A research paper produced by four professors suggests that, in the Philippines, it will be hard to create more competition beyond the two providers (Globe and PLDT) that now divide the market, unless a government-funded wholesale network is created.
But they suggest competition is needed. The Philippines prices represent consumer costs at 5.9 percent of gross national income per capita, compared to the regional average of 1.7 percent.
At least traditionally, “regulation is the main lever by which governments can influence competition in the telecom industry, increasing or decreasing the barriers to entry,” the authors say. Some might argue it will not be that simple, going forward. Market entry can be open, and yet competitors might rationally conclude their is no opportunity.
The availability of a spectrum may be the current largest single barrier to entry, the authors say. And yet, what is necessary is not sufficient. “Economically, telecom requires massive capital requirements implying high barriers to entry,” they say.
That noted, the institutional framework matters quite a lot. “Network infrastructure alone for the newcomer could cost as much as US$2.5 billion,” the professors say. Not even that explains the extent of the problem.
“With a constitutional limit of 40 percent on foreign ownership, this effectively limits the presence of companies that can inject fresh new capital,” the researchers note.
A transparent spectrum allocation process, probably using an auction process, is better than an administrative approach, say a team of academics looking at the Philippines telecom industry.
Perhaps the biggest conclusion they reach is that market entry by a third competitor is “not viable” under the present circumstances.
Spectrum allocation process is important because the method chosen by the regulator determines the resulting structure of the industry.
The present two-player structure is “fiercely competitive,” the authors say. But they also note that the “Philippine telecom market is highly concentrated.”
The two major telcos, Globe and PLDT, control almost 100 percent of the market and with a Herfindahl-Hirschman Index (HHI)12 of 5162. To put that figure in perspective, the U.S. Department of Justice considers a market with an HHI of less than 1,500 to be a competitive marketplace, and an HHI of 2,500 or greater to be highly concentrated marketplace. At 5162, the Philippines market is extremely concentrated.
Under such conditions, only a publicly-owned third player can afford a “last-mile” network, they argue. The perhaps-unstated qualifier is that this arguably is true without bigger changes in regulatory policy, underlying technology or business model that can change the potential business model for any third provider.
Were a third (or additional) providers able to get into business without paying for spectrum; using new access platforms; with strong mandatory wholesale rules and possibly different business models, a third competitor might well be viable.
What can not be done under the present framework does not mean a different framework results in the same constraints on any new competitor entering the market.