Can antitrust stop PLDT, Globe telco purchase?

SINGAPORE—“This is their first test and definitely a defining moment for them,” Sen. Bam Aquino said. He meant the new Philippine Competition Commission (PCC) and the P70-billion acquisition of San Miguel Corp.’s telecommunications assets by the Philippine Long Distance Telephone Co. and Globe Telecom. The test must be how objectively the PCC referees the post-Philippine Competition Act (PCA) playing field.

Antitrust law is framed by three concepts, well defined after decades of global experience. First, it prohibits anticompetitive agreements by two or more parties. Agreeing to fix prices is the classic example. Second, it prohibits abuse of dominant position by a party. This prohibits abuse, not dominance in itself. Third, it mandates review of acquisitions for anticompetitive impact.

Chapters III and IV of the PCA reflect these three distinct concepts. The San Miguel sale is clearly governed by the third. “Acquisition” under Section 4(a) of the PCA includes a purchase by two entities of a third entity’s shares.

What does the PCA require for review of acquisitions?

Section 17 prohibits implementation of an acquisition worth more than P1 billion for 30 days after parties send information required by the PCC. It may extend this review period to up to 90 days and require further information.

An acquisition is “deemed approved” after the review period expires. Section 17 implies that an acquisition may also be implemented once the PCC approves. Finally, under Section 23, an acquisition approved by the PCC may not be challenged under the PCA.

What information does the PCC require?

PCC Memorandum Circular 16-002 dated Feb. 16, 2016, requires Philippine Stock Exchange-listed companies to send a letter to the PCC stating: (1) each party, a brief description of their business, and their contact details; (2) amount paid; and (3) transaction type, key terms and timetable. Afterwards, an acquisition “shall be deemed approved” and may no longer be challenged under the PCA, referring to Section 23.

What happened to the San Miguel sale?

PLDT and Globe signed an agreement with San Miguel on May 30 to purchase all shares of Vega Telecom, which holds San Miguel’s telco assets. They signed separate agreements with other owners to acquire all shares of two other companies. The Inquirer’s Miguel Camus broke this hours before the signing.

PLDT and Globe made the acquisition “on a 50-50 basis” and entered into a “co-use arrangement” with the purchased companies for frequencies they controlled, including the crucial 700 megahertz. The acquisition was conditioned on the National Telecommunications Commission’s approval of both the co-use arrangement and the voluntary surrender of some frequencies, which “will allow a new third-party competitor to enter this market.”

Half the payment was made immediately on May 30. The parties sent the required information to the PCC, as well as the public through the PSE. The acquisition was presumably deemed approved under Circular No. 16-002. This approval would prohibit challenge to the transaction under Section 23 of the PCA.

The PCC issued the PCA’s implementing rules on June 3, to take effect 15 days after publication. By June 8, PLDT and Globe launched their first 700 MHz cell sites.

PCC Commissioner Stella Quimbo stated in a June 10 interview with Bloomberg’s Jean de Castro that the parties need to refile their notice to the PCC because not all key terms were stated. She argued that while the acquisition would be deemed approved under Circular No. 16-002, the PCC must check if all required information was submitted. Approval is thus not automatic in this very narrow sense.

Circular No. 16-002 prescribed no particular format but one imagines the benchmark is what a PSE-listed company is required to disclose, a standard also well defined by decades of global experience. In any case, Circular No. 16-002 remains effective before June 20, so the parties may file more detailed information and invoke deemed approval before then.

It seems difficult to explain how the San Miguel sale may be challenged, given Section 23 of the PCA and Circular No. 16-002. The PCC’s first test is narrowly how to read its two-page circular, not a broad question of legal and economic policy. The PCC may investigate anticompetitve agreements or abuse of dominant position, but these should not be interchangeable with the third concept of review of acquisitions. Historically, review of acquisitions was introduced in the US Clayton Act in 1914, after the first two concepts were enacted in the US Sherman Act in 1890.

The Cavite-Laguna Expressway (Calax) project was rebid for P27.3 billion in 2015, after a year’s delay. Originally, an P11.7-billion bid won after a P20.1-billion bid was disqualified for a defect in security. Despite the record revenue, the rebid was criticized as a rules change that undermined the project auctions’ integrity.

The PCC appointments were praised as apolitical and technocratic. Chair Arsenio Balisacan is a former University of the Philippines economics dean and former economic planning secretary. Quimbo is another UP economics professor and UP summa cum laude graduate whose research grounds our tax reform initiatives. El Cid Butuyan is a Harvard Law School professor and headed a World Bank anticorruption department.

To preserve this perception and recalling the Calax rebid, the PCC will want to be extremely precise in its first test, lest any fear of uncertainty or undue discretion in acquisitions be created even before the PCA implementing rules take effect.

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