SSRN 2882313

WORKING PAPER
Increasing Competition in the

Telecommunications Sector of the Philippines
Edgardo Manuel Miguel M. Jopson

AIM Rizalino S. Navarro Policy Center for Competitiveness
Rose Ann Camille C. Caliso

RSN-PCC WORKING PAPER 16-003
Electronic copy available at: https://ssrn.com/abstract=2882313

ASIAN INSTITUTE OF MANAGEMENT
RIZALINO S. NAVARRO POLICY CENTER FOR COMPETITIVENESS
WORKING PAPER
Increasing Competition in the Telecommunications Sector of

the Philippines
Edgardo Manuel Miguel M. Jopson

Rose Ann Camille C. Caliso

The views expressed herein are those of the authors and do not necessarily reflect the views of
Asian Institute of Management.
Electronic copy available at: https://ssrn.com/abstract=2882313

Increasing Competition in the Telecommunications Sector of the Philippines
Edgardo Manuel Miguel M. Jopson, Rose Ann Camille Caliso
NOVEMBER 2016
Abstract
In the advent of broadband technology, the telecommunications sector plays a more important
role in the development of the economy. Despite the need for cheaper, faster, and more stable
internet connectivity, the Philippines currently lags behind its ASEAN neighbors with an average
broadband speed of 3.5 Megabits per second (Mbps) at a relatively high subscription price at
USD 24 per Mbps. With the subpar quality of service provided by the incumbent operators, the
sector still manages to be one of the most profitable industries in the country, which the
proponents hypothesize to be due to the lack of players in the market; eventually raising concern
over the state of consumer welfare.
Given these issues, this paper seeks to understand how and why the industry reached its current
state through an in-depth industry analysis: evaluating the industry’s value chain, market
structure, market performance, and possible anti-competitive behavior. With this examination,
the paper looks at possible solutions to increase competition in the industry, of which we
recommend regulatory local loop unbundling to open the doors to open network access as well as
updating regulations and penalties to ensure industry player’s compliance to anti-competitive
laws.
JEL Codes: D23, D24, D43, K21, L22, L25, L41, L42, L44, L96
Keywords: competition, telecommunications industry, broadband technology, local loop
unbundling, anti-competitive behavior
Corresponding Authors:
Edgardo Manuel Miguel M. Jopson, Rizalino S. Navarro Policy Center for Competitiveness
Tel: +632-892-4011 loc 5104 Email: ejopson@aim.edu
Rose Ann Camille Caliso, AIM Rizalino S. Navarro Policy Center for Competitiveness
Tel: +632-892-4011 loc 5108. Fax: +632-465-2863. E-mail: rcaliso@aim.edu

1 BACKGROUND1
1.1 The role of telecommunications in inclusive economic development
The telecommunications sector plays a vital role in interconnecting the economy, providing
information and communication via telephone, mobile cellular services and internet connectivity.
In the past decade, mobile cellular service and internet subscription have spiked significantly
since the introduction of prepaid services, creating a paradigm shift from accessibility to reliance
on telecommunication services. The market has evolved since then; not only has the
advancement of telecommunication service changed the landscape of communication, but has
adapted into a lifestyle where banking, shopping and information is now available with a touch
of a smartphone screen.
Telecommunications is on a pivotal position to spur economic growth and competitiveness. A

study by the World Bank in 2009 estimated that a 10 percent point increase in fixed broadband2
penetration has been associated with an increase of Gross Domestic Product (GDP) growth by
1.21 percent in developed countries and 1.38 percent in developing ones3. In the Philippines, the
telecommunications industry has expanded the services sector resulting to an increase in foreign
capital investments and generation of direct employment. In a 2012 study by the International
Telecommunication Union (ITU), the telecommunication revenue accounted for 2.5 per cent of
the country’s GDP, with annual contribution of roughly $267 million dollars to economic growth
and employed over 500,000 skilled workers and professionals4. As Motenegro and Araral (2015)
argues, telecommunication services can expand livelihood opportunities, fuel economic
competitiveness, improve government transactions, and foster an environment of transparency
and good governancei.
1
Special thanks to Dr. Jamil Paolo Francisco, Mr. Tristan Canare and Mr. Nicholas Price for their valuable
comments and suggestions
2
Broadband internet is defined as “high speed internet access which is always-on and capable of multiple service
provision simultaneously” (Broadband Commission, 2010)
3
Exploring the Relationship between Broadband and Economic Growth: A background paper prepared for the
World Development Report 2016: Digital Dividends (Minges, 2015).
4
The Economic Impact of Broadband in the Philippines: A report prepared for the ITU Broadband Commission
(Katz, 2012).
1
1.2 Statement of the problem
While many studies have already proven how telecommunication services provide significant
support to various sectors of the economy, the Philippines still fails to acquire the full advantages
of Information and Communications Technology (ICT), even if the diffusion of internet access in
the country is growing. In fact, internet speed in the Philippines still lags behind its ASEAN-5
neighboring countries, given that around 40 per cent of the country’s total population consider
themselves as internet users. The company Akamai, one of the global leaders in Content
Delivery Network services, stated on their first quarter 2016 report that the Philippines ranks
113th in the global community in terms of its average and peak internet connection speed. Figure
1 shows how the country’s connection speed performs relative to its ASEAN-5 neighboring
countries.
Average Connection Speed for Q1 2016 (Mbps)

Peak Connection Speed for Q1 2016 (Mbps)
110.2
69.6
46.3
29.9 34.1
6.4 10.8
4.5 3.5 3.5
Indonesia Malaysia Thailand Philippines Vietnam
Figure 1. Average Connection Speed for ASEAN-5 Countries (based on Akamai Q1 2016 report)
2
The average connection speed for Internet Protocol version 4 (IPv4)5 in the country is 3.5 Mbps
(Megabits per second), with a quarter-on-quarter growth of 10 percent and a year-on-year growth
of 24 percent. In comparison to the global average internet speed of 6.3 Mbps, the Philippines is
twice slower. Peak connection speed in the country is also comparatively slow at 29.9 Mbps,
while countries like Malaysia and Thailand enjoy a 46.3 Mbps and 69.6 Mbps peak internet
speeds, respectivelyii.
Furthermore, slow internet connection speed in the country is accompanied by relatively

expensive subscription cost. Figure 2 shows a comparison of broadband subscription pricing for
the ASEAN-5 countries. The Philippines’ base package pricing per Mbps amounts to USD 24,
relatively expensive compared with other countries.
Base Package Price per Mbps (USD)

Base Package Price per Mbps (USD)
33
24
20
10
Figure 2. Base Package Price for Broadband Subscription for ASEAN-5. Source: UNESCAP 2013 evaluation study
The United Nations (UN) declared in 2011 that Internet is a basic human right. With the slow
internet connection plus expensive subscription cost, the Filipino consumers are effectively being
denied of this right. The challenges to attain this right reflect larger socioeconomic and political
5
Internet Protocol is the set of rules that governs the format of data sent over the internet to other network;
essentially it is the language used in internet space to access information.
3
issues: highly concentrated telecommunications industry, and inadequate telecommunications
regulatory schemes/frameworks.
This paper seeks to understand these issues through an industry analysis of the current market
structure of the Philippine telecommunications industry and its regulatory schemes. The first part
characterizes the current landscape of the Philippine telecommunication industry including a
brief description of the incumbent operators and the developments which had shaped the
industry’s current state. The second part examines the industry’s value chain first to provide a
perspective on how the industry works, and then proceed with discussing firm performance,
market competitiveness, challenges, and issues regarding their player’s behavior. The last section
provides possible solutions on how to address the issues identified. In particular, the
recommendation part aims to explore how to increase competition in the Philippine
telecommunication industry through the adoption of open network access to increase consumer
welfare and contribute to the country’s inclusive growth and development.
4
2 THE PHILIPPINE TELECOMMUNICATIONS INDUSTRY
This section provides an overview of the Philippine telecommunications industry’s landscape.

The first part of this section discusses the leading telecommunications service providers in the
country and their brief history. The second part tackles the three main market segments of
telecommunication services and their current state. The last part presents the policy and
regulatory frameworks developments in the telecommunications industry.
2.1 Incumbent Operators
The Philippine telecommunications industry is currently lead by two companies, namely, the
Philippine Long Distance Telephone Company (PLDT, Inc.) and Globe Telecom, Inc. Currently,
they comprise around 98 percent of the telecommunications market.
2.1.1 PLDT
PLDT, Inc6. was established in 1928 to link all the existing “intercom” systems, which formerly
operated within one city, into a unified national telephone network. It was under the control and
ownership of the American company named General Telephone and Electronics Corporation
(GTE). The main goal back then was to establish a “seamless nationwide network” which would
facilitate provision of communication and delivery of services to the people and more so, foster
countryside economic development. Through the establishment of the Manila-Baguio link in
1929, PLDT paved way for the national long distance calls to be possible. A few years after,
overseas telephone-radio services also became possible between the Philippines and other
countries.
PLDT, Inc. became a Filipino-controlled corporation in 1968 when Ramon Cojuangco and his
business partners bought the controlling shares from GTE. Among the milestones that were
achieved after the takeover of Cojuangcos included the following: improvements in the satellite
communications, introduction of the National Direct Dialing (NDD) and International Direct
6
This is a truncated version of PLDT, Inc.’s history. For more detailed information, see the link:
http://www.pldt.com/about-us/company-timeline.
5
Dialing (IDD) in 1985, and the establishment of the country’s first cellular telephone network in
1987. With the unprecedented growth of the internet technology, PLDT launched in 2000 the
Broad and Robust ATM (asynchronous transfer mode) and Internet Networking Solutions to
provide more reliable and cost-efficient voice, data, and video transmission services using only a
single multi-service network. These pioneering innovations are perceived to yield greater
efficiencies on the accessibility and delivery of telecommunications services.
In 1998, Manuel V. Pangilinan’s First Pacific Company acquired a 17.5 percent stake of PLDT
(and now owns around 25.6 percent of PLDT). The entry of First Pacific brought in new
enterprises for PLDT such as the acquisition of Smart Communications, Inc. (SMART) and
Pilipino Telephone Company (PilTel) as its wireless telecommunications providers. The
acquisitions proved to be a smart decision since more and more people are shifting from fixed
line services (major line of PLDT’s business) to wireless telecommunication services. Today,
Smart, Inc. continues to contribute significantly to PLDT’s total revenues. In their 2014 report,
Smart recorded a 69 percent growth in their mobile data revenues, solidifying their lead on
wireless telecommunication services7.
In 2011, PLDT acquired the majority stake in Digital Telecommunications Philippines (Digitel)
which then resulted to the eventual migration of Digitel’s landline subscribers to PLDT. PLDT
continues to dominate the telecommunication industry with its 49.87 percent market share of the
total installed and 64.11 percent of the subscribed lines, according to the 2014 Annual Report of
the National Telecommunications Commission (NTC). Its wireless telecommunication services,
including its broadband services, are mainly provided by Smart Communications, Inc. (SMART)
and Pilipino Telephone Corporation (PilTel) while its fixed line services are provided through
PLDT and its subsidiaries.
2.1.2 GLOBE
Globe Telecom, Inc. is considered as the second leading player in the Philippine
telecommunications industry, controlling 26.60 percent market share of the installed and 15.36
percent of the subscribed lines iii . Its main services are currently concentrated on cellular,
7
See http://smart.com.ph/About/newsroom/press-releases/2014/12/03/smart-posts-record-69.2-growth-in-mobile-
data-revenues.
6
broadband, and mobile data services while its fixed line services are provided by one of its
subsidiary companies, Innove Communications, Inc. (Innove).
Globe Telecom8 was incorporated in the Philippines as Globe Wireless Limited in 1935 by the
Robert Dollar Company with a franchise to operate wireless long distance messaging services.
Globe Wireless Limited was subsequently renamed to Globe Mackay Cable and Radio
Corporation and expanded its franchise to include international communications systems. It
eventually became a Filipino-owned and controlled corporation when the Ayala Corporation
bought shares of the company in 1974. In 1991, Globe Mackay merged with the Clavecilla Radio
Corporation, a local telecommunications provider, forming the GMCR, Inc. The merger, which
was approved by the Philippine Congress in 1992, provided the company the capabilities to
expand its telecommunications services both locally and internationally. The GMCR, Inc. was
eventually renamed to Globe Telecom, Inc. and Singapore Telecomm, Inc. became the new
foreign partner of Globe in 1993.
Isla Communications Company, Inc. (Islacom) was acquired by Globe in 2001 and in September
2002, Globe announced the operational integration of Globe Telecomm and Islacom’s wireless
networks to streamline their operations and provide superior coverage and other wireless services
through the Globe-Islacom integrated network. Islacom was eventually renamed as Innove
Communications, Inc.
In 2013, NTC approved the network-sharing agreement of ABS-CBN Corporation and Globe
Telecom. Under this agreement, ABS-CBN would be offering its own postpaid and prepaid
SMS, voice and data services, using Globe’s network infrastructures 9 . Currently, ABS-CBN
Mobile reported more than 14 million mobile subscribers in 2014, making them the third leading
player in the mobile marketiv.
Part of the deal as well was the sale of Bayan Telecommunications (Bayantel), ABS-CBN’s
telecommunications company which offered landline services. Globe bought Bayantel in 2015
8
For full information on Globe Telecomm’s Business Development, see link
https://www.globe.com.ph/documents/207938/221492/2002_5.pdf.
9
See http://www.philstar.com/business/2013/06/08/951358/ntc-okays-globe-abs-cbn-network-sharing-agreement.
7
through a debt-to-equity conversion transactionv. The merger further strengthened the broadband
services of Globe since fixed broadband services are typically bundled with landlinesvi.
Globe Telecomm is currently owned by the following major shareholders: Ayala Corporation
with 13 percent, SingTel with 21 percent, and Asiacom with 51 percent. Its major services
currently include wireless communications and international and national long distance and
interexchange carrier services (IXC).
2.2 Telecommunications Industry Segments
Over the past years, the Philippine telecommunications industry evolved significantly and
dynamically with the rapid advancements in ICT. In particular, the wireless telecommunication
segment had the most significant growth with the unprecedented increase in mobile telephone
and broadband subscriptions. Figure 3 illustrates the continuous increase of mobile and internet
subscriptions over the past decades. It also shows the eventual decline of telephone (IDD and
NDD) subscription, indicating a shift from landline services to mobile phone services of
consumers.
Figure 3. Compound graph for broadband, mobile and fixed telephone subscribers (per 100 users). Source: World
Development Indicators, World Bank.
8
The Philippine telecommunications industry was valued in 2012 at approximately USD$6
billionvii. PLDT, Inc. and Globe Telecom dominate the telecommunications market, comprising
almost 98 percent of the total market share. The remaining two percent are controlled by small
independent local exchange providers operating primarily in the countryside.
2.2.1 Fixed Line Telephone Market.
According to UNESCAP (2013), despite the decrease in fixed line penetration rates due to the
shift to mobile services, attrition rate remains relatively low among the fixed line subscribers in
the Philippines since fixed line services have already been bundled with Internet and cable
television packages. Figure 4 below shows the market share of fixed line telephone operators in
the country for 2014.viii
4%
11%
2%
5% Bayantel
Digitel
15% ETPI/TIPI
Innove
PLDT
64%
Others
Figure 4. Market share of telephone operators for 2014. Data from NTC 2014 Annual report.
As of December 2014, NTC reported that the total subscribed lines for the telephone segment
was 3,196,747. Majority of the subscribers are from the National Capital Region (NCR), around
15 percent. PLDT dominates the market with approximately 64 percent of the total market share
while Innove, a subsidiary company of Globe, is the second leading player controlling about 15
percent of the market. PLDT’s market lead in this telecom segment was further strengthened
9
when they acquired Digitel in 2011. The acquisition shifted Digitel’s over two million telephone
line subscribers to PLDT on the same year.
2.2.2 Cellular Mobile Telephone Market
The mobile segment accounts for almost 80 percent of the total telecommunications revenueix.
Mobile phones have been the primary mode communication among Filipinos and with the
prevalence of low-cost mobile phones in the market alongside mobile technology advancements,
mobile subscription increased dramatically over the past decade. The mobile revenues in 2011
amounted to $3,913 million, while the total telecommunications revenue was $5,353 million.
As of 2014, there are a total of six authorized operators of cellular mobile telephone services in
the country. Figure 5 shows the mobile operators’ market share based on the actual number of
their subscribers in 2014:
ABS-CBN
CONVERGENCE, INC.
0%
1% CONNECTIVITY
11% UNLIMITED RESOURCE
42% 12% ENTERPRISE, INC.
DIGITAL MOBILE
PHILIPPINES, INC.
34% GLOBE TELECOM
SMART
COMMUNICATIONS, INC.
(PLDT)
Figure 5. Market share of mobile operators for 2014. Data from NTC 2014 Annual report.
As with the fixed line telephone market, PLDT, through its subsidiary company, Smart
Communications (with Talk n’ Text and Sun Cellular), dominate the mobile telephone market.
10
The third player is the ABS-CBN Mobile which joined the market last 2013 through a network-
sharing agreement with Globe Telecom.
2.2.3 Broadband Internet
Broadband internet is defined as “high-speed internet access which is always-on and capable of
multi-service provision simultaneously” x . The Organization for Economic Cooperation and
Development (OECD) further operationalizes its definition as the internet connection speed of at
least 256 kbps for downstream transmissions. In the Philippines, the broadband internet market
has experienced dramatic growth, with reported revenue of over US$500 million in 2012xi. NTC
report for 2014 stated that the estimate number of broadband internet subscribers in the country
has reached 8,957,952 based on the projected 20 percent annual increase. The report also
mentioned that the number of Internet Service Providers (ISPs) registered with NTC increased to
728 from 2013’s 400 NTC-Registered ISPs. Other key statistics on broadband penetration in the
Philippines for 2014 are shown in Table 1.
Broadband Subscription Percent

Fixed broadband subscription per 100 capita 23.2
Mobile broadband subscription per 100 capita 28
Percentage of households with Internet 26.9
Percentage of individuals using Internet 39.7
Table 1. Broadband Subscriptions in the Philippines. Source: NTC (2014)
PLDT (through Smart Communications) and Globe, likewise, dominate both the fixed and
mobile broadband market. PLDT continues to lead the fixed broadband market with
approximately 1.3 million wired broadband customers as of May 201610. Globe, on the other
hand, had also reported a robust growth both in their revenues and subscribers’ base. By the end
10
See http://www.pldt.com/news-center/article/2016/05/25/pldt-home-leads-fixed-broadband-market-adds-six-
times-more-subscribers-than-competition#.V9kEWPl9600.
11
of March 2016, Globe’s home broadband revenues reached P3.5 billion, with a total subscriber
base of 1.1 million11.
Broadband internet access is increasingly becoming mobile-based as more and more internet-
enabled smartphones are replacing feature phonesxii. Based on 2013 estimates, about 90 percent
of Filipino internet consumers use their mobile phones to access the internet xiii . With the
increasing smartphone penetration, availability of cheaper smartphone devices with Internet
capabilities, and the rising popularity of social media applications (e.g. Facebook and Twitter),
mobile internet revenues account for more than 20 percent of the total broadband revenues of
telco companies. Both PLDT and Globe utilize the Long-Term Evolution (LTE) and 4G
technologies to provide internet services via mobile phones. The mobile data revenues of Globe
for the first quarter of 2016 reached P9.1 billion12 while Smart posted P3.091 billion13 for the
same quarter.
2.3 Regulatory Frameworks
The Philippine telecommunications industry was dominated by a single provider until the early
1990s. PLDT owned the only nationwide backbone transmission network and subsequently
controlled more than 90 percent of the telephone lines at that timexiv. The remaining less than 10
percent of the country’s fixed line networks were maintained by small local operators scattered
throughout the provinces and rural areas xv . However, some of these industry players were
eventually acquired by PLDTxvi.
It was only during the time of President Fidel V. Ramos that the market was restructured to allow
other industry players to compete. Reforms were enacted by the Ramos administration to de-
monopolize the Philippine telecommunications industry. The issuances/directives were geared
toward making the telecom industry a fair and non-discriminatory environment for other players
11
See Globe’s Press Release for the Quarter of 2016.
http://www.globe.com.ph/documents/50301/22487800/GLO_1Q16-Quarterly-Results-Press-Release.pdf.
12
Ibid.
13
See http://smart.com.ph/About/newsroom/press-releases/2016/05/13/smart-posts-strong-gains-in-q1-doubles-
growth-in-mobile-data.
12
to thrive. Among the reforms enacted were the Executive Order (EO) 59, s. 1993 which required
interconnection between telcos and decreased the telephone subscription price for consumers and
EO 109 which improved the local exchange carrier (LEC) services and established the Service
Area Schemes or SAS14xvii .Immediately after the implementation of EO 109, nine carriers with
an international gateway and/or cellular mobile service license entered the Philippine telecom
industry and promised to install over a million telephone lines. PLDT, faced with competition for
the first time, committed to increase their telephone lines and improve their customer servicing
operations15.
The reform issuances resulted to the eventual enactment of the Republic Act 7925, s. 1995 or the
Public Telecommunications Policy Act. RA 7925 became the main regulatory framework of the
country’s telecommunication services, particularly the voice calls via a local exchange carrier
and mobile telecommunications services xviii . The National Telecommunications Commission
(NTC) is mandated to implement the rules and regulations of RA 7925. Its mandates include:
supervise, adjudicate, and control all the telecommunication services throughout the country;
ensure a fair and non-discriminatory telecom market environment; and protection of consumer
welfare. NTC performs regulatory and quasi-judicial functions and its decisions can be appealed
only and directly to the Supreme Court of the Philippines16. NTC is now attached to the newly
created Department of Information and Communications Office (DICT)17.
Following the reforms made, its positive effects were immediately felt. Other industry players
were able to enter such as Digitel (of John Gokongwei) and Extelcom (of San Miguel
Corporation) and the market witnessed a significant increase in the fixed line and mobile
teledensity18xix. The cellular mobile segment, however, experienced the most dramatic growthxx
as more and more consumers were shifting from fixed line to mobile subscriptions for their
communication needs. By 2003, seven wireless operators were given authorization or
14
EO 109 required cellular services providers and international carriers to install a minimum of 300,000 and
400,000 local telephone lines in their respective areas. Philippines is divided into 11 geographical service zones
(Mirandilla-Santos, 2016).
15
Ibid.
16
Taken from the NTC Annual Report for 2014.
17
DICT was created earlier this year through the enactment of RA 10844 or An Act Creating the Department of
Information and Communications Technology.
18
Teledensity is defined as “ the number of telephones for every 100 individuals living within an area” (Mirandilla-
Santos, 2016).
13
Certificates of Public Convenience and Necessity (CPCN) by the NTC to provide mobile
services throughout the country: Globe, Islacom, Smart, PilTel, Bayantel, Extelcom, and
Digitel19. From over 6 million mobile subscribers in 2000, it increased rapidly to more than 130
million by the end of 201420.
3 INDUSTRY ANALYSIS
The telecommunications industry has taken great strides in providing new ways for people to
connect with one another. It is considered as an industry that will continue to grow in the
future xxi , evidenced by the evolution of the technology from GSM, 3G, 4G, and now the
upcoming 5G21 technologies in a span of 25 years22.
Given the current overall state of the Philippine telecommunications industry, this section now
examines how the industry is structured and assess how competitive (or uncompetitive) its
landscape through analysis of its value chain and discussion on how its incumbent operators have
been performing over the past decade. This section is divided into five sub-sections. The first
provides an overview and definition of competition, while the second discusses the domestic
Telecoms industry value chain. This is followed by a discussion of the performance of the two
Telecom firms in the Philippines versus comparator industries and firms. The figures presented
in this sub-section seem to indicate that the two corporations performed well relative to the
comparators. The next sub-section presents usual measures of level of competition applied to the
Philippine telecoms sector; and it appears to show that there is weak competition in the industry.
The fifth sub-section assesses the level of competition in the domestic telecoms sector using the
results of the previous sub-sections. It explains that statistics show that there is weak competition
in the industry. Moreover, it explains how the structure of the value chain causes weak
competition and prevents even well-crafted laws from improving the level of competition.
19
See link https://www.globe.com.ph/documents/207938/221492/2002_5.pdf.
20
Taken from the NTC annual report for 2014.
21
Insight on availability of new, upcoming technologies taken from n (2016)
22
The first GSM (2G) networks began by the Finnish operator OY Radiolinja AB in July 1, 1991 (Huurdeman
2003)
14
3.1 A Brief Background on Competition
Competition refers state of the market in which firms continuously strive to outperform
themselves to meet the ever-increasing demand of consumers. This results to an outcome in the
economy that promotes growth and shared prosperity. Essentially with competition, the welfare
of both the consumers and producers are maximized. Without competition, there is no incentive
for the market to provide better services, to innovate, and to introduce new products.xxii
As more firms enter this market, the business environment becomes more competitive; hence the
firm is incentivized to make itself the better option for consumers and buy its product. On the
other hand, when the competition among firms intensifies, more consumers are able to make
better decisions that will maximize their welfare as the market is continuously trying to provide
them with the best products that they can offer. This in effect reduces the deadweight loss to
society. In the telecommunications industry with only two major players (and its other
subsidiaries), consumers are left with only two choices for mobile, telephony and broadband
services. With no alternative option in the market, the lack of competition creates a weak
incentive to lower the prices and to increase the quality of service provided.
Last July 2015, the Philippine Competition Commission (PCC) was created through the
enactment of RA 10667 or the Philippine Competition Act. PCC is the country’s anti-trust body
tasked to regulate anti-competitive conducts for the protection of both the consumer and business
welfare 23 . Mergers and acquisitions are also regulated by PCC to ensure fair and non-
discriminatory environment for all the country’s economic sectors, including the
telecommunications industry. According to its Implementing Rules and Regulations, anti-
competitive actions include 1) Anti-Competitive Agreements and 2) Abuse of Dominant
Position. The former which are per se prohibited, object or effect of substantially preventing
competition, are namely:
 Restricting prices
 Fixing prices at an auction or in any form of bidding and other practices of bid
manipulation
23
See http://phcc.gov.ph/about-us/phcc-mission/
15
 Setting, limiting or controlling production, markets, technical development and
investment
 Dividing or sharing the market with other firms
And for the Abuse of Dominant Position, acts include (among others):
 Selling of goods and services below cost
 Imposing barriers to entry and acts that prevents competitors from growing within the
market in an anti-competitive manner
 Unreasonable price discrimination
As discussed, the recent actions of the industry players regarding the 700 MHz assets deal is
being investigated for evidence for violating one of the provisions of the Republic Act. For now,
it would be instead be the interest of the proponent to discuss the current state of competition in
the industry, especially its effects to consumer welfare and barriers to entry.
In the previous section, we discussed how these firms have behaved over time; these have had
considerable effects on the state of our broadband connectivity today; the proceeding section
examines the industry’s value chain and identifies the conditions which shaped the landscape of
the industry.
16
Box 1. How the Internet Works
The provisions of fixed and mobile communication as well as broadband internet subscription are the essential
services that comprise the telecommunications industry, but how does it actually work?
The internet is a vast expansion of interconnected networks that allow users to access different databases from
different ISPs that are connected via cables and satellites. Different infrastructure affects the user’s ability to
connect to the internet and also the speed of the connection. These complex networks are strung together using
three media, namely, through the old telephone copper lines, its more advanced successor the optic fiber cable,
and via terrestrial wireless networks. These media allow information to be transmitted and received from content
creators to end users, and vice versa.
With the three media used to connect a transmitter to a receiver, we also have three methods to interconnect
Internet Service Providers to consumers. The first method is a fiber to the cabinet method that connects users via
the old copper telephone wires to an access point called a street cabinet that is in turn connected to the local
exchange via fiber optic cable; the second method is the more familiar Digital Subscriber Line (DSL) which
utilizes a direct fiber optic cable that connects the user to the local exchange; the third method is via terrestrial
wireless networks that connect users to radio base stations of ISPs.
From content creators to end users, the information is passed through three miles: the first mile, the middle mile
and the last mile. These miles consist of three main infrastructures: the undersea intercontinental cables to the
landing stations, the internet backbone core network that interconnects the country’s main terminals and receivers,
and the infrastructure that allows end users to connect to these terminals and receivers (Montenegro and Araral
2015).
3.2 Value Chain and Market Structure
A company’s value Middle

chainMile,
is aSecond
systemMileofandinterdependent
Last Mile (Source:activities
Broadband.gov)
which are connected by
linkages. Linkages exist when the way in which one activity is performed affects the cost or
effectiveness of other activities, forming trade-offs in optimization to achieve competitive
advantage xxiii . In this section, we assess the telecommunications industry’s value chain and
subsequently, identify its strengths and bottlenecks.
17
Figure 6. Telecommunications Industry Value Chain
Figure 6 provides an overview on how the telecommunications industry value chain is structured.
The individual components are as follows:
 Intercontinental Cables and Landing Stations
 Backbone Provision (BP)24
 Service Provision (SP), Distribution, marketing and sales (ex. selling of SIM cards)
24
In the literature there are varying definitions the middle mile is divided into the middle mile and the second mile
to denote differences in processes, since their costs and infrastructure may be different if the network, for example
the local loop, has been unbundled; however it is often simplified into one component to signify that the middle mile
refers to the information transfer process between two ISPs from any point of the world, and how they connect
content to user (Montenegro and Araral 2015).
18
 After sales service and customer care25
Inefficient broadband speed and penetration is essentially linked to a lack of a strong and
sophisticated backbone and backhaul network. This causes data traffic to constantly reroute in
order to reach the intended data center, slowing down internet connection. As of today, there are
only two industry players that lay the infrastructure and distribute the service. Hence the quality
of the network system can only be attributed to the two firms. Currently, both PLDT and Globe
own most of the resources in the industry and control a large share of the market: with market
shares of 70 percent for PLDT, 28 percent for Globe, and 2 percent for other players in the
market.
3.2.1 Backhaul, Intercontinental Cables and Landing Stations.
The First Mile carries the connection of content creators to the rest of the world through an
antenna or a local switch26. This stage of connectivity refers to the path from the servers of
websites such as Google and Facebook to the Philippines via the intercontinental undersea
cables. These cables are called Backhaul networks, which can cover a city, a region, a country,
or across countries and are known under different names such as “trunk networks”, “middle
27
mile”, “metro”, “core”, “submarine”, and “international network” . Through the
interconnectivity of the backhaul networks we are able to access the content stored in the
databases of the content creators, which enable users to log in to websites, engage in transactions
and access information.
25
With the advent of BPOs, this part of the market is already competitive since customer service is typically
outsourced to specialized companies, and with the advancement of technology, the market is also more efficient (Li
and Meissner 2008). Hence it will not be discussed in this paper.
26
In fact the converse is true; a “Last Mile” connection is also a First Mile connection in the perspective that the
user becomes the content creator.
27
International Cables, Gateways, Backhaul and International Exchange Points by OECD (OECD 2014). Although
in the literature, the Backhaul and the Backbone sometimes refer to the same thing, since technically it is still the
same set of cables that interconnect different ISPs. However, to differentiate the international network from the
national network, Backhaul refers to the international cables while the Backbone refers to the national network.
19
Box 2. Technologies used for backhaul networks
Fiber has become the predominant technology used for backbone networks; a single fiber pair network can
provide access for 12.8 to 32 million broadband subscribers. One can increase bandwidth through Dense
Wavelength Division Multiplexing (DWDM); a fiber optic transmission technique that compiles together
different data sources on an optical fiber at the same time on separate light wavelength, with internet
backhaul network speeds from 40 to 100 Gigabits per second. Networks in addition usually keep capacity
available for backup; hence the whole capacity of the network is not usually maximized.
Today, fiber networks offer an additional level of flexibility through optical routing; which allows the
network to route wavelengths regardless of the content. Furthermore, fiber networks, such as LTE+, can
deliver up to 3.3 Gbit/s per antenna. LTE+ also allows two antennas to send data to the same device, greatly
increasing the possible bandwidth capacity and in turn increases broadband speed and penetration (OECD
2014).
Both Globe and PLDT use fiber networks, and are able to utilize DWDM.
Since the internet utilizes the same connectivity hardware for both fixed and mobile telephony,
these backhaul networks are regularly maintained by a consortia of operators (such as the South
– East Asia Japan cable system, the Asia Pacific Cable Network, the East Asia Crossing cable
system, among others28) and private undersea cable layers, such as TATA Global Network29 30.
From the undersea Backhaul Network, Globe and PLDT have seven submarine cable systems
with five landing stations, located in Batangas, La Union, Ballesteros, Capepisa, and Daet31.
From the landing stations, Globe and PLDT distribute internet service through their backbone
networks using fiber optic cables 32 . The UNESCAP 2013 study evaluated the international
connectivity of the Philippines as “excellent” compared to its ASEAN-5 neighboring countries.
Philippines’ multiple submarine cable landing stations located mostly in Luzon areas afforded
the country to offer single-system connectivity to Asia, Europe, Australia, Africa, and North
America. Table 2 provides a summary of the submarine cable systems located in the Philippines.
28
Taken from http://www.submarinenetworks.com/systems/intra-asia/categories
29
The largest undersea fiber network provider, owning a network of 700,000 km of undersea and terrestrial cables,
with 400 points of presence in which 1600 ISPs connect to (http://www.tatacommunications.com/glance/our-
network)
30
Both PLDT and Globe have partnered with TATA (http://www.interaksyon.com/business/108069/globe-says-
work-on-new-underwater-cable-linking-ph-us-begins ;
http://www.tata.com/article/inside/uEj03to4BUw=/TLYVr3YPkMU=, http://www.pldt.com/news-
center/article/2013/06/13/pldt-deploys-innovative-conferencing-solution---telepresence#.V850wph97IU
31
See link: http://www.submarinenetworks.com/stations/asia/philippines
32
See link: http://www.pldt.com/news-center/article/2014/07/02/pldt-doubles-international-capacity-to-the-us-with-
100g-technology-upgrade#.V891HZh97IU, https://www.globe.com.ph/press-room/fiber-optic-cable-system
20
Length
Submarine Landing
and Year Other Landing
Cable Point in Owner/Maintenance Authorities
Design Started Points
System PH
Capacity
AT&t, Bayan, Bharti, BT Global
Malaysia, Network Services, CAT Telecom,
Singapore, ETPI, FPT Telecom, the
AAG (Asia- 20,000 Thailand, Government of Brunei Darussalam,
America km 2010 La Union Brunei, Vietnam, PT Indosat, PLDT, Saigon Postel
Gateway) 2.88Tbps HK, Guam, Corporation, StarHub, Telcotech,
Hawaii, USA TELKOM Indonesia, Telstra,
West Coast Telekom Malaysia, TNZL, Viettel,
VNPT
TGN-IA HK, Vietnam,
6,700 km Ballesteros,
(Tata TGN 2009 Singapore, and Tata Communications, Globe
3.84Tbps Cagayan
Intra-Asia) Japan
Japan, South
EAC-C2C 19,500
Korea, Taiwan,
(East Asia km 2.5 2007 Capepisa Asia Netcom
HK, Malaysia,
Crossing) Tbps
Singapore
Japan, Korea,
APCN2 (Asia 19,000 Taiwan, China, CT, Reach, NHK, CTM, TM,
Pacific Cable km 2.56 2002 Batangas Hong Kong, Singtel, KT, NTT Com, KDDI,
Network 2) Tbps Malaysia, PLDT, CHTI
Singapore
SEA-ME-
WE 3 (South China, Brunei,
39,000
East Asia - Vietnam, CT, Reach, NHK, CTM, PLDT,
km 960 1999 Batangas
Middle East - Malaysia, JTB, MPTC, VNPT, TM, Singtel
Gbps
Western Singapore, HK
Europe 3)
G-P (Guam- 3,600 km
1999 Batangas Guam AT&T, PLDT
Philippines) 40 Gbps
Japan, Korea,
Taiwan, HK,
APCN (Asia 12,084 Malaysia, KT, KDDI, Chunghwa Telecom
Pacific Cable km 5 1997 Batangas Singapore, International, PLDT, Reach, NHK,
Network Gbps Thailand, TM, Singtel, CAT, Indosat
Indonesia,
Australia
Table 2. Summary of Submarine Cable Systems in the Philippines33. Source: Alampay, 2011
A submarine project could cost around US$ 250 million34, which may cost more as the distance
increases. In fact, renting the ship responsible for laying down the infrastructure itself can cost
33
Information on Daet Submarine cable landing station is unavailable in Alampay’s work since it was still under
construction at the date of the report’s publication. It is owned by PLDT.
21
around US$ 200,000 a day35. But since these interconnectivity projects typically include more
than one network provider, the costs are shared depending on what was agreed upon by the
involved providers. For example for the South East Asia – United States submarine project,
Globe Telecom has contributed US$ 80 million in this project along with different contribution
shares by P.T. Telekomunikasi Indonesia International (Telin), RAM Telecom International
(RTI), Hawaiian Telcom, Teleguam Holdings (GTA), GTI Corporation (a member of the Globe
Telecom group of companies) and Telkom USA36. The cost sharing for these interconnectivity
projects lessens the expenses of the ISPs and at the same time, improves ISPs network coverage
to deliver more efficient internet services.
3.2.2 Backbone Provision.
A backbone is a set of cables that interconnects the country from a central data center. These
backbones can allow internet transmission up to 400 Gigabytes, and the faster the backbone
transmission is, the easier it is for the firms to provide faster and more reliable internet
connection to its subscribers. In the case of the Philippines, both PLDT and Globe Telecom have
laid their own backbone for their internet services, however with regards on how much each own
is currently not disclosed by the two firms.
We can look at the backbone as our national middle mile: in order to interconnect every
consumer in the country to the internet service provider, first the internet service provider must
lay down path for the data to flow throughout the country. As the name implies, it works like the
country’s internet spinal cord.
Backbone provision is deemed to be expensive. Small firms with low market capitalization have
to either borrow huge sums of money in order to lay their own cables, or lease from an already
existing backbone; and in the case of the Philippines, only Globe and PLDT have the existing
infrastructure. The cost varies: transmission backbones would cost around Php 1.4 billion to Php
34
See link: http://www.interaksyon.com/business/108069/globe-says-work-on-new-underwater-cable-linking-ph-us-
begins
35
See link: http://www.emersonnetworkpower.com/documentation/en-US/Products/Unified-Infrastructure/Modular-
Self-Contained/Documents/Effective-Strategies-for-Launching-Cable-Landing-Stations-ISE0616-Reprint.pdf
36
See Link: http://www.submarinenetworks.com/systems/trans-pacific/sea-us/sea-us-consortium-to-build-cable-
system-connecting-indonesia-the-philippines-and-the-united-states
22
3.26 billion depending on the length37. As such, with the high fixed cost attributed to backbone
provision38, entry to this market is very difficult.
Even though PLDT and Globe have their own backbone provisions, they still had difficulties
providing connectivity to low subscriber population dense areas in the country, since it would be
very expensive for these firms to provide internet access if the number of users would be small39.
In a recent development40, the two telcos have agreed upon a peering agreement, which would
then allow these ISPs to share data routing responsibilities across multiple networks. PLDT and
Globe would be given access to each other’s backbone which can potentially deliver more
efficient internet services. In hindsight this may marginally help reroute data traffic, but the
problem remains: internet is slow because of the lack of physical infrastructure41.
With ownership of the entire backbone being shared by the two players, introducing new players
in the market at its current state would be difficult, since no matter what regulations the
government introduce that attracts new players, they still have to ride on the two dominant
player’s infrastructure to interconnect. Thus, this leads the two firms to merely charge exorbitant
rental rates. Having the government set up an entirely new backbone is deemed be also be too
costly, as the infrastructure is already there, save for areas in the country that currently do not
have network access yet xxiv . Furthermore, there may also be a underlying political stigma
regarding setting up a “National Backbone” from its association with the infamous ZTE scandal
of 200742; which may have contributed to the apparent government’s effort to distance itself with
setting up its own national broadband network43
37
See link: http://www.philstar.com/business/541815/globes-second-fiber-optic-backbone-now-operational,
http://www.philstar.com/business/2012/10/09/857513/pldt-smart-building-p14-b-transmission-backbone
38
As stated by Mirandilla-Santos (2016), Baker, et al (2007) and Cabarios (2016)
39
As expressed by the National Telecommunications Commission (Cabarios 2016)
40
See links: http://www.gmanetwork.com/news/story/570191/money/companies/pldt-globe-ink-ip-peering-
agreement-for-faster-internet, http://www.rappler.com/business/industries/172-telecommunications-media/136614-
pldt-globe-ip-peering-agreement, http://www.pldt.com/news-center/article/2016/06/16/pldt-globe-agree-on-ip-
peering-deal-for-better-internet-in-the-country#.V89jjZh97IU .
41
Moreover, there is a literature gap with regards to the exact specifications of the commissioned infrastructure that
the industry players are using.
42
See Link: http://www.gmanetwork.com/news/story/61035/news/zte-controversy-timeline
43
As discussed at the Senate Centennial Lecture Series on 6 October, 2016 entitled A Reliable and Affordable
Philippine Internet: Are we getting there?”
23
3.2.3 Service Provision and Distribution
There are two methods to provide telecommunications services to subscribers: fixed and
wireless. Given that the technology used for IPv4, IPv6, voice over internet protocol (VoIP) and
other internet services are transmitted through the same means from which fixed and mobile
telephony transmits voice and short message service (SMS), service provision is usually done
using Direct Subscriber Line (DSL)/ Asymmetric Direct Subscriber Line (ADSL) cables for
broadband subscription and internet capable Subscriber Identity Module (SIM) cards for mobile
devices
Modern interconnection methods of direct subscriber lines using fiber optic cables have
innovated broadband speed and penetration. Technologies such as Deep Fiber Access and the
utilization of Passive Optical Networks (PONs) can now introduce speeds up to 1 Gbps.
Illustrated below is the layout of Deep Fiber Access.
Advanced telecommunications infrastructure such the Early Deep Fiber Broadband or FTTx
provide a wide array of socioeconomic benefits. Cognizant of these benefits, other countries such
as US, Japan, and Sweden have facilitated the construction of FTTx network infrastructure.
Hence, there are numerous instances wherein the government assists in facilitating the
construction of infrastructure to build FTTx networks, such as in the United States, Japan, and
Swedenxxv. The US has encouraged ISPs to build by granting them protection from infrastructure
ownership regulation; Japan has offered tax advantages and low-cost funds; in Sweden, the
national government urged local governments to build municipal Fiber to the Home (FTTH)
networks and offered rebates to subscribers who connect to them. In the Philippines, FTTx is
available to consumers at a high cost, amounting up to Php 9499 for unlimited access to 1 Gbps.
Furthermore, most fixed broadband plans have a data limit, which caps the amount of data that a
consumer can avail of in a specific billing period (every month)44.
44
See link: http://www.rappler.com/business/industries/172-telecommunications-media/110005-pldt-fastest-
broadband-service. Packages which allows internet speeds from 3 Mbps at Php 1299 to 1 Gbps at Php 9499 per
month for unlimited internet access for PLDT and 1 Mbps (with 20 Gigabyte data limit) at Php 999 up to 1 Gbps
(with 6TB data limit) at Php 9499 for Globe. Prices for other broadband packages are available in the telcos’
respective websites.
24
The variable cost incurred by the telecommunication service providers in increasing subscribers
is small, since internet connectivity and speed merely entails having a better transmitter and
receiver. However, the cost incurred for installing additional fiber cable lines to increase
coverage is expensive, brought about by licensing permits and the expenses incurred in laying
underground cables. Nonetheless, if the infrastructure is already in place (for example the area
already has a fiber cable), installation of a signal splitter and fiber cables connecting the
underground cable to the home or the office space is inexpensive on the part of the
telecommunications service provider45.
High-speed internet ready SIM cards capable of 4G/Long Term Evolution (LTE) are now
available in the market with the advent of the smartphone boom, costing only Php 40 to Php 50
per SIM card46 for prepaid and even free for postpaid plans. The increasing number of users,
according to NTC, does not really affect the cost for service providers since their infrastructure
can accommodate a large volume of users.
However, putting up additional cell sites in order to provide better access to consumers is
expensive and entails bureaucratic processes plagued with red tape. Telecommunication
providers, on the average, have to secure 25 government permits at the local level which takes
around 8 months to complete before the infrastructure can be built; a typical corporation needs at
least 8 permits from the Department of Trade and Industry, excluding other requirements from
the Bureau of Internal Revenue and the Social Security System, among others 47 . The
infrastructure itself costs around Php 18 million per site48, and additional licenses to frequency
use need to be purchased in order to secure and accelerate broadband penetration and speed49.
This implies that the telecoms earn more profits from high subscriber density areas from
increasing returns to scale from the infrastructure in place per areaxxvi. For example, in central
45
As explained by Baker et al (2007); as well as additional insight from both the NTC and Internet Society
[(Cabarios 2016), (Mirandilla-Santos 2016)].
46
See link: http://smart.com.ph/Bro/plans-and-devices/sim-only?gclid=Cj0KEQjw0rm-BRCn85bm8uS-
zK0BEiQAHo4vrEyIVOH8d8GbHi0hbmEFoG6Kfo96FWozg0PeMnHbgycaAqdC8P8HAQ
http://tattoo.globe.com.ph/product/sim
47
See link: http://invest.cfo.gov.ph/pdf/part2/securing-business-permits-and-business-registration.pdf
48
See link: https://www.globe.com.ph/press-room/new-cell-sites,
49
See link: http://smart.com.ph/About/newsroom/press-releases/2016/07/22/smart-accelerates-network-deployment-
using-new-frequencies
25
business districts such as Makati, telecommunications service subscribers use both fixed and
wireless broadband more often (and demand higher bandwidth) than those in rural areas in the
country. However since the infrastructure used in the city cost the same as the infrastructure in
rural areas, their profit margins per investment in infrastructure is greater in areas like Makati.
This will be further discussed in the section on Market Performance.
3.2.4 Value Chain Summary
The current structure of the telecommunications industry’s value chain reveals the conditions
which made the industry highly concentrated. These conditions have fostered a market
environment wherein potential providers find it difficult to enter and compete. To summarize,
below are the key points:
 The upstream economy of the value chain structure (intercontinental cables and landing
stations; backbone provision) contain bulk of the cost for telecommunications services
delivery which frequently increases/changes with the advancements in network
technology. The laying down of the network infrastructure costs around Php 18 million
per site50. This is on top of the costs incurred from securing 25 government permits at the
local level, which typically, takes around 8 months to complete before the infrastructure
can be built and additional licenses to frequency use need to be purchased in order to
secure and accelerate broadband penetration and speed 51 (institutionalized barrier to
entry).
 Given the high sunk costs for infrastructure provision, smaller industry firms either need
to interconnect or rent with the incumbents’ existing infrastructure (which can incur
additional cost) or merge with them in order to compete in the Last Mile.
 The incumbent operators invested on their own submarine cable systems and backbone
infrastructure. These operators typically recompense the high sunk cost (maintenance and
upgrades) and obtain their return of investment through the volume of their subscribers.
50
See link: https://www.globe.com.ph/press-room/new-cell-sites,
51
See link: http://smart.com.ph/About/newsroom/press-releases/2016/07/22/smart-accelerates-network-deployment-
using-new-frequencies
26
They earn more profits from high subscriber density areas which then pay off their
infrastructure investmentsxxvii. With economies of scale, the name of the game of these
dominant players is to provide internet access to high subscriber density areas to reap
higher profits.
 Aside from dominating the network infrastructure market, the incumbent operators also
lead the downstream economy of the industry’s value chain (service provision,
distribution, marketing and sales) through their subsidiary companies. Again, other firms
intending to enter this market would need to make commercial arrangements with one of
the local telecom firms for network interconnection rental or re-selling of the telecomm
services (bought from the incumbent operators at wholesale prices) to retail customers.
 With this type of market where the national backbone – the entire upstream infrastructure
- is owned by only two firms, no matter what regulations the government introduce that
attracts new players, they still have to ride on the two dominant player’s infrastructure,
else they have to set their own infrastructure from scratch. This in itself would be a
disincentive for new players to enter the market as it will prove difficult to operate if the
bargaining power for rental fees would be with the private owners of the infrastructure;
which is also their competitor at the downstream.
Fostering a competitive telecommunications industry, given the current structure and condition
of the industry’s value chain, seems to be hurdled by issues relating to infrastructure cost at the
upstream economy and duopoly at the downstream economy. With the lack of alternative
players, market forces cannot set the price at the welfare maximizing condition which then
results to relatively expensive consumer pricing. The implications of the industry’s value chain
structure on Filipino consumers will be discussed in the latter part of this paper.
Our most important takeaway from this discussion is that the bulk of the cost for
telecommunications services lies in infrastructure costs. With this value chain structure, how has
our two dominant telecommunication service providers been performing over the years? The
next section provides a general overview on how the two main players in the industry have
maximized their market dominance over the past decade.
27
3.3 Market Performance of the Telecom Industry
This sub-section discusses the performance of the two giant telecom firms in the Philippines
relative to firms in comparator industries. The telecommunications business in the Philippines is
structured in such a way that subscriber volume is the key factor to its profitability. EBITDA
(Earnings Before Interests, Taxes, Depreciation, and Amortization) margins for both firms are
high: between 60 to 70 percent, while Average Revenue per User (ARPU) is relatively low, at
around USD 2 to USD 10 (Alcatel-Lucent cited by Mirandila-Santos, 2016). This means that
profit margins per user is high; implying not only high firm performance, but also low consumer
surplus52. For an industry which should be producing at the most welfare maximizing output, this
may be a evidence of rent-seeking behavior concerns. This holds true if these firms have been
performing consistently well over the past years, which would imply consistency of such
behavior.
3.3.1 Financial Performance
To illustrate how profitable these two industry players have been operating, we look at their
EBITDA expressed as share of assets in comparison to firms from other industries (to normalize
their returns so that it would be possible to cross-compare different industries):
52
from the deadweight loss implied in a profit maximizing firm producing at MR = MC (Besanko and Braetigam
2011)
28
EBITDA/Assets
25%
20%
PLDT
15% Globe
Meralco
10% Manila Water

Ayala Land
SM Prime Holdings
5%
0%
2013 2014 2015
Figure 7. EBITDA return on assets. Source: annual reports of respective firms53
Looking at both PLDT and Globe (Figure 7), well above the 15%, we can initially surmise that,
with the removal of the factor of firm size by dividing them with respect to the firm’s respective
assets, the telecommunications industry seems to be quite productive relative to other industries;
this is one indicator that shows us how relatively large the EBITDA of the telecommunications
sector is in comparison to other industries. Statistics show that PLDT and Globe have higher
EBITDA expressed as share of assets than Meralco and Manila Water, both monopolist utlitty
companies. Considering that the industry is supposedly ensured by the NTC to have a healthy,
competitive environment (based on the Commission’s mandate), with many subscribers to
telecommunications service but only a few subscribers who can afford broadband servicesxxviii,
then structurally we can already find evidence that internet services will ultimately be overpriced
at its current state. This is mainly from the fact that there is a high subscriber base that needs
high speed internet service, but only a few subscribers that are capable of paying. Since the
industry players have the bargaining power to set prices, it may simply practices price
53
From the Annual Reports of PLDT, Globe, Meralco, Manila Water, Ayala La nd and SM Prime Holdings from
2013, 2014 and 2015.
29
discrimination (evidence to its different subscriber packages), earn most of its profits from
mobile telephony and broadband service subscribers (which costs significantly less than fixed
broadband) and set a higher price for fixed broadband services, which typically offer faster and
more stable broadband connectivity.
Now if we look at net income instead of EBITDA (now including other accounting deductibles),
we have a slightly different story:
Return on Assets
10.00%
9.00%
8.00%
7.00% PLDT
6.00% Globe
5.00% Meralco
4.00% Manila Water

Ayala Land
3.00%
SM Prime Holdings
2.00%
1.00%
0.00%
2013 2014 2015
Figure 8. Return on assets. Source: annual reports of respective firms54
Return on assets (ROA) is a financial indicator for asset efficiency; from the DuPont Model,
ROA looks at profit margin and asset turnover, and can particularly assess capital needs 55 .
Although this study is not interested in the DuPont method’s particulars, we can use ROA to see
how companies have been earning profits; and in order to compare different industries from each
other, we factor in the company’s assets so that firm size does not become an issue. In Figure 8,
we can note that for the other utilities (represented by Meralco and Manila Water) the ROA is
54
From the Annual Reports of PLDT, Globe, Meralco, Manila Water, Ayala Land and SM Prime Holdings from
2013, 2014 and 2015.
55
See Link: http://home.ubalt.edu/NTSBISBE/fin640/dupont.pdf
30
relatively the same over the years. Behavior of the telecommunications players is more volatile;
note the stark increase in the return on assets for Globe with the sharp decrease for PLDT –
similar to other industries like land development (note the sudden increase in ROA from SM
Prime Holdings).
Despite Globe’s high ROA, the fact that PLDT controls almost 70 percent of the entire industry,
a decreasing ROA may mean that 1) PLDT’s assets are depreciating 56 ; 2) PLDT has lower
operating income (which may be explained by its loss of subscriber base 57 or 3) both. In
hindsight, this may have contributed to the inefficient and expensive broadband service as well.
EBITDA Margins
90%
80%
70%
60% PLDT
Globe
50%
Meralco
40% Manila Water
30% Ayala Land
SM Prime Holdings
20%
10%
0%
2013 2014 2015
Figure 9. EBITDA Margins. Source: annual reports of respective firms58
56
Simply speaking, its assets may be old and outdated.
57
See Link: http://www.rappler.com/business/industries/172-telecommunications-media/124136-pldt-2015-net-loss-
mvp
58
2013, 2014 and 2015.
31
Profit Margins
45%
40%
35%
30% PLDT
Globe
25%
Meralco
20% Manila Water
15% Ayala Land
SM Prime Holdings
10%
5%
0%
2013 2014 2015
Figure 10. Profit Margins. Source: annual reports of respective firms59
Recently, EBITDA margins of PLDT and Globe have decreased, compared to what was reported
in Alcatel-Lucent in 2010. However we still see that, relative to electricity, profitability is still
high. With the exception of Manila Water60 (a water distribution, area-assigned monopoly), the
EBITDA margins of the telecommunications are similar to real estate (such as Ayala Land and
SM Prime Holdings). Figures 9 shows how large the EBITDA margins of the
telecommunications industry is, but Figure 10 shows a stark difference. This may indicate that
interest, tax, depreciation and amortization may have a large effect on the industry’s net income
as well. Although interest expense and amortization may be irrelevant for this study61, large
corporate taxes relative to the ineffectiveness of the NTC (and the state of our broadband
connectivity) may indicate that taxes may be underutilized; which could have been used for more
59
2013, 2014 and 2015.
60
Also note the relative cost of water and its distribution (which relies on fixed assets as well).
61
Although irrelevant, high interest expenses may be an indicator of low interest coverage ratios (how easily a
company can pay its debts), high amortization may indicate difficulty of the company to pay off mortgages.
32
productive purposes, i.e., the production of better infrastructure. High depreciation may indicate
that infrastructure is old and outdated.
So far, we have looked at the current state of performance of the two industry players. Now to
further assess whether these two firms have been thriving in the Philippine economy, we take a
look at and analyze their historical financial performance over time. Initially, we look at the two
incumbent’s stock prices. After which we inspect their market capitalization and the total
enterprise value weighted to EBITDA (Enterprise Multiple) 62 . Looking at the two dominant
player’s market performance provides us with a snapshot on how the industry has performed
over the past few years. However it must be noted that looking at their respective performances
is not sufficient to assess the level of competition of the industry.
Figure 11. PLDT (TEL), Globe Telecom (GLO) and PSE share price. Source: Capital IQ (2016)
3.3.2 STOCK PRICE
Firm stock price is the price of a stock of specific publicly listed company which adjusts to the
demand set by the market and the supply (number of shares) set by the firm. This is a
fundamental indicator on how the aggregate market (a function of investor confidence and
62
Taken from the references of Kelly (2013)
33
market valuation) perceives the value of the company. When the price goes up, it mean that the
market (which comprises of individual investors who want to earn additional profits) believes
that the firm is doing great and will do well in the future (usually short term) because it is able to
utilize the funds of the investors in an efficient manner. If it goes down, then the reverse is true.
Looking at the share price of PLDT (PSE:TEL), Globe Telecom (PSE:GLO) in comparison to
the Philippine Stock Exchange (PSE) Composite Index (we use as an indicator of the average
performance of the Philippine market) in figure 11, we can look at the market perception of firm
performance of these two companies over time, from January 2, 1992 63 to August 24, 2016.
From an initial glance, we can see that Globe is outperforming PLDT (looking at the slopes, not
the share prices). However, both companies seem to outperform the PSE composite index.
Figure 12. PLDT (TEL), Globe Telecom (GLO) Market Capitalization. Source: Capital IQ (2016)
3.3.3 Market Capitalization
Market capitalization captures the aggregate value of a company, and over time, it can provide us
with a glimpse on the company’s growth. Looking at market capitalization’s time series trend
63
We start at January 2 because January 1 is a holiday
34
from 1997 to 2016 in figure 12, we can infer that PLDT and Globe Telecom’s growth
significantly varies. We can note that for the first half of the 21st century, PLDT had the upper
hand in terms of market dominance. Up until 2007 there has been an aggressive spike in the
trend while Globe Telecom has only frequented the ranges between 100 billion and 200 billion.
In 2003, Digitel’s Sun Cellular entered the market. Coincidentally, the market capitalization of
PLDT has risen up to 600 billion in 2007 since then. However, its market capitalization dwindled
to Php 416,527,876,089 in 2015 which due to the loss of five million subscribers and low income
growth 64 . Globe, on the other hand, has steadily increased its market capitalization: from
37,507,620,150 in 2000 to Php 279,589,165,128 in 2015.
Figure 13. PLDT (TEL), Globe Telecom (GLO) Total Enterprise Value over Last Twelve Months EBITDA
(Enterprise Multiple). Source: Capital IQ (2016)
3.3.4 TEV/LTE EBITDA
Total Enterprise Value over the Last Twelve Months EBITDA (TEV/LTE EBITDA) weighs firm
value with the firm’s performance over the year. TEV/LTE EBITA can provide us with the
64
See link: http://www.gmanetwork.com/news/story/557192/money/pldt-says-consolidated-core-net-income-down-
6-in-2015, http://www.rappler.com/business/industries/172-telecommunications-media/124136-pldt-2015-net-loss-
mvp
35
insight of how constructive has the firm’s decisions been in contributing to its overall value. This
is a variation of the financial performance indicator for the Enterprise Multiple, a simpler
measurement of enterprise value over EBITDA. At the initial glance of figure 13, we can
observe that both companies have displayed a strong performance over time.
3.3.5 Industry Comparison
In comparison to other industries, we compare the sectors’ performance with respect to the other
major sectors of the Philippine Economy. We use FTSE Philippines Share Price Index to
measure the aggregated performance of the industries in order for us to get a glimpse of how
well the telecommunications sector is relatively doing.
Figure 14. FTSE Philippines Industry share price index (in Php) from 1996 to 2016. Source: Capital IQ
From figure 14, we can see that the industry value of the Telecommunications sector (denoted in
blue) has a significant difference from the other sectors, especially during the years 2003 to
2015. However, the sector has experienced a significant drop in value in 2016. Nevertheless, the
stark difference of the telecom sector compared to the others show that both industry players are
valued by the market at a premium.
36
3.3.6 Market Performance Discussion
From the above analysis, one can initially suggest that both PLDT and Globe have remained to
performing well despite high fixed costs, changes in technology and the entrance of new firms
such as Sun Cellular in 2003. Without extreme dips in market capitalization, firm value and
public valuation, both major players have been raking large profit margins with high EBITDA
margins, signifying strong market performance bolstered by the strong Philippine economic
performance over the past decade.
While considering the fact that they bulk of the cost lies in the laying of infrastructure, the
dominant players continue to generate consistently high profits. In an industry wherein
subscriber coverage is the name of the game65, low average revenue per user paired with high
EBITDA margin, and furthermore high EBITDA/Assets with respect to firms from other
industries, it can be assessed that profits seem to be extracted from individual consumers despite
a large subscriber base. This may be done using third degree price discrimination; providing
faster, better services at a higher price, which is fine if the quality of broadband services
provided is at par with the rest of the world (this will be further discussed in section 3.4.1.2).
This results to relatively high prices (since the bulk of the cost is fixed and not from variable
cost), and because of this it should be noted that if the majority of costs are fixed,
telecommunications services should not be expensive in the long run, as eventually firms will
obtain their return on investment in infrastructure. With this, we can ask the following questions:
 Is there a difference in the cost structure between mobile and fixed internet subscription?
With both controlled by the two dominant firms, does this become a barrier for new
entrants in the market?
 If the cost of providing internet services is really expensive, then why are the firms’
EBITDA margins consistently high despite the exponentially growing subscriber base
and continuous building of infrastructure?
 The industry players have set a high price for internet service provision because they
have stated that the costs are also high. On the contrary, telecommunications service
65
See section on Value Chain
37
distribution is cheap when the infrastructure is available in the area. Infrastructure cost, as
large as it may be, is fixed as a matter of fact. Are there costs that consumers are paying
for that they do not know of?66
The main takeaway from looking at the telecommunications industry’s market performance is
that these firms have been performing well or even better relative to firms from other industries.
This includes comparisons with utility companies that are monopolists and representatives of
industries that are relatively more competitive. Looking at the firm level private marginal benefit
of the industry, there seems to be no problem; however we have return to the fact that this
industry is a value added service with tremendous social benefits, so much so that by
underperforming relative to other countries abroad, the economy is experiencing an opportunity
cost. Keeping these questions in hindsight, we look at how consumer welfare has been affected
by the industry, as well as the issues that have hindered the competitiveness of the industry.
3.4 Competition in the Philippine Telecommunications Industry
The telecommunications industry has evolved dynamically with the creation of protocols which
aimed to foster fair and non-discriminatory environment for a market competition to thrive. In
1998, the World Trade Organization (WTO) implemented the Fourth Protocol of the General
Agreement on Trade and Services (GATS) in which the Basic Telecommunications Agreement
(BTA) was annexed. The BTA aimed to improve “…market access for telecommunications
equipment suppliers, vendors and service providers by ensuring that all service suppliers seeking
to take advantage of scheduled commitments have reasonable and non-discriminatory access to
and the use of public basic telecommunications networks and services67”.
Currently, 108 WTO member countries (including the Philippines) have committed to facilitate
liberalized trade in their telecommunication services. Out of this 108, 99 member countries have
66
The NTC did state that high subscriber volume areas are effectively subsidizing the infrastructure for low
subscriber volume areas (Cabarios, 2016). More of this on the issues currently faced by the industry.
67
See WTO Basic Agreement on Telecommunications Services at http://www.tiaonline.org/trade/world-trade-
organization/wto-agreement-basic-telecommunications-services. (par.1).
38
made commitment to expand competition in their basic telecommunication services such as fixed
and mobile telephony, real-time data transmission, and the sale of leased-circuit capacity68.
However, telecom market liberalization is not enough to induce meaningful competition.

According to International Trade Union (2002), the development of meaningful competition is
typically hindered by limited market size, economic stability, poor investment returns, and lack
of country-specific competition policies. ITU (2002:9) further states that certain areas of the
telecom industry in general are still owned and controlled by incumbent operators which are
characterized by the following: a) Strong network effects that reflect the desire of customers to
make and receive calls from anyone (the value of any-to-any connectivity); b) Large sunk costs
involved in the construction of essential facilities such as local networks; c) The long legacy of
statutory public monopoly in telecommunications which has afforded the incumbent: scale and
scope economies, benefits of established networks such wide subscriber base, deep pockets and
market experience, and vertical integration.
In the case of the Philippine telecommunications industry, despite its WTO commitment and
liberalization in the 1990s, it remains a highly concentrated industry controlled primarily by two
telco companies. The UNESCAP study on Broadband Infrastructure in the ASEAN region in
2013, Philippines’ telecom industry was deemed “less competitive” while its ASEAN-5
neighboring countries were either “reasonably competitive” or “competitive”. The main reason
stated was the dominance of only two telco companies, PLDT and Globe, in fixed-line, mobile,
and broadband segments of the telecom industry.
3.4.1 Indicators of Level of Competition
3.4.1.1 HHI
In order to get a glimpse on how the current state of competition is in the Philippine
telecommunications market, we begin with conventional measurements such as the Herfindahl-
Hirschman Index (HHI) and the Lerner Index69, which can help us explain the basis of these
consumer groups to question the industry player’s pricing behavior. The HHI index is a
68
See Telecommunication Services https://www.wto.org/english/tratop_e/serv_e/telecom_e/telecom_e.htm.
69
See Appendix A for the explanation of the Lerner Index and the microeconomic theory behind the oligopoly
power of the dominant players, and its effect to price
39
measurement used to capture market concentration. A higher market concentration means less
competition. Computing for the HHI 70 we obtain 0.515, or 51.5 percent of total market
concentration. The US Department of Justice notes that with HHI values higher than 25 percent71
is generally considered a highly concentrated marketxxix, making it difficult for other firms to
enter the market and influence prices.
With this we can hypothesize that the Lerner Index for the telecommunications industry is high.
The Lerner Index measures the overall market power of the firm, specifically its ability to set
prices, as it can be shown that the Lerner index (L) is simply72 . With this
it can be inferred that the price of internet service provision is high, the marginal cost is
negligibly low (as established earlier on), and if at the same time demand for internet service
provision is inelastic73, then in principle the industry players have strong market power. This is
consistent with the initial hypothesis in which the telcos may be competing; however the market
dispersion may not be sufficient for new players to enter the market. This further explains why
market power for the incumbent industry players is high and consumer welfare is not fully
realized.
Practices that elicit manipulative and unreasonable market behavior are grounds for anti-
competitiveness. Now we zoom into the characteristics of these industry players, how they have
behaved over the past decade to look for possible indications of uncompetitive acts that would
otherwise hinder the development of the industry. This has contributed to the industry’s
relatively expensive internet service provision.
70
We measure HHI by getting the sum of squares of the market shares of the firm, for which we obtain 0.515 from
(Globe Revenues /Total Industry Revenue )2 + (PLDT Revenues /Total Industry Revenue)2
71
See link: https://www.justice.gov/atr/herfindahl-hirschman-index
72
Gata, J. "Market Power: Its Central Role in Competition Policy." Seminar Series on Competition Law and
Economics. Manila: Philippine Competition Commission, 2016.
73
From the discussion so far, it can be inferred that the demand for broadband subscription is increasing from more
subscriptions over time, high mobile penetration alongside the smartphone boom, and the changing business
landscape: the paradigm shift from accessibility to reliance for business transactions has effectively transformed the
role of the telecommunications industry in the economy.
40
3.4.1.2 Relatively expensive internet service
Consumers of telecommunications services have continuously increased since the start of the
twenty-first century as the industry is finally realizing the potential of the World Wide Web,
changing the ways we function socially and in businessxxx, changing the way we communicate
with each other and gather resources. The Internet of Things (IoT), which refers to the networked
interconnection of everyday objects as it is self-configuring wireless network of distributed
sensor, has our demand for its services. An example of an IoT type of product would be the
Radio Frequency Identification (RFID) used as an alternative way to pay for the South Luzon
Expressway tollgates74. In the Philippines, the number of internet users is around 40 percent.
With the status of the Philippines as a developing nationxxxi, the economy has now expanded its
usage of internet services, with developments in the services sector (e.g. the Business Processing
Outsourcing (BPO) sector)xxxii.
Households also have a stronger demand for fixed and mobile internet subscriptions. In the
prepaid business, the unlimited broadband connectivity packages have evolved, now with
packages that offer data-specific connectivity, with packages such as the Globe GoSakto which
now provides you the opportunity to create your own packages with fixed data connectivity of
different amounts of data caps75. The fact that sim cards are very inexpensive – a TM sim card
can cost around Php 15 – mobile number and network switching especially in prepaid
subscription is not a problem at all. In fact, the number of mobile subscribers outnumbers the
population of the Philippines (World Bank, 2016). Such is the case because a consumer can be
subscribed to more than one network. However, the packages that consumers enjoy are not
limited to the prepaid market (which accounts for almost 90 percent of the total
telecommunication services subscribers). Postpaid plans 76 are gaining competitive traction in
terms of better mobile phones that one can own given different postpaid plans and deals that
74
See link: https://www.uio.no/studier/emner/matnat/ifi/INF5910CPS/h10/undervisningsmateriale/RFID-IoT.pdf
75
GoUnli packages offer different packages for unlimited calls and texts plus internet surfing for Php 20, Php 25
and Php 50 (Globe Telecom, 2016). Smart Communications also has a strong hold at the prepaid promo packages
with GigaSurf50 (for Php 50 a consumer can enjoy 1GB of data for 3 days), All in 25 (Unlimited SMS to all
networks, 60 minutes of calls to Smart and Smart Subsidiaries, 10 MB of data) and SurfMax 50 (All day internet
surfing for 1 day with 3G when available).
76
Currently Globe Telecom is the industry’s leader in postpaid subscription. PLDT/Smart controls the prepaid and
fixed line subscription when compared with their respective annual reports’ statistics.
41
include 0% interest monthly payment schemes tied with the postpaid subscription, allowing
consumers to obtain the latest smartphones available in the market77.
Broadband internet speed in the country, however, still lags behind the global average speed and
its neighboring countries. Figure 15 below shows the average broadband and cellular speeds for
the ASEAN-5 countries.
Broadband speed in Mbps Cellular Speed in Mbps
5.5
1.9
19.8 6.4
4.1 17.3
4.2
6.8 7.2
3.6
Figure 15. Broadband and Cellular Internet Speeds for 2015 (Data from TechInAsia)78
The Philippines’ internet speed, unfortunately, falls behind its ASEAN-5 neighboring countries.
Further compounding this fact is the relatively expensive internet subscription pricing. A 2013
broadband evaluation study of the United Nations Economic and Social Commission for Asia
and the Pacific (UNESCAP) revealed that the Philippines has “somewhat expensive” broadband
subscription pricing based on the following factors: typical monthly broadband subscription,
base package price per Mbps in US dollars, and annual Mbps subscription in US dollars plus
installation as a percentage of nominal GDP per capita 79 . Table 3 shows a comparison of
broadband subscription pricing for the ASEAN-5 countries.
77
Such as the latest Samsung Galaxy S7 Edge at Php 2250 a month Samsung Galaxy Note 7 at Php 2599 a month,
iPhone 6s at Plan 2499 as well as other packages that have more consumer-friendly plans: a Huawei Y6 Pro, a
Lenovo A6000, an Oppo Neo 5s and a Samsung Galaxy J1 at Plan 599, a Samsung Galaxy J5 at Plan 999, and a
Samsung Galaxy J7 at 1499 a month for Globe. Smart Communications also has similar pricing schemes with more
flexible phone packages at Php 500, Php 800, Php 1200, Php 1800 and Php 2500 a month, with different
“flexibundles” which allow consumers to mix-and-match what type of service they pay for with different bundles.
78
See https://www.techinasia.com/asia-internet-speeds-mobile-broadband.
79
An In-Depth Study of Broadband Infrastructure in the ASEAN Region: An Evaluation report prepared for the United Nations
Economic and Social Commission for the Asia and the Pacific. (Terebit Consulting, 2013).
42
Country Typical Monthly Subscription Base Annual Mbps Evaluation
Package Subscription in
Price per USD + Installation
Mbps as a % of Nominal
(USD) GDP per Capita
Indonesia 1. USD$66 per month + $8 install. for 1 $20 $260 / $4,742 = Reasonable
Mbps unlimited ADSL; limited 5.5%
bandwidth packages $21/mo. (Speedy)
2. USD$62 /mo. + $103 install. for 1
Mbps unlimited FTTB (Biznet) 3.
USD$20 /mo. + install. for 1 Mbps
unlimited cable modem (FastNet)
Malaysia 1. USD$33 per month for 1 Mbps $33 $450 / $10,304 = Reasonable
ADSL including modem +$54 for 4.4%
activation and installation (Telekom
Malaysia)
Thailand 1. USD$20 per month for 10 Mbps $2 $24 / $5,678 = 0.5% Very
ADSL or Cable Modem affordable
(TrueOnline/3BB) 2. USD$41 per
month for 30 Mbps FTTx (3BB)
Philippines 1. USD$24 per month for 1 Mbps $24 $293 / $2,614 = Somewhat
ADSL, unlimited download (PLDT, 11.2% expensive
Tattoo (Globe)) 2. USD$73 per month
for 3 Mbps ADSL, unlimited download
(PLDT)
Vietnam 1. USD$10 per month for 1 Mbps $10 $120 / $1,528 = Reasonable
ADSL with unlimited download 7.9%
(VNPT) 2. USD$19 per month for 12
Mbps FTTx with unlimited download
(Viettel)
Table 3. Broadband Subscription Pricing for ASEAN-5. Source: UNESCAP 2013 evaluation study
In a survey conducted by TechInAsia in 2015 mobile data pricing, it was revealed that a Filipino
minimum-wage earner would need to work for around 10 hours just to afford 1 gigabyte of
mobile data80. Since prices were anti-competitive due to market inelasticity, this means that
consumers have no choice but to settle for the high price of fixed and mobile internet
subscription, making consumers price takers of the duopoly’s set price. Due to lack of other
players which can potentially provide alternative prices for the same (or better) internet provision
services, Filipino consumers have no option but to adjust on what the incumbent operators have
to offer in terms of quality, quantity, and quality of services.
80
See https://www.techinasia.com/cost-mobile-data-southeast-asia-infographic (cited by Mirandilla-Santos, 2016).
43
The high market power that the incumbent industry players have may have a negative effect for
innovation. New technology for better internet services in favor of consumer is created as long as
active competition among industry players exists81. Aldaba (2011) suggests that without effective
competition laws that act as safeguards for fair competitionxxxiii, it may be difficult to control
mergers and acquisitions which could substantially decrease industry diversification. History has
shown us how PLDT, and now Globe Telecom behaves in the face of increased competition by
new entrants such as by providing innovation and better subscription packages82. Competition,
therefore, can induce instances which result to increase consumer welfare.
3.4.1.3 Ads spending.
Another parameter to look at in order to have a glance on the behavior of the telcos is to compare
their levels on Ads and Marketing costs to each other, since it can be used to explicitly look at
how aggressive the firms are in attracting new customers. Furthermore, due to the dynamic and
volatile nature of Ads and Marketing, we can capture effects such as market elasticities due to
changes in expense; specifically, this type of expenditure has a cumulative effect on sales that
also depreciates over time; hence an optimal level of advertising expenditure must be made in
order to effectively capture the target market83. We can see this in figure 16.
81
It will be important to note that merit based monopoly power from inventions and innovations are treated
differently. An incentive must exist for firms that create new products in the market, which provide then the
competitive edge in the industry. However, too much monopoly power accompanied with a very inelastic market
(when the good or service provided is a need and has no alternatives), certain responsibilities must be considered to
maximize consumer welfare (Gata 2016).
82
Other than buying out the smaller players or not allowing them to interconnect with the networks.
83
In fact, dynamic optimization models are used in other industries (an example would be the US beef industry) to
effectively capture the market. An example of which would be the work of Lee, Schraufnagel and Heady (1982).
See Link: http://www.card.iastate.edu/products/publications/pdf/82wp13.pdf
44
12.00%
10.00% 9.67%
9.40%
8.35% 8.14%
7.79%
8.00%
6.75%
6.00%
4.88% 4.88%
4.28%
4.00%
2.03%
2.00% 1.62%
1.10%
0.34%
0.11% 0.34%
0.18% 0.24%
0.13%
0.00%
2013 2014 2015
PLDT Globe Meralco Manila Water Ayala Land SM Prime Holdings
Figure 16. PLDT and Globe Selling, Advertising and Promotions (in percentage)84 85
For Globe Telecom, their expenditure on Ads and Marketing were at Php 8 billion in 2014, and
Php 9 billion in 2015; PLDT on the other hand spent, Php 10 billion in 2014, and Php 9 billion in
2015. Relative to their revenues, it seems that Globe is actually spending more in ads and
marketing more than PLDT, which may infer that Globe, in a marketing sense, is more
aggressive. Nevertheless, both firms are heavily spending to entice new consumers to subscribe
to their network, especially in contrast to utilities such as electricity distribution and water (with
the represented example of Meralco at only 0.013% of total expense). This could be a problem
for new companies to enter the market; with industry players that heavily invest in Ads and
Marketing, the chance for a new entrant to compete in capturing new subscribers is low.
Based on the industry analysis so far, we can infer that Philippine telecommunications industry,
given the structure of its value chain and the dominance of only two providers on almost all of its
segments; it will prove difficult for new players to enter the market and improve the level of
84
Source: PLDT, Globe, Meralco, Manila Water, Ayala Land, and SMDC Annual Reports
85
For Ayala Land and SMDC, the sum of Advertising, Marketing and Management was used as there were
inconsistencies in reporting methods for the respective account for Advertising
45
competition. Indicators such as the HHI and the comparative price of services offered by the
players against similar firms in ASEAN are further evidences of weak competition in the
industry. This in turn poses a direct negative impact on consumer welfare with relatively high
prices and poor quality of broadband services. The proceeding section discusses the specific
issues which hurdles competition in the country’s telecommunications industry.
3.5 Challenges and issues
The main issues identified are the following: anti-competitive practices, control of essential
infrastructures, inadequate competition regulations.
3.5.1 Anti Competitive Practices
Anti-competitive practices of the incumbent telecom players are being investigated by PCC,
independent researchers from independent consumer rights groups such as the Internet Society,
as well as some academic institutions86. These concerns include unduly stifling of competition
through opportunistic behavior of incumbent operators as well as mergers and acquisitions.
These would explain the pattern of behavior that the two incumbent operators: in effect they first
use their ownership of the value chain to increase the barriers to entry for new firms, and if that
fails, they engage in mergers to reclaim market share.
3.5.1.1 Opportunistic behavior.
The rapidly increasing demand for internet subscription, without the accompanying ample
expansion to the supply of internet usage has increased the price of internet subscriptions. Since
wholesale pricing and access charges are not regulated, these costs are passed by the firms to
their subscribers xxxiv. Since building the upstream infrastructure is costly (backhaul access is
reported to amount up to 75 percent of the total cost), its supply is tightened. Additionally with
the two dominant telcos having full control of the landing stations and backhaul networks, access
86
The Ateneo School of Government held a conference on August 1, 2016 discussing the economic, social and legal
implications of the recent behavior of the incumbent telecommunications giants, specifically regarding the SMC 700
MHz assets deal with PLDT and Globe.
46
to these networks by small players are squeezed. Although it is possible for the new entrants to
rent access to the backbone from the two industry players, it would be very expensive for them to
do so. Furthermore unequal subscriber densities in different parts of the country mean that the
telcos have to lay down infrastructure to service areas with low subscriber density, thus pushing
costs up, which is again passed onto the subscribers, further increasing the price.87
This imposes a problem: effectively, it would be cheaper for firms in the long run to source the
backbone from abroad than locally. This raises the question on how the costs are paid for by the
dominant players. The NTC has provided insight to this predicament: since subscriber volume
plays a significant role in income generation, due to their unprecedented market power, the two
firms are able to increase the price of internet service provision in order to pay off the
infrastructure costs incurred in low subscriber volume areas88. Technically, this is constitutional
(the market is in fact deregulated89). However, the high subscriber density areas are effectively
subsidizing the costs in low subscriber density areas which can be considered as a form of
market asymmetry that has to be addressed or continue to violate consumer welfare. Despite this
statement by the NTC, information on the specific amount of the costs cross-subsidized is yet to
be disclosed and examined, though in theory it makes sense: in order to compensate for marginal
loss in unprofitable interconnection ventures, a private firm can increase the price as long as
consumers are unresponsive to price changes, since there is a lack of alternative products (the
internet cannot be replaced) and it is already considered a necessity and a basic human right by
the United Nations.
3.5.1.2 Mergers and acquisitions
Mergers and acquisitions further concentrate market power as larger firms try to hold on to their
market lead. The NTC90 has expressed that over 70 percent of telecommunications service costs
are on passive infrastructure (infrastructure with no marginal costs of operation e.g. the physical
optic fiber cable) with fixed costs amounting to around 95 percent, with an almost negligible
variable cost of five percent from power usage to transmit the signals. In the case of the
87
Ibid.
88
Insight from the National Telecommunications Commission (Cabarios 2016)
89
There is no Standard Retail Price for Internet service provision
90
Ibid.
47
Philippine mobile market, the whole frequency spectrum has already been fully assigned to
different companies. And because of the quasi-judicial process that regulates monopolies, it may
be difficult to reclaim unused frequencies. This leads firms to privately sell spectrum and related
assets in the form of mergers and acquisitions. This further concentrates market power among
the large players in the market. With this we discuss two instances in which mergers and
acquisitions exemplify an attempt of the industry players to concentrate the market.
The first discuss how the PLDT’s acquisition of Sun Cellular concentrated the market. In the
beginning of the twenty-first century, the Philippines had more than one telecommunications
service provider, as discussed before. However Digitel had a business strategy that changed the
entire prepaid industry when flat rate unlimited service was introduced. Digitel91 re-entered the
market in 2003 with a new branding – Sun Cellular – which then offered 24/7 Unlimited Calls
and Text promos, this caused ripples in the industry, eventually leading PLDT and Globe to
charge Sun Cellular with predatory pricing by filing separate petitions before the NTC to
disallow Sun Cellular to provide telecommunications services, which had fixed call rates of Php
5.50 per minute. This was in addition to banning Sun from charging much lower rates.
Unexpectedly, the NTC ruled in favor of Sun Cellular, allowing them to continue running their
business. This prompted Globe and Smart (PLDT’s mobile phone services subsidiary) to also
offer fixed call rates and “bucket” plans for voice and SMSxxxv. Despite the success of NTC’s
ruling, Digitel was not able to compete with the two large telecommunications giants. Eventually
in 2011, PLDT bought Sun Cellular, controlling all of its assets.
The second (most recent) involved the company San Miguel Corporation (SMC). SMC was seen
as a potential third player in the market since it owns several small telco players; however, it has
not been able to deploy its technology on a nationwide basis or onto a retail mass marketxxxvi.
Further, Telstra Corporation Limited, an Australian telco company, backed out from their deal
with SMC on establishing a new telco company that would supposedly rival PLDT and Globe.
91
Digitel was eventually acquired by PLDT in 2011.
48
SMC and Telstra cited the disagreement on equity investment as the main reason why the deal
did not push through92.
PLDT and Globe, agreed to buy out Vega Telecomm, Inc., SMC’s telecommunications
subsidiary company which currently holds 700 Megahertz 93 spectrum 94 . Initially, PLDT and
Globe have lobbied the government to give them fair share of the bandwidth. The lobbying was
deemed to be futile, hence, they agreed to buy out Vega Telecom instead. PCC, however, denied
the approval of PLDT and Globe’s acquisition of SMC’s Vega Telecomm, citing insufficient
information on their submitted report95.
In both cases, the incumbent operators have appealed to NTC, asking protection from
competition. Given their already large market share, the behavior of the dominant telecom
players’ exemplifies an attempt to concentrate the market. One has to remember that frequency
spectrum is a valuable limited resource. Its use is licensed by the NTC and not an asset
purchased like a typical commodity. In fact in the United States, licensees of the 700 MHz band
must meet stronger and more efficient build out requirements to promote better access to
spectrum and broader deployment of broadband services. Failure to meet the necessary
benchmarks will be subject to the Federal Communications Commission’s “keep-what-you-use”
policy where unused frequencies are reclaimed for future use by other service providers, and re-
auctioned again96.
There are two ways on how the NTC allocates radio frequency spectrum: Administrative
Allocation and Market-based allocation and Spectrum Assignment. The first method is when the
government grants spectrum assignment to firms that have the highest capacity to utilize the
frequency. This method however has produced underutilization and inefficiencies, which also
limits the flexibility in providing services amidst technological developmentsxxxvii, because of the
underlying variables that arise in the NTC’s choice of assignment (particularly political). This
92
See http://www.rappler.com/business/industries/172-telecommunications-media/125751-pldt-globe-telstra-smc-
talks.
93
A type of low-band frequency which can improve network coverage and penetrate walls at cheaper prices.
94
See http://business.inquirer.net/210696/smc-sells-telco-assets-to-pldt-globe.
95
See PCC, Telcos meet to discuss San Miguel telco buyout at http://www.rappler.com/business/industries/172-
telecommunications-media/139251-pcc-pldt-globe-dialogue-san-miguel-buyout
96
See Link: https://transition.fcc.gov/fcc-moving-forward-report.pdf
49
has resulted to unused spectrum units that are kept by license holders, as if it was an
investmentxxxviii. The second is through willingness of the companies to bid for the frequencies.
As it is more efficient, this will allow firms to maximize the spectrum allocation license in order
to make up for the cost. However there is a caveat that has to be considered: if there are not
enough bidders for the frequency, then the price of the frequency will not increase.
Through frequency bidding, new entrants will be able to enter the market and maximize the
potential of the frequency spectrum allocated to them. However if these frequencies are sold
freely by the market, then potentially inefficiencies will arise as the price for the frequency may
be too low for the firms to have an incentive to innovate and maximize the spectrum allocated to
them. Since it is a fixed cost (similar to the infrastructure cost as discussed beforehand), then the
cost should not necessarily be passed onto the consumers, as the return on investment will come
from increasing the industry player’s number of subscribers (since variable cost is very low). The
fact that SMC is directly selling their rights to their unused frequency to these dominant players
will not only potentially create a disincentive for the dominant industry players to maximize the
potential of the frequency, but also remove the opportunity for the NTC to allow new entrants to
bid for the user license of the frequency band. 3.5.2. Control of Infrastructure
The current structure of the industry make small telcos and ISPs prone to anti-competitive prices,
since the two large telcos not only control the infrastructure and wholesale pricing of internet
bandwidth but are also allowed to compete in the same retail market as their client. With control
of both the upstream and downstream, the industry players have price-setting power. This is
reflective of the value chain findings, wherein the upstream market players are also the
downstream market players (or subsidiaries of the same company, e.g. PLDT and Smart
Communications), which control almost everything from the backhaul, the backbone, the middle
mile and until the last mile in internet service provision. Due to the high cost of the infrastructure
which constantly changes with the development of a new technology (except that the backbone
does not necessarily get replaced; rather it expands and upgrades), the retail market incurs heavy
fixed costs from rent which are typically transferred to consumption pricing.
Due to the high fixed cost associated with the process of acquiring and running a
telecommunications business, entering the competition in the Last Mile has been exceedingly
difficult for small firms. If an international operator wishes to sell capacity directly to the
50
Philippine landing stations, the price would be about $3 to $5 per Mbps for a minimum of 1
Gbps. However, in reality an international operator would need to make a commercial
arrangement with one of the local telecom firms which own landing stations in order for its
capacity to reach a national data center. Expanding the capacity and consuming in smaller
quantities will also increase the price per Mbps. Some ISPs operating in small municipalities
reportedly get charged at $200 per Mbps.
The intuition behind such high prices lies in the industry’s value chain structure. As discussed
beforehand, Average Revenue per User (ARPU) is quite low, so in order to provide internet
access to remote areas in the country without increasing the price charged per subscriber will
result in lower profits. Since the two major conglomerates are privately owned, profit
maximizing firms, this creates a strong disincentive to lay down new cables to connect remote
areas in the Philippines to the internet. If the government’s main agenda is to provide nationwide
broadband access, then having two telecommunications giants own the entire value chain may
not be the most efficient way to do so.
3.5.3 Ineffective Regulations
Despite the de-monopolization reforms, WTO commitments, and the establishment of a

Competition Commission, the Philippines telecommunications industry is still uncompetitive.
The NTC is mandated to regulate and supervise the provision of public telecommunications and
97
broadcasting services in the country. It is also mandated to enforce the Public
Telecommunications Policy Act; to maintain viable, efficient and reliable universal telecom
infrastructure using the best available technologies98. Furthermore, the Commission manages the
radio spectrum to be used for broadcast and telecommunications, and perform quasi-judicial
functions and supervision of telecommunications and broadcasting networks 99 . Despite these
mandates, the Commission’s actions are subject to the review of the court; effectively limiting its
functions. Decisions made by the Commission are appealable to the Court of Appeals and the
Supreme Court. This caveat has been used by some industry players in order to delay or even
97
Executive Order 546
98
Republic Act No. 7925
99
Ibid.
51
reverse NTC decisions which are not in line with their business interests 100 . Moreover, the
penalty for violators cost only Php 200 a day, based on the Public Service Act of 1936101. As
such, the cost of compliance is exponentially higher than the actual violation cost. To reiterate,
NTC is perceived to be ineffective and weak in regulating the behavior of the incumbent
operatorsxxxix.
The Philippine government is aware of the deficiencies of the existing legal and regulatory
frameworks of the telecomm industry. Since the early 1980s, there have been many attempts to
either pass or revise laws and regulations to enforce competitionxl. However, due to a lack of
appreciation and political will, these laws have been of secondary priority for legislation in the
pastxli, only gaining political traction in the recent decade.
3.6 Industry Analysis Synthesis
Provided with the industry overview thus far, we can infer these key points:
 Broadband subscription prices are high because the market is structured in such a way
that the upstream is expensive due to high fixed costs, but the downstream is cheap
because the marginal cost is low.
o The lack of a strong and sophisticated backbone and backhaul network causes
data traffic to constantly reroute in order to reach the intended data center,
slowing down internet connection
o High upstream costs cannot attract new entrants in the market
o With the private ownership of the infrastructure, rental costs for other ISPs to
connect to the backbone are high and the two dominant players have no incentive
to lower its cost because they are also part of the downstream market
100
Ibid.
101
Commonwealth Act 146. Available online at http://www.lawphil.net/statutes/comacts/ca_146_1936.html or
http://www.upecon.org.ph/epdp/wp-content/uploads/2016/01/1936-11-7-960_CA-146-Public-Service-Commission-
Act.pdf.
52
o With only two dominant players in the inexpensive downstream market, profit
margins per user are high evidenced by their high EBITDA margins but low
ARPU
o In addition, having imperfect competition in the downstream does not incentivize

the dominant players to lower the price charged per consumer
 Anti-competitive behavior intrinsically exists in the telecommunications sector but the

government lacks the machinery to implement the already existing laws
o Even with the Public Telecommunications Act providing the NTC with quasi-
judicial powers, its actions are all subject to court review
o The Public Service Act only charges Php 200 a day as a penalty for violators: a
miniscule amount compared to the cost of compliance
o Outdated telecommunication laws are not amended by Congress despite national

interest and awareness of such due to the lack of political will
 Filipinos cannot maximize the available interconnectivity technologies
o Telecommunications services, especially broadband connectivity, is a vital

element in labor productivity and consumer welfare
o With the strong correlation of broadband speed and penetration to GDP, the
Philippine economy is experiencing an opportunity cost from interconnectivity
problems
o Compared to our ASEAN neighbors, our interconnectivity is slow, inefficient,

and expensive, hence, our telecommunications services are not competitive in a
global setting
o With an uncompetitive telecommunications sector relative to the rest of the world,

aggregate consumer welfare is not fully realized as Filipinos feel deprived from
the quality of service that our incumbent players are providing.
53
With the current business environment of the telecommunications sector, new entrants have a
difficult time entering and staying in the market. In turn, prices remain high and the incentive to
improve the quality of service provided is low. The lack of clear policies to regulate market
behavior in this industry is also alarming as the cost of non-compliance is low. Insofar as to
sharing prosperity in the country by increasing global competitiveness, the state of our
telecommunications sector - a structurally uncompetitive market - raises concern with respect to
labor productivity, consumer welfare, and aggregate economic growth, which could cause an
overall challenges to economic progress.
In the next section, we discuss the possible solutions to increase the competitiveness of the
industry.
54
4 POSSIBLE SOLUTIONS
The Philippine telecommunications industry, based on the value chain analysis, is deemed to be a
structurally uncompetitive industry, which then poses challenges on consumer welfare
maximization and more so, economic growth. This section provides possible solutions on how to
increase competition in the telecom industry. In particular, this paper suggests the adoption of
open network access, updates of competition regulations, and increase industry information
transparency to foster competition and consumer welfare. By increasing competition, consumers
will have more choices to select from, enabling them to optimize consumer preference and
eventually increase their welfare. In addition to consumer benefits, competition also serves as a
catalyst for innovation since it generates ways for better, cheaper and more efficient services and
subscription packages to arise.
4.1 Adoption of Open Network Access
Sharing of infrastructure is the most effective way to allow other industry players to enter and
compete fairly. OECD defined open access as “an arrangement that provides effective, wholesale
access to network infrastructure or services at fair and reasonable prices, and on transparent and
non-discriminatory terms” 102 . With an open access framework, “…fair trading within and
between the layers of a network, based on clear, comparative information on market prices and
services” will be guaranteed in the long run103. Open access may involve one or two of the
following: collocation of facilities, national roaming agreements, and local loop unbundling104.
In particular, the local loop unbundling process can be used to induce sharing of infrastructure by
the telcoms to other players. The unbundling of the local telephone infrastructure will require the
incumbent operators to provide new entrants and other ISPs access to the local loop, allowing
them to provide expanded broadband and other telecom services to the existing consumers of the
102
See Stimulating Competition Through Open Access Networks http://oecdinsights.org/2013/03/05/stimulating-
competition-through-open-access-networks/.
103
See ITU definition of Open Access
http://www.itu.int/itunews/manager/display.asp?lang=en&year=2008&issue=02&ipage=sharingInfrastructure-
importance#1.
104
Ibid.
55
fixed line105. Access to the local loop allowed prices to remain competitive enough for small
ISPs to buy and for the overall price of internet connection to be lower106xlii.
With the existence of a Local Loop Unbundling (LLU) - specific policy, it can allow small
industry players to share internet infrastructure owned and controlled by PLDT and Globe.
Table 4. Telecommunication unbundling. Source: OECD (2007)
Table 4 (above) shows the different layers of the telecommunications industry that can be
unbundled; once the third layer is unbundled, the network can be considered as Open Network
Access. Discussing the different implications for unbundling each layer, we begin with layer
zero.
Layer zero denotes the conduit, collocation facilities and access to ducts; having a universal
docking system for signals to pass through seamlessly without incompatibility issues. This has to
do with protocol language and hardware used to interconnect the internet. The first layer would
be the physical layer unbundling, which includes local loop unbundling, dark fibre leasing and
105
See ITU definition
http://www.itu.int/itunews/manager/display.asp?lang=en&year=2008&issue=02&ipage=sharingInfrastructure-
importance#1.
106
For this scenario, the market structure can be best explained in a prisoner’s dilemma game, wherein the stable,
Nash Equilibrium strategy is not the optimal solution (Maschler, et al., 2013). See Appendix B.
56
optical layer unbundling in Passive Optical Networks (PONs) 107 xliii . This layer is more
concentrated on the physical infrastructure on the Last Mile. Unbundling the first layer can be
done by providing open access to the physical infrastructure for broadband interconnection.
The second and third layer deals with data and network layer unbundling, in which layers 2 and
3 bitstream access is accessible to any subscriber for an affordable price. Because of economies
of scale from the interconnectedness of the already-present unbundled physical infrastructure,
level 2 and 3 unbundling can benefit both producer and consumer since more subscribers will be
able to have access to the network at cheaper costs (OECD 2007). One recommendation by the
OECD is to look at the characteristics of the fiber technology already available in the country,
then assess if first and foremost physical layer unbundling is possible (see Table 5).
Table 5. Fiber Network Configurations and unbundling. Source: OECD (2007)
107
There are three types of PONs: Broadband passive optical networks (currently only of historical interest),
Gigabit-capable passive optical networks (GPON) and Ethernet passive optical networks (EPON); in fact current
GPON technology is a powerful option for deep-fiber broadband access
57
From Table 5, we can see that point-to-point fiber, point-to-point fiber using PON, cabinet Fiber-
to-the-Node (FTTN), passive optical splitter PONs, logical layer unbundling, and optical layer
unbundling is possible, though FTTN using the cabinet is investment intensive108. This is in line
with the industry analysis findings wherein infrastructure costs are high.
Currently, Point-to-Point FTTH is available in the country at the local exchange (PLDT currently
has PLDT Fibr and Globe Telecom has Fibre)109 110. Furthermore, both dominant players already
have access to Wave Division Multiplexing PONs in the form of LTE and 4G access to mobile
phones, though 4G is available only in some areas in the country (see figures 17 and 18 below).
108
Taken from Convergence and Next Generation Networks Ministerial Background Report by the OECD (2007).
109
See link: http://pldthome.com/fibr/support, https://www.globe.com.ph/broadband
110
Full list of FTTx areas for PLDT at http://pldthome.com/fibr/areas and for Globe Telecom at
https://www.globe.com.ph/press-room/globe-telecom-bares
58
Figure 17. Nationwide 4G coverage. Source: Sensorly Database
59
Figure 18. Central Manila LTE Coverage. Source: Sensorly Database
60
By shifting ownership of the upstream infrastructure from the private sector to the public, it
effectively reduces the cost for new entrants in the market. While this effectively crowds the
broadband subscription lines as subscribers increase (since the country still has limited coverage
on FTTx technology) if infrastructure is inadequate, that burden is now transferred to the
government.
The caveat in an Open Network Access strategy would be when the government is incapable of
producing infrastructure. If the government fails to provide the necessary upstream connectivity
then essentially the market will fail. This was the primary reason in why deregulation was set in
place by the Ramos administration and let Globe Telecom enter the telecommunications market.
By letting the two companies compete, fixed and mobile telephony expanded. However, this
time the situation is different: both conglomerates have virtual duopoly over the industry and
there is no incentive for them to lay down upstream infrastructure for low subscriber density
areas without increasing the prices of their services. Since our main issue is that internet service
provision is expensive and slow, which is caused by the lack of competition and infrastructure,
the government has to step in and create a common network for all telecommunications service
providers to access for retail use.
Ultimately, Open Network Access allows network convergence to occur by creating an

environment wherein any independent Internet Service Provider can connect to the network
backbone with minimal cost. This in turn will allow broadband penetration to increase.
Moreover, this is extremely helpful in intensifying competition in the market by allowing
services to be delivered on a number of different platforms, effectively reducing bottlenecks in
network service provision. Furthermore, the increase in competition will incentivize firms to
improve on the quality of internet access by increasing broadband speed and stability. Now
provided with easier and cheaper access to the market, new entrants will allow innovation to
flourish as they are now able to provide more competitive offers as they extract the most out of
the newly expanded network (OECD 2007).
In the case of the Philippines, Open Network Access can allow easier internet service provision
in far flung areas in the country. Since the network infrastructure will effectively be owned by
the public, the only remaining cost for new entrants to actually worry about would be distribution
costs for fixed or wireless broadband, in the form of DSL or LTE capable SIM cards (with their
61
respective mobile devices). This will lessen the disincentive to provide network access to areas
in the country with low subscriber density, where to begin with, provide a low return on
investment for private firms. Furthermore, our archipelagic geography would mean that in order
for island provinces to have high speed internet, the backbone will consist of expensive undersea
cables, which if privatized will increase the price of internet service provision. Hence having
those cables produced and maintained by the public sector will allow the price to decrease.
With the public sector laying and maintaining the network backbone, the question of efficiency
and quality may come to mind for the skeptic of publicly maintained goods. Indeed it would be a
valid argument: fundamentally, privatization will make firms more efficient because there is a
heavier stake in private loss than public loss. However, we have to consider that the new
consumers of this public backbone will be the private firms, and with new entrants in the market,
the government will effectively be pressured to produce and maintain the backbone at its best
capacity because if the public sector does not do so, the economy’s competitiveness and ease of
doing business will go down. Suboptimal provision of network backbone will make the
Philippine economy worse off.
Other countries abroad had different strategies to incentivize the public sector to maintain an
efficient network backbone. A notable example would be Malaysia; by having private operators
invest in the backbone fund, the government was effectively pressured to build a strong network
backbone. This is further discussed in the succeeding section.
4.1.1 Open Network Access for the Philippines
With regulatory network unbundling as the most effective way for the Philippines to achieve
open network access, we propose that the upstream economy be made accessible for new
entrants to use in order to induce competition in the downstream economy. By having the
government own and control the upstream economy, rental costs for usage of the infrastructure
can be kept at the minimum, enabling a friendlier business environment for new entrants while
retaining, and even improving the quality because with this framework, the telecommunications
providers now become the consumers of the upstream economy. Since quality infrastructure is
necessary for private telecom players to provide better broadband and telephony services, it will
now up to the firms to demand the government for better infrastructure; effectively transferring
62
the specific demand for better infrastructure from the consumer to the firms. This in turn will
reduce production cost for firms and effectively reduce the price of broadband and telephony
services, and in addition will increase the quantity of subscribers. In the end, this will induce
greater competition in the telecommunications industry.
Figure 19 summarizes the proposed unbundling process for the Philippine telecommunications
industry value-chain. In essence, the infrastructure of the intercontinental cables and landing
stations shall be provided for by the government; in which the government can purchase the
already existing backbone infrastructure, provide subsidies to telcos to expand their current
backbone, build their own infrastructure to provide access to areas without connectivity. In turn,
retail, distribution, and after sales services are to be provided by the telco companies.
Figure 19. Value chain before and after network unbundling
63
The proposed value chain will allow new entrants to enter the telecommunications market more
easily since the largest burden of market entry will be subsidized by the government, resulting to
a cheaper rental cost for interconnecting to the backbone. The government has the incentive to
provide and maintain the backbone infrastructure because telecommunications services provide a
positive impact to the economy’s productivity and welfare.
4.2 Best Practices
4.2.1 Malaysia
One of the countries that benefited the most from an unbundling policy in the ASEAN region
would be Malaysia, now with an average of 6.4 Mbps (49 percent year-on-year increase) and
peak speeds at 46.3 Mbps. Their implementation strategy had two main supply side initiatives;
the High Speed Broadband (HSBB) project which is deploying Fiber to the Home (FTTH) to
deliver connection speeds above 10 Mbps in industrial areas including Klang Valley, and the
Broadband for General Population (BBGP) project aimed at other areas using ADSL and
wireless broadband with average speeds of 2Mbps. BBGP obtained its funding from the
Universal Service Provision (USP) fund, as it focuses on the coverage of less profitable rural
areas. With mechanisms that incentivized operators to invest in the fund and “claw-back” up to
50 percent of their investments after implementation to improve broadband penetration and serve
the general population.
Aside from supply, demand was also stimulated to pressure the telecoms to lower prices and
improve services using the USP. Broadband carnivals, broadband and ICT trainings, as well as
promotional campaigns increased awareness of the general population on their program.
Furthermore, e-government, e-commerce and e-education were introduced. The online portal
My1Content was implemented in order to encourage content developers and commercialization
of creative content by the Multimedia Development Corporation of Malaysiaxliv.
64
4.2.2 Other notable examples
Over the past several years, there have been many countries, particularly of the OECD member
states, which have incorporated local loop unbundling process into their existing regulatory
telecommunications frameworks. Through LLU, OECD governments aimed to expand their
frameworks to allow other ISPs and facility-based entrants to compete with the incumbents in a
fair and non-discriminatory mannerxlv. The International Telecommunications Union (ITU) has
also drafted specific guidelines for unbundling the infrastructure access for the
telecommunications industry, which includes access to the point of interconnection, local loop
unbundling, co-location and passive infrastructure sharing. Guidelines for increasing competition
have also been provided, in which carrier selection, number portability, local and international
roaming is discussed. Recommendations were also given for specific cases wherein a dominant
firm controls a significant market share.
The experiences of OECD countries in implementing LLU policies and the ITU guidelines may
be of great insight to the Philippine telecomm industry proposed unbundling move.
4.2.3 OECD and the European Union.
Local loop unbundling in the European Union usually involves a two part tariff system, with a
price set on rent and connectivity; usually the rental price corresponds to a certain cost in the
network infrastructure and other network capital and operating expenses. This usually associates
connection price to the costs from activation of servicexlvi. The costs usually associated in local
loop unbundling are can be grouped into five major categories, namely network assets, non-
network assets, direct network operating costs, direct non-network operating costs, and indirect
operating costs.
One of the OECD countries which have implemented unbundling policy is Japan. Japan’s
incumbent telecommunication services provider is the Nippon Telegraph and Telephone (NTT)
which has five subsidiaries namely: NTT East, NTT West (local telephone companies), NTT
Communications (long distance), NTT DoCoMo (mobile), and NTT Data (information
65
services)111. Following the amendments in the Telecommunications Business Law in June 1997,
LLU was enactedxlvii. Albeit the government failed to dissolve the dominance of NTT in the
telecom industry, the enactment of the local loop unbundling and colocation policies in 2000
allowed for other service providers such as KDDI, Yahoo!, K-Opticom, and Softbank, to enter
the market. 112 Specifically, the government required the NTT East and West to allow co-
mingling collocation of their building, unbundling their optical fibres and then FTTH (Fiber to
the Home) services in December 2000 xlviii. Aside from regulating the NTT and allowing the
entrance of other ISPs, the Japanese government had also set cheaper costs for the new facility-
based entrants and ISPs to access NTT’s unbundled loops, thereby, resulting to lower prices of
the telecomm services113. This strategy had forced the NTT to also set their prices lower and at
the same time offer increased internet speeds114.
Another OECD country to laud with regards to their LLU implementation is Sweden. The
telecomm industry of Sweden has one of the most developed mobile and broadband sectors in
Europe, boasting robust LTE infrastructure and high penetration of fiber broadband services115.
Sweden’s LLU was implemented ahead of the EU regulations in 1998xlix. TeliaSonera, Sweden’s
incumbent carrier, began offering LLU and colocation in March 2000, line sharing and bitstream
access in March 2001, and sub-loop unbundling in November 2001l. The Swedish government
has also exhibited solid regulatory policies against monopoly in their telecom industry. In
particular, their broadband strategy included policies which required TeliaSonera to unbundle its
local loop which would then allow “non-discriminatory access” to other broadband service
providers 116.Furthermore, the Swedish regulator, Post&Telestyrelsen (PTT), in a 2003 ruling,
required TeliaSonera to provide lower prices on their local loops for their broadband
competitors117.
111
See The Information Technology and Innovation Foundation http://www.itif.org/files/2008BBAppendixD.pdf.
112
Ibid.
113
Ibid.
114
Ibid.
115
See Sweden- Key Statistics, Telecom Market, and Regulatory Reviews
https://www.budde.com.au/Research/Sweden-Key-Statistics-Telecom-Market-and-Regulatory-Overviews.
116
See The Information Technology and Innovation Foundation http://www.itif.org/files/2008BBAppendixG.pdf .
117
Ibid.
66
Although regulatory network unbundling is a key step in making telecommunications services
more efficient in the country, policies also have to be in place in order to monitor and penalize
anti-competitive practices. In an industry where subscriber coverage dictates profits,
disincentives to take advantage of consumer inelasticity to broadband services must be in place.
With open network access, new entrants will be able to enter the market, but what incentive
would they have if the dominant players will simply acquire their company at a high price?
Hence regulations to create and maintain a stable business environment should be in place. The
next section discussed possible solutions to update existing regulations to equip regulatory
institutions with the proper tools to implement competition policies.
4.3 Update Regulations and Improve Implementation
Concrete regulations must be in place in order for the proposed unbundling policy to work.
Without which, there will be no incentive for firms to comply with the proposed policies. Hence
regulating agencies must be able to monitor and penalize anti-competitive behavior of the
industry players. Mirandilla-Santos (2016) suggests the following reform actions on the existing
regulatory frameworks of the telecomm industry: 1) Amendments of the Public
Telecommunications Policy Act (RA 7925); 2) Enactment of the Department of ICT Act; 3)
Amendments to the Public Service Act; and 4) Passage of the NTC Reorganization Act.
Amending the Public Telecommunications Act by taking into account the convergence of
technologies and innovation will benefit both the industry players and consumers. Newer
technologies come as new players enter the market, and entry to the market leads to the
development of better technologies. The Public Telecommunications Act contains items that
hinder new entrants to enter the market; one of which would be the requirement to have a
Congressional Franchise in order to operate. By relaxing these requirements, new entrants will
have an easier time to enter the market.
A government agency that coordinates ICT related functions will promote efficiency from the
lens of society’s need for better technology will help promote better telecommunications access,
speed and affordability. Congress has ratified the Department of ICT bill in 2015.
Implementation of the law is essential to improve ICT related services, which includes internet
service provision.
67
Amendments to the Public Service Act (Commonwealth Act 146) must be put in place to cater to
the current realities of public service given newer technologies. A penalty of Php 200 a day may
be too small for a service that affects the economy’s welfare. Similar to the case of power
generation, the upstream economy of the telecommunications industry is expensive and further is
costly to the consumers if not met; hence stricter regulations and sanctions for violations must be
set in place.
NTC’s ability to regulate the telecommunications sector is limited to its mandate. Hence, the
regulatory framework must be updated in lieu of the Broadband ageli. NTC should not only be a
regulator, but also an enabler for better telecommunications service provision. In order to do so,
it must have the ability to reduce market entry barriers. Providing quasi-judicial powers to the
NTC is just the first step. The NTC should have the capacity to capacity to significantly penalize
anti-competitive behavior while incentivizing competition to flourish. Subsidies that may benefit
the short run and telecommunications infrastructure building for long run benefits will allow
telecommunications services in the country to become more efficientlii.
Aside from the prior policy recommendations, proper radio spectrum management plays an
integral role in improving the business environment and reducing barriers to entry for new
entrants. This will allow more efficient firms to utilize this limited resource, effectively allowing
other players to enter the market. It is essential that the NTC reclaim the licenses of unused
frequencies.
Strengthening the public sector and easing the barriers for new players in the industry are
fundamental steps in order to improve telecommunications services. However, it all goes down
to the demand side to provide an equilibrium point. Consumers have to know the implications of
new policies implemented by the public sector, how new entrants can spark innovation, and
ultimately, the quality of service they are actually paying for. The next section will briefly
discuss how industry transparency can empower consumers to make better decisions and
pressure the market to provide more competitive telecommunications services for the country’s
development.
68
4.3 Industry Transparency and Consumer Empowerment
Providing consumers with information regarding the relative quality of service they are
purchasing would increase consumer welfare as it will allow consumers to know their money’s
worth in buying telecommunications services. It would be more than fair for industry players to
provide consumers with this information since the telecommunications sector is considered a
basic human right118, which provides positive externalities to consumers when provided with
better quality of internet service; aside from an increase in productivity, consumers will be able
to connect to broadband subscribers abroad more seamlessly for personal and business
transactions. Moreover, perfect informationliii will raise consumer empowerment, as the industry
players will provide information of the true value of service, which in turn will foster clearer
consumer preferences. In turn, this business environment will create an incentive for industry
players to provide better services. Hence, policies that ensure full disclosure of essential
information must be in place.
4.6 Possible Solutions Synthesis
In summary, this paper discusses three key solutions to provide quality broadband connectivity:
 Adopt Open Network Access
 Update Regulations, specifically RA 7925 and enforce heavier penalties to incentivize

compliance to the rule of law
 Increase Industry Transparency for Consumer Empowerment
Since the bulk of the cost of telecommunications services, especially broadband subscription, is
concentrated at the infrastructure fixed cost 119 , government investment (or ownership) of the
physical infrastructure is the best way to maximize economic welfare. Public ownership of the
physical infrastructure will open up the market to different players (at a lower cost) without the
118
The United Nations (UN) declared in 2011 that Internet is a basic human right
119
Cabarios (2016) and Mirandilla-Santos (2016)
69
requirement of a Congressional franchiseliv. In effect, telecommunications service providers will
have to rent the infrastructure from the government, cutting infrastructure fixed costs and
effectively lowering the price per internet subscription package. This is the foundation that an
Open Network Access needs: enabling the industry to have non-discriminatory terms for service
providers120 which will consequently lower the price of internet subscription.
Providing consumers with the knowledge on how the internet works will also increase welfare as
consumers can know exactly what their money is worth when purchasing broadband services;
hence industry transparency is essential for consumer empowerment. Furthermore, PLDT and
Globe Telecom have to comply with this setup since it is in line with trust and competition laws,
creating a more competitive business environment for all players in the industry121.
120
Ibid.
121
And by referring to the history of the telecommunications industry, competition has actually benefitted the two
dominant players since it forced them to become more innovative with their products and services offered.
70
5 SUMMARY AND CONCLUSION
The Philippine telecommunications industry has significant contributions to the country’s

economic growth. Despite this, the country’s telecommunications industry still suffers from
relatively inefficient telecommunication services provision (most especially in broadband
internet) due to the following issues: a highly concentrated market, a costly network backbone,
outdated telecommunications regulatory schemes/frameworks, and the passive implementation
of regulations. This paper attempts to address these issues by conducting a value-chain analysis
of the industry and recommending solutions.
Based on the industry’s value chain, the bulk of the cost lies in the laying down of network
infrastructure, a relatively high fixed cost which constantly changes with the advancement of
telecommunications technology. From the landing stations, backbone networks and cell sites, up
to providing internet services, mobile and fixed telephony, every part of the value chain yield
costs which then results to expensive provisions of telecommunications services, especially for
areas with low subscriber concentration from economies of scale. Because of this, the dominant
telecom providers have to increase prices in order to obtain their return on infrastructure
investment. However, this argument may be contradicted by their market performance. Having
high EBITDA margins but low Average Revenue per User (ARPU) indicates that these firms are
raking huge profits in spite of an increase in subscribers. The only way for that to be possible is
that when prices are high and the bulk of the costs are fixed. Consequently, Philippine broadband
subscription has become expensive and inefficient compared to the rest of the world, mainly due
to the lack of incentives for firms to produce at the socially optimal level. This can be done by
introducing new players in the industry which will increase competition and maximize consumer
welfare.
The country’s broadband connectivity issues all boil down to the fact that the entire backbone
infrastructure is owned by the two industry players. As firm entry at the upstream is difficult due
to the high cost of infrastructure, alternatively competition can still enter the market at the
downstream economy. Since variable cost is almost negligible from the fact that supply-side
costs are inexpensive at the distribution level (i.e., SIM cards and broadband subscription are
cheap to produce), competition can thrive when more firms enter the market. However, the only
incentive for downstream firms to do so is when the rental cost for infrastructure decreases. This
71
could ideally be done with the adoption of an Open Network Access. In order for this to happen,
the first step is to unbundle the local and wireless telecommunications loop, effectively
transferring the ownership of the upstream assets to the public sector. This is assuming that the
government will be able to produce and supply the infrastructure at the socially optimal level
without sacrificing quality. Due to legal difficulties, this recommendation would not seem
feasible unless government action takes place. Despite this, it must be noted that since social
returns are high, the government has all the incentive to spend for such an endeavor. In the
meantime, what the NTC can do is to lay down the backbone to areas without access to
broadband connectivity and rent out its infrastructure to industry players.
Despite the presence of the Philippine Competition Commission and the National
Telecommunications Commission, weak regulatory power is yet to be fully addressed. Policies
such as regulatory unbundling for Open Network Access, infrastructure subsidization, as well as
industry transparency, cannot fully take shape without effective regulatory processes in place.
This can be done by reviewing outdated regulations and penalties for anti-competitive practices.
The Philippine telecommunications industry still has a lot to improve to fully realize its
socioeconomic benefits. Despite the availability of faster broadband technologies and cheaper
fixed and wireless telephony in the country, internet connection is still overpriced and relatively
inefficient. Without a strong telecommunications foundation, information will be difficult to
deliver to those who need it, thus, the economy will not be able to utilize the available
technologies to its fullest potential. The market and the institution that regulate it will have to
work hand-in-hand in order to make the country’s telecommunications sector more competitive
in this continuously changing, technology-driven world.
72
6 APPENDICES
6.1 Market Structure Discussion (Appendix A)
In order to obtain the actual prices and quantities produced by the market of the
telecommunications industry, we first synthesize what we can from the literature regarding the
relationships between each firm in the market, which includes the two telecom giants and their
other competitors occupying the remaining market share. A Cournot oligopoly best describes the
relationship between the two telecommunications giants as both have enough market shares to
have some effect in terms of their decision making; one may think that the relationship is of a
Bertrand Model, wherein both firms engage in a price war (as one may characterize from their
supposedly competitive prices); however if you look at their behavior in response to their
respective competitiveness in comparison to the rest of the world (e.g. Malaysia, Thailand and
Singapore have faster average internet speeds than those in the country), then there must be some
market asymmetry on why the production and access of internet services are subpar to the
Philippines’ neighboring countries; and one feature of the Bertrand model is that firms will
eventually produce at P  MC. Since that is not the case, then where is the inefficiency and slow
service coming from; in addition, why is the Philippines’ telecommunication industry
characterized by anti-competitive prices (Mirandilla-Santos 2016)? We actually do not need to
look far: taking a closer look at the structure of the marginal revenue of the firm, we have:
 1 
MRi  P1   MCi
 N d 
Wherein the marginal revenue of firm i is denoted by the price of the good P multiplied to a
function of the number of firms N and the elasticity of demand  d for the specific good sold by
firm i (Besanko and Braetigam 2011). Since internet connectivity is currently becoming more of
an integral part of our lives (more of a need than a want; for simplicity we do not let the elasticity
set to zero), and pairing that with a small number of firms (with their respective market share
73
weights), then as the denominator of the function becomes smaller. To elaborate this implication
further, we simplify equation (1) and eventually we obtain the Lerner index:
 1 
P1   MC
 N d 
p  MC 1
 L
P N d
1
From equation (2), we can denote that lim   . This fundamentally notes that as the need
 d 0 N d
for internet increases as the number of firms (in our case, two) would remain constant, then
effectively the duopoly will have complete control regarding prices and quantities supplied,
provided their respective market share (Besanko and Braetigam 2011). It does not necessarily
mean that the firms are engaging in a price war; but it may implicitly show that effectively the
market is colluding to control prices, even if there are no written or oral agreements or reports
that confirm this. The most that we can have regarding any agreements between these two firms
are the peering agreements that they havelv; however this peering agreement only allows their
subscribers to access telecommunications services without extra charge if they are not in the
coverage of their own subscribed network.
When the telecommunications market unbundles, new firms will now be able to enter the
market; now with an upstream and downstream competition due to the new provision of access
to the local loop and wireless loop, owned by their respective conglomerates. Both PLDT and
Globe own a significant share on the wireless network bandwidth frequencies, and with the new
IP peering agreement lvi, local traffic from any of the network frequencies can be utilized by
consumers to access broadband services. Hence in the demand side, their decision becomes
much simpler since coverage is not an issue anymore. However new firms who wish to enter as
new ISPs will need to pay rents to the duopoly in order to utilize the specific frequencies for
themselves: this is where the specifics of the unbundling policy comes in; how tight regulations
would be, or if deregulation after the unbundling policy will actually increase welfare. As long as
the unbundling policy will allow new firms to enter the market, the downstream market for
internet service provision will expand, now with the duopoly at the upstream and an price
leadership competition at the downstream with two industry leaders and n number of followers
74
behaving at P*  MCk , k  (1,2,...,n  i  j ) wherein P* is the price set by the duopoly and k are all
firms excluding the two dominant firms.
Baranes and Cortalde (2011) provides a model that describes the downstream competition and
lvii
upstream integration of the telecommunications market , focusing on the horizontal
relationships between ISPs and their respective vertical relationships to the IBPs which are
assumed to compete at a Cournot Duopoly. This will provide the theoretical backbone regarding
a shift in the market structure from an unbundling policy that will allow new firms to enter in the
market; and since new players will aversively affect the Lerner index per firm i illustrated as
P*  MC 1 dQ/ Q P Q
Li   where  d   . Since the price set by the market would be less as
P* d dP/ P Q P
Q diversifies (since P*  f (qi *) and qi *  f (qi ,qj , P) , i  j from obtaining the profit
maximizing quantity and price from their respective output reaction functionslviii.
75
6.2 Game Theory Approach (Appendix B)
First we lay down the initial assumptions that we can infer from the literature so far:
 Despite their firm size difference, in the telecommunications sector, Globe and PLDT are
neck-and-neck in terms of mobile and internet market coverage (but not assets)
 Globe and PLDT are homogeneous, profit-maximizing122 firms
 Payoffs are ordinal values; magnitude is not considered such that 3>2>1>0.5 123
 Full implementation of unbundling policy if chosen
Globe
unbundle Self-distribute
unbundle 2 , 2 (a) 3 , 0.5 (b)
Self -
PLDT distribute 3 , 0.5 (c) 1 , 1 (d)
Figure 20. Strategies of PLDT and Globe with their respective payoffs
For simplification we compare the strategies of Globe and PLDT, whether they will actually
want competition to join and allow the government to intervene and purchase their infrastructure
or to create their own infrastructure (which is more costly for the firms) and privatize the
coverage of their respective markets, holding the condition that the payoffs 3>2>1>0.5 and that
122
With all assumptions that go with a Cournot Duopoly, e.g. Inada Condition, Young’s Theorem, etc. (Besanko
and Braetigam 2011)
123
To relax on the burden of proof
76
Globe and PLDT are both driven by their self-interest to generate profits from business
transactions. The dilemma of the two telcos is this: both are already generating revenues and
profits (in the billions), and the infrastructure of the two firms already exist – in fact, fiber cables
are still used for high-speed internet connectivity, which have been in the market for a while
now. Given that they have invested resources on the infrastructure for telecommunications
connectivity, what would their incentive be to give it up? The government would answer
competition; technologies will change, innovation will enter and the market will expand. True
enough, an unbundle-unbundle strategy will yield a higher payoff at (2,2) than that of the double
self-distribute strategy at (1,1). However, if they did not unbundle their assets and the other
company does, then the company that did not self-distribute will now have to share their assets
with some other company, say Telstra, and compete with them while the other firm would still be
able to access his or her own market and enjoy better connectivity (since that company will be
the only one utilizing the network). In theory, the telcos are not necessarily competing for profits,
but rather for market coverage. This phenomenon can be observed from their behavior when
competition enters the market; suddenly the telcos call for predatory pricing, but eventually
follow the same pricing scheme when NTC ruled in favor of Sun Cellular, or when Telstra came
in, the different internet subscription packages for both prepaid and postpaid expanded. This is
not even considering the fact that the technology of better mobile phones, faster PCs and the
increase in demand (to an almost inelastic point 124 ) for broadband services for business,
socialization, and online games; providing the same broadband speed with the same
infrastructure that is limited to its capacity to a greater demand simply will not work if
infrastructure does not expand.
124
See Internet of Services and Internet of Things
77
6.3 OECD Industry Assessment Criterion (Appendix C)
Category Indicator Parameter
Market Structure Market structure and Market Share

trends
Subscribers per Firm
Barriers to entry/exit Parameters for absolute barriers; number of firms,

regulatory restrictions
Parameters for strategic barriers; ads and capital

intensity
Supply Behavior Active Competition in Rivalry in price competition: pricing trends, the extent of
prices and rivalries reaction of a price change, existence of price leadership
rivalry in non-price competition: level of marketing and

advertising costs; network coverage
Absence of anti- Anti-competitive prices: number of time spent for

competitive behavior agreements for LLU and interconnection; percentage of
and collusion lines for LLU by incumbent, existence of carrier pre-
selection and number portability; number of complaints
reported
existence and level of collusion (subjective assessments

according to the context)
Provision of innovative Rate of diversification (differentiation) and speed for

services innovative services
Profitability and its EBITDA and Net Income across firms

trends
Consumer Access to information Consumer survey; regular information notice to

Behavior customers; quality of websites for information; in time
information of requested information
Ability to use Consumer survey: possession of correct and sufficient

information and market information for current services and alternatives, clear
opportunities criteria for comparison
Cost and barriers to Consumer survey: Extent and substance of barriers to

switch ISPs switching suppliers; level of switching made compared
with level of satisfaction on information provided
counterveiling buying number of consumer groups; percentage of large users

power and its portion in revenues, level of consumer expenses
for services to total income
78
Consumer Benefits Wide range of Churn rate of offered services to a threshold
competitive service
offered
consumer satisfaction Revenue growth as an instrument to look at volume

with price and increase per year
affordability
Consumer satisfaction Call completion/ congestion/disruption rate, time for

with the quality of installation and repair, number of faults, number of
service reported complaints
Table 6. Telecommunications Industry Assessment Criterion. Source: OECD (2011)
6.4 Regression Analysis (Appendix D)
Dependent Variable
Stock Prices Market Capitalization TEV/LTM EBITDA
Company Globe PLDT Globe PLDT Globe PLDT
AR(1) 0.998068*** 0.997448*** 0.997615*** 0.997856*** 0.977995*** 0.981498***
(0.000808) (0.000907) (0.000942) (0.000894) (0.002432) (0.002248)
Rival Firm 0.003279** -0.000109 0.000945** 0.000209 0.024453*** 0.01449***
(0.001481) (0.000495) (0.000383) (0.002203) (0.003110) (0.001758)
Sun Cellular 0.083266 1.160624*** -74385543 888000000** -0.017086* 0.027256***
(0.653849) (0.400003) (1.60E+08) (3.73E+08) (0.009383) (0.006775)
Constant -0.079059 0.42845 105000000 124000000 -0.018819 0.013502
(0.432375) (0.264653) (1.11E+08) (2.59E+08) (0.015346) (0.011113)
P/E Ratio P/LTM EPS
Company Globe PLDT Globe PLDT Source: S&P Market
AR(1) 0.978643*** 0.995368*** 0.981697*** 0.987049*** Intelligence
(0.002367) (0.001895) (0.004678) (0.004139) Time Period: 1997-2016
Rival Firm 0.004585*** 0.007171*** 0.01419*** 0.00889**
(0.001611) (0.002799) (0.004833) (0.004017) Legend
Sun Cellular 0.277044*** -0.135908 *** 99% CI
(0.100687) (0.118151) ** 95% CI
Constant 0.027256 0.08181 0.097128 0.076738 * 90% CI
(in Standard
(0.111726) (0.131039) (0.068056) (0.058243) parenthesis) Error
Table 7. Regression analysis on stock prices, market capitalization and TEV/LTM EBITDA. Data from Capital IQ
(2016).
79
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8 ENDNOTES
i
Montenegro, L., and E. Araral. Shared Prosperity: An ICT Manifesto for the Philippines for 2016 and Beyond.
Singapore: National University of Singapore, 2015.
ii
Akamai. Akamai's State of the Internet Q1 2016 Report. Massachusetts: Akamai Technologies, Inc., 2016.
iii
National Telecommunications Commission. 2014 Annual Report. Annual Report for the Philippine Government,
Manila: National Telecommunications Commission, 2014.
iv
Ibid.
v
vi
Ibid.
vii
UNESCAP. "An in-depth study of broadband infrastructure in the ASEAN region." United Nations Economic and
Social Commission for Asia and the Pacific, 2013.
viii
Ibid.
ix
Ibid.
x
Broadband Commission. " A 2010 Leadership Imperative: The Future Built on Broadband." 2010.
xi
Ibid.
xii
xiii
Ibid.
xiv
Bernardo, R., and M. Tang. The Political Economy of Reform during the Ramos Administration. Working Paper,
Washington, DC: Commission on Growth and Development, 2008.
83
xv
xvi
Ibid.
xvii
Ibid.
xviii
Ibid.
xix
Bernardo, R., and M. Tang. The Political Economy of Reform during the Ramos Administration. Working Paper,
Washington, DC: Commission on Growth and Development, 2008.
xx
Ibid.
xxi
Minoli, D. Telecommunications Technology Handbook. 1st. Boston: Artech House, Inc., 2003
xxii
PCC. "Why Competition Matters." Seminar Series on Competition Law and Economics. Manila: Philippine
Competition Commission, 2016.
xxiii
Porter, M., and V. Millar. "How Information gives you competitive advantage." Harvard Business Review, 1985:
149-152.
xxiv
xxv
Baker, J., T. Cagenius, C. Goodwin, M. Hansson, and M. and Hatas. "Deep-fiber broadband access networks."
Ericcson Review 1 (2007): 4-8.
xxvi
xxvii
Ibid.
xxviii
xxix
Rhoades, S. "The Herfindahl-Hirschman Index ." Federal Reserve Bank of St. Louis, 1993: 188-189.
xxx
Skaržauskienė, A., and M. Kalinauskas. "The Future of the Internet of Things." SOCIAL TECHNOLOGIES 2, no.
1 (2012): 102-113.
xxxi
IUGG. List of Developing Countries. 2015. http://www.iugg2015prague.com/list-of-developing-countries.htm
(accessed August 22, 2016).
xxxii
Mitra, R. BPO Sector Growth and Inclusive Development in the Philippines. The World Bank, 2011.
xxxiii
Aldaba, R. PLDT-Sun acquisition: good or bad? Manila: Philippine Institute for Development Studies, 2011
xxxiv
xxxv
Aldaba, R. PLDT-Sun acquisition: good or bad? Manila: Philippine Institute for Development Studies, 2011
xxxvi
xxxvii
Llanto, G. Reviewing the Philippines' Spectrum Management policy. Policy Notes, Makati City:
Philippine Institute for Development Studies, 2006.
84
xxxviii
Ibid.
xxxix
Ibid.
xl
Alampay, E. ICT Sector Performance Review for Philippines. Telecom Regulatory Environment Report, Sri
Lanka: LIRNEasia, 2011.
xli
Abad, A. A. "Regulations for Philippine Anti-Trust Policy and Regulation." Policies to Strengthen Productivity in
the Philippines. Manila: Philippine Institute of Development Studies and World Bank, 2005. 1-53.
xlii
xliii
Trojer, E., S. Dahlfort, and D. Mickelsson, H. Hood. "Current and Next Generation PONs: A technical overview
of present and future PON technologies." Ericsson Review, 2 (2008): 64-69.
xliv
Gunaratne, R. L. High Speed Broadband Network in Malaysia. Colombo: LIRNEasia, 2014.
xlv
Umino, A. Developments in Local Loop Unbundling. DSTI/ICCP/TISP report (unclassified), OECD, 2003
xlvi
Europe Economics. Pricing Methodologies for Unbundled Access to the Local Loop. London: Chancery House,
2004.
xlvii
Umino, A. Developments in Local Loop Unbundling. DSTI/ICCP/TISP report (unclassified), OECD, 2003
xlviii
Ibid.
xlix
Ibid.
l
Ibid.
li
lii
liii
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WORKING PAPER

Increasing Competition in the

Edgardo Manuel Miguel M. Jopson

Rose Ann Camille C. Caliso

RSN-PCC WORKING PAPER 16-003

RSN-PCC WORKING PAPER 16-003

Electronic copy available at: https://ssrn.com/abstract=2882313

Increasing Competition in the Telecommunications Sector of

Edgardo Manuel Miguel M. Jopson

Rose Ann Camille C. Caliso

RSN-PCC WORKING PAPER 16-003

RSN-PCC WORKING PAPER 16-003

Electronic copy available at: https://ssrn.com/abstract=2882313

RSN-PCC WORKING PAPER 16-003

1.1 The role of telecommunications in inclusive economic development

Telecommunications is on a pivotal position to spur economic growth and competitiveness. A

Average Connection Speed for Q1 2016 (Mbps)

Indonesia Malaysia Thailand Philippines Vietnam

Furthermore, slow internet connection speed in the country is accompanied by relatively

Base Package Price per Mbps (USD)

Indonesia Malaysia Thailand Philippines Vietnam

This section provides an overview of the Philippine telecommunications industry’s landscape.

2.1 Incumbent Operators

2.2 Telecommunications Industry Segments

2.2.1 Fixed Line Telephone Market.

2.2.2 Cellular Mobile Telephone Market

2.2.3 Broadband Internet

Broadband Subscription Percent

2.3 Regulatory Frameworks

 Dividing or sharing the market with other firms

 Selling of goods and services below cost

 Unreasonable price discrimination

3.2 Value Chain and Market Structure

A company’s value Middle

 Intercontinental Cables and Landing Stations

 Backbone Provision (BP)24

3.2.1 Backhaul, Intercontinental Cables and Landing Stations.

3.2.2 Backbone Provision.

3.2.4 Value Chain Summary

3.3.1 Financial Performance

10% Manila Water

Figure 7. EBITDA return on assets. Source: annual reports of respective firms53

4.00% Manila Water

Figure 8. Return on assets. Source: annual reports of respective firms54

Figure 9. EBITDA Margins. Source: annual reports of respective firms58

Figure 10. Profit Margins. Source: annual reports of respective firms59

3.3.2 STOCK PRICE

3.3.3 Market Capitalization

3.3.4 TEV/LTE EBITDA

3.3.5 Industry Comparison

3.4 Competition in the Philippine Telecommunications Industry

However, telecom market liberalization is not enough to induce meaningful competition.

3.4.1 Indicators of Level of Competition

Broadband speed in Mbps Cellular Speed in Mbps

Indonesia Malaysia Thailand Philippines Vietnam

3.4.1.3 Ads spending.

PLDT Globe Meralco Manila Water Ayala Land SM Prime Holdings

3.5 Challenges and issues

3.5.1 Anti Competitive Practices

3.5.1.1 Opportunistic behavior.

3.5.1.2 Mergers and acquisitions

3.5.3 Ineffective Regulations

Despite the de-monopolization reforms, WTO commitments, and the establishment of a