Freedom as Senate deliberates on Senate Bill 2094, which seeks to amend the Philippine Services Act.

According to the business groups, some senators have recommended to maintain the telecommunications as a public utility, which means it will continue to be subjected to the 60/40 foreign equity restriction in the 1987 Constitution, limiting foreign direct investment.

One of the justifications used by some senators is the issue of national security that may arise once the telecommunications is opened to foreign investors.

But the business groups pointed out that China already holds control of the country’s telecommunications sector because 80 percent of the hardware used by existing telecommunications companies are using Huawei technology.

“Hence, we need other players to come in to provide alternate technologies and reduce our reliance of Huawei. Allowing more foreign, non-Chinese investors in the telecom industry will help diversify the risks,” the groups said.

They cited SpaceX of the US as well as Japan’s KDDI and Kobayashi groups, which have expressed interest in investing in the Philippine market. “Passing the amendments to the Public Service Act which liberalizes the telecommunications sector will open the door to these investors and lessen our reliance on Huawei,” they added.

Further, attracting investors from diverse countries will minimize potential risks that the country may face as the United States continues to implement its Clean Network program. This program is a comprehensive approach of the United States to safeguarding the nation’s assets including citizens’ privacy and companies’ most sensitive information from aggressive intrusion by malign actors, they said.

Currently, the groups said, the country’s telecommunication companies are heavily invested in technology from China and may face risks regarding access to the US internet in the future.

“It is our view that the current provisions of Senate Bill 2094 are sufficient to address national security threats,” the groups said. These include empowering the National Security Council to review prospective investments in critical infrastructure and giving the President the power to suspend or cancel any investment that threatens to impair the country’s national security; a retrospective cap and prospective ban on investments in critical infrastructure of state owned enterprises; and requiring prospective investments to adhere to the ISO certification on information security as a condition to invest and operate in the country.

The businessmen also said that retaining telecommunications as a public utility will go against the very definition of a public utility proposed in SB 2094. They explained that a primary criterion for defining public utility is the concept of natural monopoly. A natural monopoly occurs where it is more cost-efficient for the product or service to be produced by one firm, the groups pointed out.

The telecommunications industry in the Philippines cannot be characterized as a natural monopoly considering that there are three major telco players and several internet service providers. These firms are operating viably in the same service area and competition exists, they added.

Another reason the business groups cited is that the country needs to attract more firms into the telecommunication industry to provide the necessary capital to build the infrastructure to address the digital divide.

The pointed to data from the National Economic and Development Authority, which showed that 64 percent of barangays in the Philippines do not have telecommunication power, 88 percent do not have any free WiFi zones, and 70 percent do not have fiber optic cable installed.

All these affect connectivity and worsen the digital divide, including education, micro small and medium enterprises, and workers. These will make the country uncompetitive since the state of internet access has become a major factor in the decision of foreign investors in considering the Philippines as an investment destination.

“We need to liberalize the telecommunications sector to foster competition and provide better quality services at lower cost. SB 2094 will help achieve this and greatly benefit Filipino consumers and the business community as a whole,” the groups concluded.