Defining Consumer Welfare in the GLOBE-PLDT-SMC Deal

CURRENT SOCIETAL CONCERNS
Elpidio V. Peria
14 August 2016

Internet-speed-comparison-in-South-East-Asia

from : http://inquirer.net

Given the current lousy internet speeds Filipinos generally experience here in the Philippines (see B.I.T.S. in bits post on this March 8, 2015), it is surprising why no consumer group bothered to intervene in the recent GLOBE-PLDT-SMC deal where the San Miguel Corporation (SMC) opted to sell its stake in Liberty Telecommunications’ 700Mhz spectrum assets originally intended for what is called UHF (ultra-high frequency) broadcasts and this was immediately bought by the two dominant telecommunications players PLDT and GLOBE in the country today where they split the assets 50-50 between them.

The deal between the two telcos was stopped by newly-created government agency Philippine Competition Commission (PCC) with the latter saying the deal is not deemed approved while the two telcos saying it is deemed approved and the two telcos elevating the issue to the Court of Appeals, which refused to issue an injunction to stop the PCC from what it is doing.

The Foundation for Media Alternatives (FMA) recently held a forum entitled “Inside and Beyond the Numbers of the Globe/PLDT Buyout of SMC’s Telco Assets” last August 1, 2016, at the Ateneo de Manila University, Quezon City to discuss the nitty-gritty aspects of the deal and we are thankful for having been given copies of the presentations made in that event but consistent with the title of this post, we will look closely into the consumer welfare aspect of the deal, and consider whether this matter is something that can be dealt with given the mandate of the PCC and whether it’s still feasible for consumers’ groups to raise issues on this deal at this late stage.

First off, it must be noted that in the law creating the Philippine Competition Commission (PCC), or Republic Act 10667, the notion of “consumer welfare” is only mentioned once, in the Act’s Declaration of Policy where, among other things, all forms of anti-competitive agreements, abuse of dominant position and anti-competitive mergers and acquisitions will be penalized with the aim of “protecting consumer welfare”. The definitions section of the law, where key concepts of the law are clarified and given their official meaning, does not elaborate what “consumer welfare” means.

There is however a mention of “the benefit and welfare of the consumers” in sec. 28 when the PCC applies what is called forbearance, when it withholds regulatory action or the application of the provisions of the law, in specific cases or an entity or group of entities, in a manner it sees fit and among its reasons is when doing so is for “the benefit and welfare of the consumers.”

There are however numerous references to “consumers” in the law, like :

• in sec. 12 (m), where part of the powers and functions of the PCC is to conduct, publish, and disseminate studies and reports on anti-competitive conduct and agreements to inform and guide the industry and consumers;

• in sec. 14, in determining whether agreements among companies are anti-competitive, part of the test is whether these agreements will allow consumers a fair share of the resulting benefits;

• in sec.. 15 (i), in the determination of whether there is abuse of competitive position, among its indicators is the act of limiting production, markets or technical development to the prejudice of consumers;

• in sec. 24, in the determination of relevant market, which is an important basis in determining whether there is a monopoly or not, several factors are considered, like, among others,

(c) The cost and probability of users or consumers seeking other markets; and

(d) National, local or international restrictions which limit access by users or consumers to sources of supply or the access of suppliers to alternate consumers

• in sec. 26, in the determination of anti-competitive agreement or conduct, the PCC, shall, among other things

(c) Adopt a broad and forward-looking perspective, recognizing future market developments, any overriding need to make the goods or services available to consumers, the requirements of large investments in infrastructure, the requirements of law, and the need of our economy to respond to international competition, but also taking account of past behavior of the parties involved and prevailing market conditions;

The point of all these tedious enumerations of the provisions of the law relating to consumers is to point to would-be advocates the provisions in the law they can hold on to and use as basis to open up and expand the concept and other matters related to, consumer welfare. The fact that the matter of consumer welfare is still undefined in the practice of the PCC gives leeway for the creative and assertive advocates to put the issue squarely before the PCC – is consumer welfare benefited by this 700Mhz deal or what parts of the deal will promote consumer welfare?

In answering this question, the PCC gets the opportunity to expound its own understanding of consumer welfare : will it become a mere economic concept and mimic the discussion among antitrust academics in the US where total welfare, the benefit to the economy as a whole, which includes the sellers, is distinguished with that of consumer welfare as such, which only benefits the consumers as a class, as the over-all thrusts of antitrust policy and litigation or will it truly make the concept of consumer welfare something like a social justice measure that levels the playing field between the consumer and the companies that provides the products and services for the consumer?

The Philippine law on antitrust, starting with the law creating the PCC, is replete with references to consumers and one reference to consumer welfare, is that the be-all and end-all of the law? What about the notion of consumer satisfaction, this can be a more concrete or real-world manifestation of consumer welfare which goes to the specific consumer and asks whether all the consumer’s expectations of the product has been met, which adds a clarifying dimension to the over-all macroeconomic consideration of the broader class of consumers availing of a particular product or service.

Furthermore, the PCC may also consider the Consumer Act of the Philippines, or Republic Act 7394, which also has the welfare or interests of consumers as its over-riding concern in its Declaration of Policy, and all its other provisions on deceptive selling practices, among others.

To go back to the question on whether consumer welfare, particularly consumer satisfaction with internet services, will be attained, most likely, the telcos will definitely say yes, but if we go by the presentation made by Mary Grace Mirandilla-Santos of the Philippine Internet Society in the FMA Forum, her questions and the answers thereto may be made a foundation for asserting whether consumer welfare is advanced by the deal:

• Will the unserved ever be served? (this refers to over 78% of public schools with no internet access that was referred to in her presentation)

• Is broadband service affordable relative to Filipinos’ income? (Filipinos have to work 10.17 hours to afford 1-GB of data, while Cambodians only have to work 2.16 hours for that same quantity of data)

• Are Filipino internet users getting value for their money?

• Will the consumers benefit from having telco assets in the hands of only two players?

• Why is it so hard for a new challenger to enter the market?

• Is the government acting on the consumer’s behalf?

In resolving these questions, it must be remembered that the policy of the law creating the PCC is to let market competition be given leeway and not impeded, since it serves the interest of consumers by allowing consumers to exercise their right of choice over goods and services offered in the market.

How then will this policy be realized if the choices of the Filipino consumer is limited only to the two services offered by PLDT and GLOBE and then consumers more often than not suffer lousy internet speeds and the consumers don’t actually get the value for their money, what with various data caps and throttling of internet speeds that are regularly made a feature of the services provided to the consumer.

The public hearings that should be done by PCC to clarify the issue of consumer welfare should be comprehensive and wide-ranging, and should even be done nationwide, so that the consumers in the provinces, who most likely are currently suffering the worst quality of internet services from these two companies, will be given the chance to show how their consumer welfare is rendered illusory by the quality of service of these two companies. If consumer welfare is not achieved with the purchase by PLDT and GLOBE of SMC’s 700Mhz assets, then the PCC should not hesitate to cancel the deal and order that the said assets be given to a third player.

oOo

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