Incentives of Charging Regulations to Cellphone Mobile Telephone Companies in the Philippines In partial fulfillment of the requirements in SPECTO 3 Submitted by: Cameron Cabanlig on April 08, 2010 De La Salle University- Manila I. INTRODUCTION In the Philippines, there are different businesses, industries and companies that are mainly regulated by the government to at least make the market fair for both the consumers and producers. For a market to function fairly and competitively, incentives are implemented and handed out to the market components specifically by companies in accordance to government regulations.
Incentives give people the initiative to acquire the best possible outcome and the best benefit for both the consumers and producers. The government sees that through coordination, it will be able to do its task in providing and also taking care of the welfare of its people. In the setting of a market economy, information transmission and motivation are needed for both consumers and producers for their motives to be maximized. If it weren’t of these two, coordination won’t happen and market interaction will fail.
However, incentives that are formulized by the government to the companies and to the whole market aren’t always correct or enough. There are instances that the market, specifically the producers finds loopholes from government regulations thus making government regulations inefficient and not enough. That is why, doing government regulations should always be studied thoroughly and updated from time to time to prevent the companies to their pursuit of self-interest from being self-defeating.
One of the industries that will be tackled in this paper is the cellular mobile telephone (CMT) industry. The cellular mobile telephone companies play a vital role in the society in terms of giving communication services to the Filipinos. And to be able for these companies to deliver quality and fair services to the consumers, regulations are set by one of the government institutions in the Philippines. The National Telecommunications Commission (NTC) is one of the departments in the Philippines which take care of all communication channels in the country.
It includes the telephone, television, cellular phones, radio and other communication industries for both the equipment and connections. From this, the National Telecommunications Commission (NTC) is the government branch who is responsible in regulating all the transactions of cellular phone companies with regards to its interaction to its consumers. With incentive economics, the advantages associated to it are flexibility, improved relationships between the private and public sector, encouragement of technological innovation, substantial cost savings, and better management of non-point emission sources.
These economic incentives that is brought about by commanding factors such as the government to its countries’ companies allow and encourage these businesses/companies to use the most efficient means possible to achieve a goal. By granting flexibility in reaching targets through economic incentives, it provides an ongoing motivation to search out technological advances that make compliance even cheaper thus in improves substantial cost savings as well.
On the other hand, the disadvantage of economic incentive is that it cannot cover all parts of a companies’ needs that is why most of the time companies make some ways to see loopholes in regulations that is set by the government. But at the same incentives cannot always give the consumers/subscribers the assurance that it can get the lowest fee that they can acquire with a quality service. That is why these regulations should be thoroughly studied before implementing it to avoid flaws and loopholes and at the same time should always be updated from time to time.
Updating these regulations means adapting to the needs of the producer and most especially the consumers. Through updating these regulations, the relation of the producer and the consumer will be better and the benefit of each will be maximized. The companies that will be included in this paper are the main cellular mobile telephone companies that play a major role in the market. Only top/major players of cellular phone companies such as Smart, Globe and Sun telecoms will be included in this paper.
The study however limits it to such because a big percentage of subscribers are subscribed in these three large cellular phone companies. And because of it, we can see the relation of producer and consumer and the effect of incentives regulated by the government specifically the National Telecommunications Commission (NTC) on to those companies. In these three top/major cellular phone companies we can see how economic incentives play a major role on how these companies charge their subscribers. Cost of services paid by subscriber on different bundles of services i. . basic service/voice, text, minimum charge (either per minute or pulse) are the major factors that these companies that charge consumers. In this study, we will be focusing on the main usage of cellular phones which are the calls and short messaging service (SMS) for local and international usage, prepaid and line subscribers. Through incentives, cost of services subscribed by cellular phone users is minimized and at the same time the benefit of both the consumer and the producer are maximized. II. CELLULAR PHONE COMPANIES AND ITS ROLE IN THE SOCIETY
Background of Cellular Mobile Telephone Companies a. Smart Communications Incorporated Smart Communications Incorporated or most popularly known as SMART is a subsidiary and basically owned and operated by Philippine Long Distance Company (PLDT). In the end of February 2007, the company had over 25 million subscribers on its Global System for Mobile Communication (GSM) and is approximately fifty-eight percent of the entire market shares. In the end part of June 2009, Smart Communications, Inc. became the Philippines’ leading wireless services provider with 38. million subscribers. The company fully operates as a nationwide cellular network and a satellite phone service. In 2007, the company is also considered as the most extensive and modern digital communications GSM network and infrastructure in the country with over 99 percent of the population. At the end of June 2006, SMART’s GSM network consists of 36 switches and 6,056 base stations, over 2,200 of which are equipped with wireless broadband capability. In that same year, SMART has also over 1,000 3G base stations nationwide. Some of SMART ompany’s products are Smart Gold and Smart Infinity which caters the postpaid subscribers, Smart Buddy which caters the prepaid user, Smart Kid which caters the children who uses cellular phones at an early age, and more. Among its owners are as follows: First Pacific which has 31 percent of stocks, Nippon Telegraph Telephone with 15 percent stocks, Fidelity Investments with 5 percent stocks and other owners which includes public stocks with 49 percent of stocks. In terms of subsidiaries, SMART has four – Pilipino Telephone Corporation (Piltel), a wireless service provider; SMART Broadband, Inc. a wireless broadband provider; Wolfpac Mobile, Inc. , a wireless content operator and i-Contacts Corporation (i-Con), a contact center. b. Globe Telecommunications Globe Telecoms or popularly known as GLOBE started in 1928 through a Congress Act No. 3495 granting the Robert Dollar Company (the name of its mother company), wherein it is corporation organized and existing under the laws of the State of California. It is a franchise to operate wireless long distance message services in the Philippines. In 1934, the said company subsequently incorporated in the Philippines as Globe Wireless Limited from which the Congress passed Act No. 150 to transfer the franchise and privileges of the Robert Dollar Company to Globe Wireless Limited (GWL). For some time, the GWL was renamed as Globe Mackay Cable and Radio Corporation. Through Republic Act 4630 enacted in 1965, the company expanded its franchise to allow it to operate international communications system. In 1980, Batasan Pambansa granted Globe Mackay Cable and Radio Corporation a new franchise. On June 15, 1990, Isla Communications Co. , Inc. (ISLACOM) was incorporated. By 1991, Globe Mackay was subsequently merged with the Clavecilla Radio Corporation and Globe Mackay was renames GMCR, Inc. nd on March 19, 1992, the Philippine Congress passed Republic Act 7229 approving the merger and the transfer of the franchise of Clavecilla Radio Corporation to surviving company to be renamed GMCR, Inc. In 1994, Islacom made a history in Philippine telecommunications when it launched the country’s first digital mobile communication services using GSM world standard digital technology. In 1998, GMCR, Inc. was changed to Globe Telecom, Inc. (Globe). On June 27, 2001, Globe completed the share swap transaction with Islacom, which ffectively made Islacom a 100% owned subsidiary of Globe. Products/services offered by Globe Telecoms are: G-Flex, which are consumable through prepaid credits; G-Plan, for postpaid services and Globe Platinum for high-end service; Globe Prepaid which includes Globe Kapamilya prepaid for families with some of its members abroad; and Globe Gizmo, mobile services for both prepaid and postpaid usage for children’s use. Products and services of Globe under the subsidiary of Innove Communications (formerly Islacom) are Touch mobile, Globelines, GCash, and GlobeQuest.
Globe telecom was also the first to offer Super 3G or HSDPA technology in the Asia-Pacific region. Subsidiaries of Globe Telecoms include G-Xchange, Inc. (GXI) and Innove Communications. As for the Globe telecom ownership, 45 percent of its stocks are owned by Singapore Telecommunications; Ayala Corporation which owns 34 percent of its stocks; and Public Stocks with 21 percent. c. Sun Cellular Sun Cellular is a company is basically established in 2006. Prior to its establishment, Sun Cellular was established from its roots from Digitel. Digitel Mobile Philippines, Inc. DMPI) is one of the Philippines’ leading mobile telecommunications company known by its corporate brand name Sun Cellular. Sun Cellular holds the distinction of being the fastest growing mobile network provider in the country. According statics, it has more than 10 million subscribers supported by its over five thousand cell sites nationwide. In 2001, Sun Cellular was established by Digital Telecommunications Philippines (DIGITEL) which provides wireless public and private telecommunication services. Sun Cellular is also a part of the JG Summit which is one of the country’s biggest and most diversified conglomerates.
In 2003, DMPI commercially launched its wireless mobile services under the Sun Cellular brand offering the latest GSM technology provisioning voice services, messaging services outbound and inbound International Roaming and Value Added Services. By 2006, Sun Cellular reached 2. 3 million subscribers. In 2007, Sun Cellular landed on the 2nd spot of the overall postpaid subscriptions and became number one in postpaid line acquisition for the year. In 2009, Sun Cellular achieved 10 million subscribers, with an expansion of 5,000 cell sites and the only mobile company that holds a distinction of 24/7 unlimited call and text services.
Table 1: Number of Cellular Mobile Telephone Subscribers from Year 2003-2008 OPERATORS| YEAR| | 2003| 2004| 2005| 2006| 2007| 2008| DIGITEL| 732,467| 1,200,000| 1,860,000| 2,000,000| 4,500,000| 8,154,202| GLOBE| 8,800,000| 12,513,973| 12,500,000| 16,659,742| 22,770,000| 24,701,820| SMART| 10,080,112| 14,595,782| 15,424,196| 17,201,005| 20,339,204| 20,899,753| Others| 2,896,981| 4,626,120| 3,994,799| 7,008,164| 9,725,611| 14,338,981| | | | | | | | Total| 19,612,579| 28,309,755| 29,784,196| 35,860,747| 47,609,204| 53,755,775| | | | | | | |
POPULATION| 81,054,329| 82,652,033| 84,214,778| 84,251,700| 88,542,991| 90,457,200| CMTS DENSITY| 27. 77| 39. 85| 41. 3| 50. 88| 64. 76| 75. 28| Source: Telco Report, National Telecommunications Commission Growth of Cellular Mobile Telephone Subscribers In a report written by the National Statistics Coordinating Board (NSCB) in 2008, they said that the number of cellular phone subscribers is greatly out numbering subscribers and users of fixed line telephone subscribers. In 2007, the number of cellular mobile telephone (CMT) users or subscribers was estimated at 57. million or 15 times more than as compared to the fixed line telephone subscribers (which has 3. 9 million). According to the data of the National Telecommunications Commission (NTC), the CMT subscription started to outnumber the fixed line subscription starting in the year 2000 wherein it has a ration of 2 is to 1. In the year 2007, the level of CMT subscribers ballooned to 33. 6 percent which is higher compared to its 2006 level of 42. 9 million. On the other hand, the number of fixed line telephone subscribers only grew by 8. 4 percent from 3. 6 million in 2006.
Between the periods of 2000 to 2007, the number of CMT subscribers continuously increased with an annual average growth rate of 31. 4 percent while that of fixed telephones only increased at 3. 2 percent. In the data from NTC in 2007, it was said that CMT density was estimated at about 65. 93 per 100 population and fixed line telephone density in the country was estimated at 8. 24 per 100 population. NTC furthered that in the year 2007, CMT density was estimated at 65. 93 per 100 population and fixed line telephone density in the country was estimated at 8. 4 per 100 population. Figure 1: Number of fixed line telephone and mobile cellular telephone subscribers: 1994 – 2007 Source: Cellular mobile telephone subscribers outnumber fixed line telephone subscribers by 15 to 1 National Statistics Coordinating Board 2008. In the different regions of the Philippines, National Capital Region (NCR) has the highest fixed line telephone density of 29. 53 per 100 population followed by Southern Tagalog (Region IV) and then Central Visayas (Region VII) with 7. 77 and 7. 52 fixed line telephone density respectively.
On the other end, the Autonomous Region of Muslim Mindanao (ARMM) has the lowest with 0. 81 fixed telephone line density. Base from these indicators, the telephone lines per 100 population and cellular subscribers per 100 population are Millenium Development Goals (MDGs) indicator under Goal 8. In the Philippines, both the indicators show an increasing trend since 1994 implying that the MDG target of making available the benefits of new technologies, especially information and communications in cooperation with the private sector which should be achieved by the country by 2015.
III. ECONOMIC THEORIES BEHIND THE REGULATIONS OF THE NATIONAL TELECOMMUNICATIONS COMMISSION and CELLULAR MOBILE TELEPHONE COMPANY INDUSTRY Incentive Economics Incentive in economics basically means a cost or a benefit that motivates a decision or action by consumers, businesses, or other participants in the economy. Some incentives are explicitly created by government policies to achieve a desired end or they can just be part of the wacky world we call economics. The most noted incentive in the study of economics is that provided by prices.
When prices are higher buyers have the “incentive” to buy less and sellers have the “incentive” to sell more. Price incentives play a fundamental role in the market. When prices are higher buyers have the “incentive” to buy less and sellers have the “incentive” to sell more. Price incentives play a fundamental role in the allocation. When prices are higher buyers have the “incentive” to buy less and sellers have the “incentive” to sell more. Price incentives play a fundamental role in the allocation system that society uses to answer the three questions of allocation. Competitive Markets
It is the degree to which a market or industry can be described as competitive depends in part on how many suppliers are seeking the demand of consumers and the ease with which new businesses can enter and exit a particular market in the long run. The spectrum of competition ranges from highly competitive markets where there are many sellers, each of whom has little or no control over the market price – to a situation of pure monopoly where a market or an industry is dominated by one single supplier who enjoys considerable discretion in setting prices, unless subject to some form of direct regulation by the government.
In many sectors of the economy markets are best described by the term oligopoly – where a few producers dominate the majority of the market and the industry is highly concentrated. In a duopoly two firms dominate the market although there may be many smaller players in the industry. Competitive markets operate on the basis of a number of assumptions. When these assumptions are dropped – we move into the world of imperfect competition. Oligopolistic Competition An oligopoly is a market dominated by a few large suppliers.
The degree of market concentration is very high wherein large percent of the market is taken up by the leading firms. Firms within an oligopoly produce branded products (advertising and marketing is an important feature of competition within such markets) and there are also barriers to entry. Another important characteristic of an oligopoly is interdependence between firms. This means that each firm must take into account the likely reactions of other firms in the market when making pricing and investment decisions.
This creates uncertainty in such markets – which economists seek to model through the use of game theory. Economics is much like a game in which the players anticipate one another’s moves. Game theory may be applied in situations in which decision makers must take into account the reasoning of other decision makers. It has been used, for example, to determine the formation of political coalitions or business conglomerates, the optimum price at which to sell products or services, the best site for a manufacturing plant, and even the behavior of certain species in the struggle for survival.
The ongoing interdependence between businesses can lead to implicit and explicit collusion between the major firms in the market. Collusion occurs when businesses agree to act as if they were in a monopoly position. The key features of an oligopoly are: (a) a few firms selling similar product, (b) each firm produces branded products, (c) there is likely to be significant entry barriers into the market in the long run which allows firms to make supernormal profits, and (d) interdependence between competing firms wherein these businesses have to take into account likely reactions of rivals to any change in price and output.
On the theories about oligopoly pricing, there are four: (a) oligopoly firms collaborate to charge the monopoly price and get monopoly profits, (b) oligopoly firms compete on price so that price and profits will be the same as a competitive industry, (c) oligopoly price and profits will be between the monopoly and competitive ends of the scale, and (d) oligopoly prices and profits are “indeterminate” because of the difficulties in modeling interdependent price and output decisions. Cartel
This is the uncertainty that exists in an oligopoly which can lead to collusive behavior by firms. When this happens the existing businesses decide to engage in price fixing agreements or cartels. The aim of this is to maximize joint profits and act as if the market was a pure monopoly. IV. ROLE OF NATIONAL TELECOMMUNICATIONS COMMISSION (NTC) Background of National Telecommunications Commission (NTC) According to the Philippine Constitution, Article 2, Section 24, “the state recognizes the vital role of communication and information in nation-building. According also to Republic Act 7925, Article 2, Sec 4, “Telecommunications is essential to the economic development, integrity and security of the Philippines, and as such shall be developed and administered as to safeguard, enrich and strengthen the economic, cultural, social and political fabric of the Philippines. ” The National Telecommunications Commission (NTC) is basically a government agency that was created under the Executive Order No. 546 which was promulgated on July 23, 1979.
It was then conferred with regulatory and quasi-judicial functions taken over from the Board of Communications and the Telecommunications Control Bureau which were abolished in the same Order. Basically, NTC is the body of the government which exercises jurisdiction over the supervision, adjudication and control over all telecommunications services throughout the entire country. For the effective enforcement of this responsibility, it abides to its guidelines, rules and regulations that relative to the establishment of the operation and maintenance of various telecommunication facilities and services nationwide.
As an independent body, and as its regulatory and quasi-judicial functions are concerned, the NTC remains under the administrative supervision of the Department of Transportation and Communication as attached agency. On the other hand, with respect to its quasi-judicial functions, NTC’s decisions are appealable to the Court of Appeals and the Supreme Court. Provisions and Laws on How They Should Regulate Charging Activities of CMT Companies With all the articles and guidelines stated under the law governing NTC, the governing body is granted to be in-charge with all the telecommunication concerns.
From licensing, broadcasting, operations, maintenance, installation and regulations of all telecommunication related activities, services and products. With this regard, a provision under the Republic Act 7925, CA 146, as amended, states that NTC also regulates and supervises the provision of telecommunication services. This includes regulating the cellular mobile telephone (CMT) activities from sales of its equipments to providing CMT connections to its subscribers nationwide.
In accordance to the law stated in Republic Act 7925, Telco Law, “Rates and tariff charges shall be fair, just and reasonable and for this purpose, the regulatory body shall develop tariff structures based on socioeconomic factors and on financial, technical and commercial criteria as measures to ensure a fair rate of return and as a tool to ensure economic and social development”. The public telecommunications sector in accordance to the law aforementioned also includes that public telecommunications services shall be provided by private entities or enterprises.
A fair and reasonable interconnection of facilities of authorized public network operators and the providers of telecommunications services is necessary. Given these provisions, the law finally states that a healthy competitive environment shall be fostered, one in which telecommunications carriers are free to make business decisions and to interact with one another in providing telecommunications services, with the end in view of encouraging their financial viability while maintaining affordable rates.
With these parts of the laws stated, it is clear that there are no specific provisions on the charging rates of the cellular mobile telephone companies. According to the in charge for regulating cellular and fixed line telephone activities, Director Edgardo Cabarios, Common Carrier and Authorization Department Division of NTC, the law and the commission abides to the economic theory of a competitive market. A competitive market, which was cited in the earlier part of this paper, let different producers compete with each other including its prices.
However, the competitive setting in this industry, with a few players and with top players getting most of the subscribers, is studied as oligopolistic competitive market. With regards again to the Republic Act 7925, Sec 17, which was passed into legislation in 1995, transformed the way our government handles our market into a competitive type of market from a monopoly only market thus the freewill of multiple sellers in the market to compete with each others price. As compared to what we have now than before, a monopolistic market then even if there are other competitors have products which cannot be substituted from one another.
In the definition of monopolistic competition, all firms under such market has no perfectly substitutable products. What the government through the law meant was that they will do away with having a monopolistic type of market to going through a competitive market by accepting more companies to penetrate the different industries and widen the competition among other existing competitors. Little by little, industries such as the telecom is going through that process and the reason why NTC is encouraging more companies to venture in this type of service to further the competition in the CMT industry.
By now, the nature of market that we have in the CMT industry is oligopolistic competitive market. And from this, the government is encouraging more entities to venture here for it will be beneficial to the consumers. This is what happened when Sun Cellular ventured and penetrated the industry wherein it resulted for other old competitors to lower their prices and as such gave the consumers/subscribers benefits of having a lesser cost in their charging rates. V. APPLICATION OF THE NTC REGULATIONS ON CELLULAR MOBILE TELEPHONE CHARGING
Regulation Implemented for Cellular Mobile Telephone (CMT) Charging As it was discussed on our previous tariff, the National Telecommunications Commission exercises the law that was put into legislation under the Republic Act 7925, Sec 17. Again, in accordance to RA 7925, Sec 17 about rates and tariffs: “The Commission shall establish rates and tariffs which are fair and reasonable and which provide for the economic viability of telecommunications entities and a fair return on their investments considering the prevailing cost of capital in the domestic and international markets. The law simply states that it enables and gives the companies of a telecommunications industry the free will to set prices to encourage competition among other competitors that went in the market. According to Director Edgardo Cabarios, Common Carrier and Authorization Department Division of NTC from which is in-charge with the legislation and implementation of regulations concerning carriers of telecommunication services such as cellular mobile telephone companies, this kind of market set-up is encourage to avoid monopolistic competition.
Like it was stated in the earlier discussions, the previous market before in terms of telecommunications is concerned was a monopolistic market. The government, according to the telecom report came to a thorough deliberation and discussion that went through senate and congress to change its type of market and allow a competitive market. The government came to a conclusion that if the market will stay as a monopoly, quality of service will remain unchanged or will only have little improvements. It could also mean that prices will vastly increase in a short span of time giving consumers a hard time with their expenditures.
So in 1995, the Republic Act 7925 was born which allowed the telecom industry to adopt the current type of market. But the next question is, through competition the primary concern here is companies might go collude which may lead to a cartel. To be able to avoid these things from taking place, the NTC made resolutions and laws on the protection of consumer welfare. One example of a consumer welfare protection is the memorandum circular no. 05-06-2007 which accounts Consumer Protection Guidelines.
The commission also encourages other competitors to enter the industry so as to widen competition among other competitors. One good example here is the penetration of Sun Cellular (Digitel) into the cellular mobile telephone industry. As we can see through the penetration of Sun Cellular, the competition in the said industry heightened resulting to decreasing the costs of the old competitors but at the same time improving their services. Discussion on how this transpired will be discussed on the incentives part of this section. How Does Incentives Come Into Play? a.
Consumers/Subscribers In this industry, the incentives of the subscriber or the consumers are a lot considering the regulations adopted and regulated by the government to those CMT companies. First and foremost is the type of market the commission adopted in regulating the CMT companies. Second is the consumer welfare protection which constitutes the protection of consumers from the possible abuse of companies to their subscribers. Under those two main incentives of the consumers that are given by the commission in regulating the CMT companies gives a variety of other more incentives.
Let’s first focus on the first incentive of the subscribers through the regulations given by NTC to the CMT companies. Because of the Republic Act 7925, the subscribers get more incentive through this regulation to freely choose or subscribe from a variety of CMT companies. Given the RA 7925, it has opened a very wide opportunity to consumers in terms of having different varieties of networks to choose from. It has given the consumers to justify the rates of the CMT companies on which offers the lowest cost and at the same time which caters to their personal needs.
With regards to this, it has been said over and over again that the government commission that is in charge with regulating the CMT companies cannot impose what specific charges they can impose on these companies because of the healthy competition that is mandated by the law. However, the NTC has the right to observe and assess the services that these companies offer and can amend these services for the benefit of the consumers. The most recent amendment that NTC made was the Guidelines of Billing Mobile Voice Service from the Memorandum Circular No. 5-07-2009. According to this circular, the maximum unit of billing for cellular mobile telephone service (CMTS) whether postpaid or prepaid shall be six (6) seconds per pulse. Through this, the authorized rates shall be adjusted correspondingly. Subscribers may opt to be billed on one minute per pulse basis or to subscribe to unlimited service offerings or any service offerings if they actively and knowingly enroll in the scheme. However, the circular that NTC issued was put on hold because some of the CMT companies filed a complaint about it.
And until now, the decision is still under process but different companies has adopted the scheme already although not for all calls but in their network only such as what is Globe is offering but only for a limited time. According to Globe, they are offering a per second service call to their subscribers for a rate of 0. 5 centavos per second which has a much lower rate than their usual per minute billing. The next incentive that the subscribers may get from the regulations that are set by the NTC is the Consumer Protection Guidelines that was issued under Memorandum Circular No. 5-06-2007. Aside from the NTC who is tasked in monitoring the services and reasonable rates offered by the CMT companies, the commission also gave the public the power to do the same thing. The commission has issued the guidelines for consumer welfare for the consumers, specifically the subscribers to also protect their own welfare in terms of their interactions with the company that are subscribed to. Through these guidelines, the subscribers can file complaint against companies which are going beyond from the services that offer.
Like for example, is the implementation of the rates that CMT companies have promised to give their subscribers. Most of the complaints that the NTC has been receiving is the wrong rates of these CMT companies are billing their subscribers. Aside from the monitoring of the NTC, the commission also encourages the subscribers to do their part to further combat mistakes of CMT companies even small mistakes. Another incentive that subscribers can get from the regulations of the NTC is the assurance of the quality of services of the CMT companies.
Even if the commission doesn’t directly or doesn’t have the power to impose prices on the services that the CMT companies are giving the subscribers, the commission however makes sure that the services these companies are giving enough to what they are charging the consumers. The rules set here can be seen in Service Performance Standards for the Cellular Mobile Telephone Service under Memorandum Circular No. 07-06-2002. And the last incentive is the Implementing Rules and Regulations (IRR) for Retail Pricing under the Memorandum Circular No. 06-09-2001.
Again, there are no exact charging prices included in any of the laws including in this circular that the NTC issued. This memorandum circular only requires the CMT companies that upon selling their new products and services, they should first justify their charging prices with the services that they will asking their subscribers. This is considered an incentive for the subscribers because the NTC should at first be encouraged about how CMT companies came up with their prices in their services. CMT companies needs to justify their charging prices in accordance to the service that they’ll be giving the subscribers.
As such over-pricing and unequal service to the price that they will charge avoided. b. Producers Incentives on the part of the producers which are the CMT companies have a lot less than their subscribers have. According to Director Edgardo Cabarios, Common Carrier and Authorization Department Division of NTC, the main incentive that the companies get from giving service to the public is the 20 percent reduction to their capital goods. The 20 percent reduction to the CMT companies’ capital goods is in accordance to Pursuant Order 609 of the telecommunications law.
This part of the law gives the CMT companies the eagerness to buy equipments to give better services to their subscribers. CMT companies will have more reasons to upgrade their facilities which translate to improving their services because they will have good discounts in acquiring their capital goods which includes their facilities. The effect of this is also at the end of the consumers wherein rates will not be as high as compared if there is no reduction because the reduced prices of the capital goods won’t be passed down to the consumers. V. MAJOR ISSUES ON CELLULAR MOBILE TELEPHONE COMPANIES WITH REGARDS TO RATE CHARGING
The Case of SMART and GLOBE against Sun Cellular In 2005, Globe Telecoms and Smart Communications filed a complaint to the NTC against the new Sun Cellular company. The two old existing giants in the CMT industry argued that Sun Cellular cannot charge the subscribers cheaper prices as compared to them. These companies said that the prices set by Sun Cellular is not justified and is considered predatory pricing in the industry. The two big existing CMT companies bombarded these types of complaint in the NTC to stop the operation of Sun Cellular and to adapt to the kind of pricing that they also have.
They said that Sun Cellular has violated Republic Act No. 7925 which stated establishing fair and reasonable rates and tariffs and regulating rates in view of ruinous competition, monopoly, etc. They also said that Sun Cellular’s charging fees to their consumers has violated Memorandum Circular No. 09-07-2002 from which prohibits predatory pricing. The complaint filed by the two complainants was filed and is reviewed by the division in charged for the NTC in terms of these concerns. A few months later, the court together with the NTC’s findings and recommendation dismissed the case filed by Smart Communications and Globe Telecoms.
The findings say that the allegations filed by the two other existing companies are invalid. First, there is no basis for the allegation that there is ruinous competition going on in the industry because of lower rates that Sun Cellular is offering. Second, there are no such predatory pricing actions that are going on in the rates offered by Sun Cellular. Given the definition of predatory pricing, it is an anti-competitive measure employed by a dominant company to protect market share from new or existing competitors.
In the first place, Sun Cellular is just new in the industry thus there is no point of them to engage in predatory pricing actions. Second, the industry is a purely competitive market thus companies and business may charge any fees that they want as long as it is justified with the services that they offer their subscribers. After the first complaint was dismissed by the court, Smart Telecommunications and Globe Telecoms again filed another complaint, this time about Sun Cellular’s services. They say that Sun Cellular is giving their subscribers very false services as compared to the two other big companies.
The complainants point out that in calls, since they have unlimited calls (and SMS) service(s) given the limited facilities that they have, they cannot accommodate all the calls of their subscribers at once. Meaning the Drop Call Rate (DCR) is so much in Sun Cellular’s services from which according to the Smart and Globe is unjustified. After studying the complaint, the court together with the recommendation and finding of the NTC dismissed the case. It has been said again that in accordance to Memorandum Circular No. 7-06-2002, the Grade of Service (GOS) for should be 7 percent (end-to-end within the operator’s own network). The allowable Drop Call Rate (DCR) should be 5 percent. The law also states that CMT operators/companies are encouraged to improve the GOS by 1 percent and DCR by 1 percent every two (2) years until the GOS is 4 percent and the DCR is 2 percent. But according to the law, newly authorized CMT operators/companies may have a DCR of 7% at the start of commercial operation. After one (1) year from start of commercial operations, the DCR shall be 5%.
In these provisions, Sun Cellular’s services are within the law stated above thus the complaint of the two other companies being dismissed. In this case we have seen the incentive of opening the market industry in the Philippines in 1995 to a competitive market from a monopolistic market before. It has opened opportunities and likewise incentive to new companies and at the same time giving incentives to the subscribers more services to choose from with a different variety of services. The competition also gave the consumers decreased prices from the prices that old companies are offering before.
Short Messaging System (SMS) Rate Charging The talk about cutting off the rates of short messaging system (SMS) or popularly known as text messaging has been quite a talk for the past years. There were clamors from the different sectors of the country to decrease the rates of text messaging but in the end, it always goes back to its regular rate of 1 peso per text message. In an interview with Catanduanes Rep. Joseph Santiago, who heads the committee on information technology, told his colleagues that when he was NTC commissioner, he tried to make texting free.
But even before doing it, the telcos stopped him by obtaining a court restraining order even before he could publish his order. However, the talk about making the text messaging free for all is another topic to ponder upon. According to Director Edgardo Cabarios, Common Carrier and Authorization Department Division of NTC, they cannot eliminate entirely the fee for text messaging. Before, he said that every satellite there is seven (7) channels. Five (5) of these channels are used for calls and the remaining two are used for service and maintenance.
The maintenance channel before was used to send SMS but it can only accommodate 10 to 20 characters because it is only meant for maintenance of the mobile telephone connections. And all these seven channels are all paid and included in the call fees that the CMT companies are charging us. When the telecom industry introduced the SMS in mobile telecommunications, it instantly became a hit to the public and because of this the network became congested and they need to add more channels to accommodate increasing usage of text messaging or SMS.
Thus, what they did is to add additional channels to accommodate the increasing demand of text messaging/SMS. They did this to avoid network congestion and added to it is an increase or added charge to the subscribers. Unlike in the Philippines, other countries like the United States has low rate of text messaging/SMS thus there is no need to add more channels the existing channels in their satellites can still accommodate the weight of their text messaging which makes it free.
In the text messaging/SMS history, it was Globe Telecommunications who first started it in the Philippines in the CMT industry. Another clarification is the difference in the fees for both calls and SMS fees in prepaid and postpaid charging. According again to Director Edgardo Cabarios, companies charge different fees for those services mainly because in prepaid services, because they have no guaranteed income. The companies studied the nature of Filipinos wherein we are used to consuming goods in small amounts or will only consume goods base on the money that we currently have.
This is the risk that companies are taking in offering prepaid services to the subscribers. On the other hand, it is an incentive for the subscribers to have options between prepaid and postpaid services. Because in postpaid services, subscribers can avail lower rates because CMT companies has an assurance that the income that they will gain will be there for the longest possible time. Extent of Validity of Prepaid Subscribers on their Prepaid Card Subscription
In 2009, the senate has opened the issue regarding the validity of prepaid cards in terms of until when can a specified amount can be used. According in the senate hearing that was headed by Senator Enrile, he was already alarmed by the increasing complaints with regards to the vanishing loads of prepaid users. According to the complaints that have been forwarded to them, the public is appealing to the validity of prepaid cards. They say that the duration of prepaid cards isn’t fair for the consumers.
The validity of the prepaid cards as what all the complaints are about favors the consumers because the consumers has no choice but to consume the amount given a short period of time and given this, loads of subscriber are instantly vanishing when the expiry date of such prepaid cards is nearing. The NTC however aired its side that it cannot issue a circular memorandum because the CMT companies have issued an injunction to the Supreme Court. It is like making that service immune of any orders that NTC can order them. This is one of he flaw of the law from which companies can make ways of making government branches stop from preventing them do their services. Because of this, Enrile said that the laws under Executive Order 546 which created the NTC should be reviewed because CMT companies and other telecommunication companies can protect itself from the governing body of the government. On the other hand, higher bodies of the government such as the Congress and Senate are not affected by the injunction that are filed by the CMT companies but only the government body assigned to them.
From there, the Senate ordered the CMT companies to revise their prepaid card validity and at the same time fix the issue of vanishing loads in prepaid cards. The following is the Memorandum Circular 02-07-2009 that the NTC has issued the CMT companies before these companies issued an injunction to the NTC and has been effective after the Senate hearing on this issue: Table 2: Memorandum Circular 02-07-2009, Guidelines on Prepaid Cards Amount of Load Purchased| Min. Expiration/ Validity Period| Php 10. 0 or lower | Three (3) days | More than Php 10. 00 – Php 50. 00| Fifteen (15) days| More than Php 50. 00 – Php 100. 00| Thirty (30) days| More than Php100. 00 – Php150. 00 | Forty five (45) days | More than Php 150. 00 – Php 250. 00 | Sixty (60) days| More than Php 250. 00 – Php300 | Seventy five (75) days | More than Php 300. 00 | One hundred twenty (120) days | Source: ” Meeting Global Challenges Through Regulatory Excellence and Consumer Protection . “, NTC 30th Anniversary Forum VI.
CONCLUSION AND RECOMMENDATION The existing incentives that the government, specifically the governing body of CMT companies which is the NTC, gave the consumers almost enough through the creation of Republic Act 7925 which opened the market from a monopolistic nature to a competitive environment. The Philippines is even the year earlier than the United States from opening its market to achieving a perfectly competitive market environment. Through this law, the government opened a lot of incentives for the consumers.
It also opened opportunities to other companies that are thinking of penetrating the CMT industry from which it will again benefit the consumers. Through this law, if a lot will venture in the said industry, companies will be force to be competitive making their service better and at the same time making their costs cheaper and affordable for all the consumers. However, even though the NTC can issue Memorandum Circulars from time to time to specify rules and regulations specifically in charging rates in connection to the services these CMT companies give out, still it is insufficient.
The Executive Order 546 which made the NTC has laws which are not updated thus there are so many loopholes that telecommunication companies in general can go through just like the injunction that CMT companies did to prevent them from stopping their services. It has been given that charging rates aren’t in the control by the government because in a competitive market, the government has no power to control prices but it is already up to the market to determine the prices that the consumers will venture into.
What the NTC can do is to update its laws and do specific amendments specifically the Executive Order 546 which constitutes a lot in regulating the entire telecommunications in the Philippines. There have been a lot of changes in the telecom industry given that technology changes in rapidly. The government needs to review again its rules aside from the Circular Memorandums that the NTC issues in specific the services and actions of CMT companies. The government should revise its laws to strengthen the protection of consumer welfare and further the incentives that the laws can give upon to its consumers.
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Cite this Charging Regulations for Cellular Phone Companies in the Philippines
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