Battle lines drawn: Episode 2 of the PLDT/Globe — SMC deal

We have recently seen a lot of activity from among the Philippine Competition Commission, the telcos PLDT Smart and Globe, and various other players in the ICT industry. From muted skirmishes in the past years between the telcos and other ICT industry players, the battle lines are now being drawn over prize territory: the 700MHz spectrum.

As you may already know, PLDT and Globe bought SMC’s telecoms business and now own about 50% each of Vega, which has BellTel’s license for 700MHz frequencies. The telcos have applied for and gotten a go-signal from the National Telecommunications Commission to “co-use” these frequencies.

The PCC has asserted authority over the transaction: In various forums, PCC Chair Arsenio Balisacan and Commissioner Stella Quimbo have insisted that there has been no automatic approval of the deal; that this must go through the PCC’s review. On Friday, it appears that the PCC has requested both telcos to resubmit the notice they filed on the transaction, stating that the initial notice had incomplete information. According to the Philippine Daily Inquirer, Globe Telecom general counsel Froilan Castelo has stated that Globe will not refile since the notice they filed was already compliant with the Memorandum Circular 2016-02. I have not seen any reaction from PLDT but I believe it is safe to conclude that the approach would be the same.

I don’t know if this PLDT/Globe – SMC deal is the first one to go through the PCC but this is certainly its most significant transaction to date. Apart from the sheer size, this deal also strikes at the crux of the PCC’s existence since the lack of competition in the telecoms industry is the generally accepted cause for the expensive, slow, and unreliable internet service in the country. As Balisacan himself admitted, the PCC did not expect a transaction of such magnitude and consequence would come knocking on their door while the IRR have not been finalized. The PCC is expected to act, if not to disapprove the transaction outright.

And yet, things are not so simple. Questions have been raised—including by me—on whether the PCC can act at all. While the Philippine Competition Act clearly states that the PLDT/Globe – SMC deal falls within the ambit of the PCC’s review, the PCC’s response to the transaction appears to have been circumscribed by the its very own MC 2016-02 (let’s call this the transitory rules). In said MC, the PCC required transactions falling within the interim period—when the PCA is already effective but no implementing rules and regulations have yet been approved—merely to file a notice containing details of the transaction. The transaction would then be “deemed approved.” In a statement, the PCC appears to reverse itself, saying that “[T]he mere filing of a notification with the PCC does not guarantee a ‘deemed approved’ status for the subject transaction, even under the transitory rules. Parties to a proposed merger and acquisition cannot make the determination of whether a transaction is deemed approved. That is for the PCC to determine.” This statement from the PCC is not justified by anything under the transitory rules. The statement on deemed approval is pretty straightforward. The PCC did not even see fit to exclude from “deemed approval” any class of transactions or special cases.

The provision on “deemed approval” was clearly a grievous error on the part of the PCC. Why did they feel there was a need to provide for such when the law clearly provided a period of 30 days from the filing of notice for the PCC to conduct a review? The reason could be that they wanted to expedite approval of transactions while they are still in the process of formally setting up shop. But then they could have reserved the right to exclude special transactions from “deemed approval.” Or at the very least, they could have shortened the period for review. Sadly, they did not.

Now the PCC insists that PLDT and Globe cannot claim that automatic approval from the transitory rules since the law clearly states that PCC could review the transaction. It is quite ironic for the PCC to be making this argument when the automatic approval was its own handiwork. Note that nowhere in the law is “automatic approval” or “deemed approved” provided. And it is certainly not wrong for PLDT and Globe to seek to avail themselves of approval via this route. If a benefit is in the rules and the rules have not been shown to be invalid, then any party may benefit from it.

So what can the PCC do? The PCC has claimed incompleteness of the notice as the basis for the denial of approval. I expect the PCC to stand firm on this position. I also expect PLDT and Globe not to give an inch. I have not seen the issuance from the PCC where it required PLDT and Globe to refile the notice. I expect that they would have indicated there the deadline for the refiling. If PLDT and Globe fail to make the deadline, the PCC will probably formally deny approval of the transaction. This would constrain PLDT and Globe to appeal the PCC decision or go directly to court claiming that the PCC was in grave abuse of discretion.

In the rather unlikely event that the PCC approves the transaction by virtue of the automatic approval under the transitory rules, this can be challenged by interested parties by claiming that MC 2016-02 was not valid since it conflicts with the law providing that the PCC can review transaction. The PCC or PLDT Globe can argue that a review by the PCC is not mandatory under the law. The counter-argument would be that while the text of the law does not actually say that review is mandatory, the spirit of the law and the impetus behind the legislation makes the review mandatory and necessary.

In any case, PLDT and Globe still win. Even as the validity of this transaction remains in question and in the meantime that this issue is being resolved, PLDT and Globe will continue to enjoy the economic benefits of having the 700MHz frequencies at their disposal, thanks to the NTC’s approval of the “co-use” arrangement.