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Duterte strongarms Philippine telecoms into competitive fees

Government intervention could spread to other industries ruled by oligopolies

Philippine cellular services have come under fire for slow speeds and high costs, including here in Manila.

MANILA -- The Philippines' notorious telecommunications oligopoly has a new sheriff in town.

President Rodrigo Duterte, known for his hard-nosed stance against drug dealers and Washington alike, has turned his bully pulpit toward PLDT and Globe Telecom, the country's two biggest telecom providers. The companies are at the center of what is called Southeast Asia's worst cellular market in terms of speeds and pricing.

Opening salvo, white flag

"We're finalizing our plans to open up [the] information and communications technology industry to new players," Duterte told reporters Nov. 23 at his home base of Davao, a thinly veiled threat toward the duopoly if they refused to lower service fees.

"I do not want to have a quarrel with the Ayalas and Pangilinan," Duterte added, referring to Globe's ruling family and Manuel Pangilinan, who heads PLDT. But both parties heard the message loud and clear. Five days later, both promised to cut interconnection fees from 4 pesos (8 cents) a minute to 2.5 pesos starting in January.

"This agreement will translate in different ways to more affordable voice call rates for our subscribers," PLDT Director Ray Espinosa said in a statement.

Callers must cough up interconnection fees if they dial someone who subscribes to a different provider. Those charges are one reason communication services are so expensive in the Philippines. Basic cellular service costs 6.5 pesos a minute, but the price likely will drop to around 5.5 pesos once interconnection charges are reduced.

The reduced interconnection fees will be in line with such charges in other countries, Gamaliel Cordoba, the national telecommunications commissioner, told reporters Nov. 28. "The telcos right now, they can use the lower interconnection rates to give different promos, pocket pricing and unlimited calls," he said.

Waking the sleeping giants

Private telecom companies rarely bend to state pressure and cut rates so quickly. Even Duterte, prone to brazen rhetoric at home and abroad, typically does not take aim at a specific industry to this extent.

But the public is fed up with the seeming lack of competition between the two telecoms in lowering rates and improving service quality. The Philippines stands 100th worldwide in average internet connection speeds, or about one-sixth of the velocity clocked by global leader South Korea, according to U.S. network solutions provider Akamai Technologies. The Philippine communications grid's deficiencies mean that mobile calls can frequently break up even in central Manila.

The government has long been wary of the entrenched telecom oligopoly. The San Miguel conglomerate agreed in May to sell three telecom assets to PLDT and Globe, but antitrust regulators have yet to OK the deal.

Since taking power in June, Duterte has vowed repeatedly to open the market in order to promote competition and improve quality. He is sure to ratchet up pressure in the future.

The two companies also are being pushed to compete for market share. PLDT previously enjoyed a slightly larger market share, but it is churning customers to Globe, which is offering cheaper plans and other perks. Globe's subscriber count jumped 23% on the year to 65.36 million at the end of September. By contrast, PLDT sank 8% to 61.8 million.

Duterte Harry vs. big business?

Many observers think Duterte may take this victory and put the squeeze on other industries. Sprawling conglomerates like Ayala, SM Investments  and JG Summit Holdings  have a stranglehold on several key sectors starting with finance, airlines and real estate.

Eliminating the concentration of wealth at the top has become a key Duterte policy initiative. But the president said he does not intend to literally destroy the "oligarchs," only that they should be satisfied with where they are.

So far, Duterte has largely continued the economic policies of predecessor Benigno Aquino. Duterte also revealed a 10-point agenda that includes tax reforms, promotion of competition, infrastructure investment and rural development. Government agencies are fine-tuning a five-year Philippine Development Plan to be unfurled in January.

Duterte still enjoys high approval ratings, making it difficult for large corporations to take him on directly. To avoid further government intervention, they may need to show a willingness to compete for the benefit of consumers.

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