NTC approves PLDT-Digitel deal

THE National Telecommunications Commission (NTC) yesterday approved the much-awaited merger of the country’s two major telecommunication companies, Philippine Long Distance Telephone Co.(PLDT) and Digital Telecommunication Philippines Inc. (Digitel), but with strict conditions to ensure that the deal would not lead to monopoly. After 90 days of comprehensive study and evaluation of the deal, NTC Commissioner Gamaliel Cordoba said in a press briefing that the regulator has approved the sale and transfer to PLDT of initially about 51.55 percent equity in Digitel in accordance with Section 20 of the Public Services Act (CA 146). The landmark share swap transaction between PLDT and JG Summit Holdings Inc. is valued at about P69.2 billion involving 3.277 billion shares representing 51.55 percent of Digitel’s outstanding common stock. The remaining 48.45 percent Digitel stake held by the public was subject to a mandatory tender offer under the following terms and conditions: Digitel shareholders will be given an option to sell at P1.6033 per share or swap their holdings for PLDT common shares at a swap ratio of 1,559.28 Digitel shares for every new PLDT common share. If fully taken up, the tender offer would bring the total transaction value to P74.1 billion. In return, JG Summit would have one seat on the PLDT board, and its majority shareholders NTT DoCoMo and First Pacific Co. Ltd and the minority shareholders in PLDT would be diluted to give way to a 12 percent stake of Digitel’s parent firm to the merged company. PLDT has acquired Digitel in March this year in a deal that generated strong opposition of other telecom players. Cordoba said the regulator’s decision was final as the PLDT-Digitel application did not require congressional approval based on the "Equity of Treatment in the Telecommunications Industry" provision of the Public Telecommunications Policy Act of the Philippines (Sec. 23, R 7295). Manuel Pangilinan, chairman of PLDT, said: "PLDT is extremely pleased to welcome Digitel to the PLDT Group. PLDT will continue to provide its consumers with the best value in terms of price, quality and range of products and services and we have committed to continue offering `unlimited’ type of services in fulfillment of this promise." "In addition, Sun subscribers can benefit from PLDT’s extensive infrastructure and varied service offerings," Pangilinan said. James Go, chairman of JG Summit, said: "This transaction ensures that Digitel remains in good hands. Together, the PLDT-Digitel group will be well-positioned to compete not only with formidable existing competitors but with well-funded new entrants as well." Cordoba said that the approval of the transaction is subject to compliance by PLDT and Digitel with certain terms and conditions set by the commission, and the approval of the application shall only take effect upon formal acceptance by the two companies. To resolve the issues on frequency, part of the approval was PLDT shall divest its 10Mhz 3G radio frequency through the sale by Smart Communications Inc., of all its right and interest in Connectivity Unlimited Resources Enterprise (CURE). As part of its approval of the acquisition of Digitel by PLDT, the NTC also approved the divestment plan presented by PLDT, which covers the following commitments: CURE will sell its Red Mobile business to SMART consisting of its subscriber base, brand and fixed assets. SMART will sell all of its rights and interests in CURE whose remaining assets will consist of its congressional franchise, the Affected Frequency and related permits (the "Divestment Sale") Cordoba said that PLDT was given nine months to transfer all the CURE assets and customers to Smart, then the bidding for CURE’s frequency to other telecom companies would be conducted within six months after the transition period. He added that the NTC would likely conduct the bidding by 2013. As part of the contract, the PLDT Group would not be part of the bidding. "The divestment sale will be made under the supervision and control of the NTC and will be effected through a competitive bidding among duly enfranchised and qualified public telecommunication entities. A minimum price will be prescribed to allow SMART to recover its investment in acquiring, developing and operating CURE (the cost recovery amount). In the event that the actual proceeds from the divestment sale exceed the cost recovery amount, PLDT will pay the NTC, as fee for supervising the divestment sale, at least 50 percent of such excess less government fees and taxes payable as a consequence of the divestment sale." Another condition set is that Digitel shall continue to provide nationwide "unlimited" type of offerings and PLDT will keep the mobile operations of Digitel separate. PLDT will capitalize on Sun Cellular’s operation and brand equity to continue serving specific market segments, especially those who prefer unlimited type of services. NTC assured the public that PLDT-Digitel deal would not result in a monopoly. Cordoba said that it has initiated steps to prevent abuse of market power arising from substantial market dominance that could lead to cutthroat competition by imposing certain conditions on the transaction. One of the proposed measures seeks to lower interconnection charges between telecom companies. The regulator has promulgated Memorandum Circular 02-10-2011 reducing interconnection charges for mobile SMS or text messaging services from 36 centavos to 15 centavos which would further reduces the SMS from different network. In addition, NTC is currently fulfilling interconnection between PLDT and Globe Telecom landlines. The local interconnection issues in three provinces -- Pampanga, Bulacan and Zamboanga – have already been resolved. The commission is also working on the promulgation of the guidelines covering domestic internet peering which seeks to achieve faster internet connection. Relative to this, the regulator will conduct a quarterly monitoring of the quality of services to ensure that telco services comply with NTC standards that will start in December this year. The NTC shall enforce rules on minimum speed of broadband connection. Lastly , the NTC will issue rules on significant market power (SMP) in the first quarter next year to provide stricter regulations aimed to discourage abuse of dominant suppliers thus ensuring fair competition in the market to benefit the consumers. Cordoba added that they would be making more memorandum circulars that would lower the voices and landline services. Globe Telecom welcomed PLDT’s divestment of 10Mhz in frequency even as it lauded the NTC’s decision. Froilan Castelo, head of corporate legal services group of Globe, said, "The approval of the joint application with condition to divest PLDT’s 10Mhz 3G frequency is a progressive step for the NTC in promoting consumer welfare and fair competition. Given the length of time this deal has been discussed by several authorities in the government, the media, and private sector, the decision of the regulatory body upholds its support to the industry, ensuring equal opportunities among players to compete, and allowing consumers to enjoy quality services from their chosen service provider. Globe also noted the proactive approach of the NTC to effect local interconnection between Globe and Innove in provincial areas, which benefits subscribers by lowering the cost of landline domestic calls. Globe expects the NTC to come out with a similar pro-consumer position on internet peering to help expand market opportunities in providing internet services in the country.