Philippine Women’s University

Graduate School
Taft Avenue, Manila

FINAL PAPER

Duopoly in Philippine Telecommunication’s Industry: Its Challenges and Opportunities

In Partial Fulfilment of Requirements for

Managerial Economics

Presented to:
Maria Victoria U. Rosas, Ph.D.

Prepared by:
Jam Xabryl I. Aquino

February 29, 2020

I. Introduction

Duopoly is market situation in which there are only two producers or sellers of a product

who produce and sell almost identical product. However, their pricing policy and marketing

policies may be different. They may agree to co-operate with each other or they may go in for

cut-throat competition. There may or may not be an agreement between them. They may fix the

same price for their product or they may fix different prices. Direct collusion is still illegal.

Monopolies are illegal but, duopolies are not. Terry describes, “A duopoly is where two

companies control such a large percentage of a product market that, without ever talking to each

other, they can jointly and legally execute monopoly behaviour. Two companies have control of

more than 80% of them and, without ever talking to each other, are easily able to effect duopoly

behaviour. Primarily, they simply match each other’s price increases. They then secondarily

continue to compete in price, marketing strategies, and efficiencies, reduction of costs and in

every other way.” Here are some examples: Globe and Apple; Coca-Cola and Pepsi; UPS and

Fed-Ex and Verizon & ATT.

This paper seeks to discuss the challenges and opportunities on eliminating duopoly in

Philippine Telecommunications Industry by analysing the factors affecting competition in the

Philippines. To begin, current situation; policies and regulations; and the infrastructures &

spectrums are presented to better understand duopoly and why it exists in the Philippines’

Telecom Industry.
A. Current situation in the Philippine Telecommunication Industry

As of June 2019, fixed broadband internet speed in the Philippines doubled from the third quarter

of 2016 to the first quarter of 2019, a global internet speed tracker showed.

Figure 1

Speed test reports by OOKLA showed that fixed broadband internet speeds in the country

improved from 8.40 Megabits per second (Mbps) in the third quarter of 2016 to 19.31 Mbps in

the first quarter of 2019.For April 2019, OOKLA noted that mobile and fixed broadband internet

speeds in the country stood at 14.73 Mbps and 18.66 Mbps, respectively (Mercado, 2019)

According to Mercado, despite the improved speeds, the Philippines’ global ranking slipped one

place to 104th place for the mobile broadband internet speed and slipped seven places to 108th in

fixed broadband internet speeds.

B. Policies in the Philippine Setting

a. Telecommunication Policy Act of the Philippines

1. To develop and maintain a viable, efficient, reliable and universal telecom

infrastructure using the best available and affordable technologies.

2. Expansion of telecom network shall give priority to unserved and

undeserved areas.

3. Radio frequency is scarce public resource that shall be administered in the

public interest and in accordance with international agreements and

conventions to which the Philippines is a party and granted to the best

qualified.

4. Public telecommunications services shall be provided by private

enterprises.

5. A healthy competitive environment shall be fostered where public telecom

carriers are free to make business decisions and to interact with one

another in providing telecom services.

6. Radio frequency (RF) spectrum allocation and assignment shall be subject

to periodic review such that the use thereof shall be subject to reasonable

spectrum user fees and where demand for specific frequencies exceeded

availability there shall be open tenders.

b. The Philippine Competition Act (PCA) or R.A. 10667 is the primary

competition policy of the Philippines for promoting and protecting

competitive market. It will protect the well-being of consumers and

preserve the efficiency of competition in the marketplace. The PCA was

passed in 2015 after languishing in Congress for 24 years. It is a game

changing legislation that is expected to improve consumer protection and

help accelerate investment and job creation in the country, consistent with

the national government’s goal of creating more inclusive economic

growth. Enforcement of this law will help ensure that markets are open

and free, challenging anticompetitive business practices while maintaining

an environment where businesses can compete based on the quality of

their work. A competitive market means a market with multiple buyers

and multiple sellers, driving market prices lower and offering consumers

more choices. A truly competitive market encourages efficiency and

innovation, and forces businesses to excel. The act reflects the belief that

competition:

 Promotes entrepreneurial spirit,

 Encourages private investments,

 Facilitates technology development and transfer, and

 Enhances resource productivity.

The primary task of competition policy is twofold: (1) to make

sure that no entity would abuse its market power, and, where necessary,

(2) to implement competition rules that would emulate the competitive

process and make up for the market’s failure to perform its price-

allocation function efficiently.

C. Infrastructure and Spectrum

a. Cable Landing Stations in the Philippines

The Philippines takes an important position in the business process outsourcing (BPO)

industry worldwide. Submarine networks serve as critical components to the BPO industry,

providing reliable and diverse links between the Philippines and the rest of the world.

Since the acquisition of Digitel by PLDT in 2011 and the takeover of Bayantel by Globe

Telecom in 2013, PLDT and Globe Telecom have formed the duopoly on international

subsea cable market in the Philippines. In 2017, the Department of Information and

Communications Technology (DICT) and the state-owned firm Bases Conversion and

Development and Development Authority (BCDA) collaborated with Facebook to land

PLCN in the Philippines under the Luzon Bypass Infrastructure (LBI) project which is a

government initiative for the National Broadband Plan (NBP), the first of its kind for the

Philippine government to implement by building and operating its own submarine cable

landing stations. The BCDA builds the Luzon Bypass Infrastructure (LBI) made up of two

cable landing stations and a 250 km long cable network corridor connecting the two cable

landing stations.
There are now 10 international submarine cable systems landing 9 cable landing stations in

the Philippines.

PLDT's cable landing stations include:

 Batangas Cable Landing Station for APCN (retired), APCN-2, Guam-

Philippines, SMW3

 Cavite Cable Landing Station for EAC (now a part of the EAC-

C2C network)

 La Union Cable Landing Station for AAG

 Daet Cable Landing Station for ASE and Jupiter

Globe Telecom's cable landing stations include:

 Nasugbu Cable Landing Station for SJC and C2C (now a part of the EAC-

C2C network)

 Ballesteros Cable Landing Station for TGN-IA

 Davao Cable Landing Station for SEA-US

BCDA's cable landing stations include:

 Baler/Aurora Cable Landing Station for PLCN

 San Fernando Cable Landing Station for PLCN

DICT has signed agreement to offer its cable landing facilities to China Telecom

Global which is the third telecom operator in the Philippines.

b. The 700 MHz Frequency

In the Philippines, the National Telecommunications Commission (NTC) manages

the radio frequencies based on the global standards set by the ITU. It does so in two ways:

First is by allocating non-overlapping blocks of the radio spectrum for particular uses (ie,

broadcasting, military, mobile) through the National Radio Frequency Allocation Table

(NRFAT). Secondly, the NTC assigns specific frequencies within the allocated blocks to

different licensees. Licensees are granted exclusive right for a renewable period of three

years to use the assigned frequencies to provide designated services, in exchange for

paying the spectrum user fee (SUF).

In the 1990s, bulk of the 700 Mhz band was owned by a company called Liberty

Broadcasting Network Inc. (LBNI), a local company which provided voice and data

communication services as well as trunk radio services. At the time LBNI was chaired by

Raymond Moreno, a known Marcos crony, through the holding company Liberty Telecom

Holdings Inc. (LTHI). In 2005 LBNI became insolvent, and in 2008 shares of LTHI was

bought by several companies, namely Qatar Telecom QSC (QTel) and White Dawn

Solution Holdings.

In 2009, LTHI became a subsidiary of San Miguel Corporation which acquired 32.7% of

the company through Vega Telecom. In 2010, SMC in partnership with QTel launched

their 4G Wi-Tribe wireless broadband service using the frequencies owned by Liberty

Telecoms in the 2500 MHz band. By 2015 SMC acquired full ownership of Liberty,

although its 700 MHz band remained unused. 80 MHz out of the 100 MHz under the 700

MHz band is licensed to Liberty Telecoms.

10 Mhz of the band was owned by High Frequency Telecommunications (formerly Hi-

Frequency), which was granted a telecom franchise in 1998. This was similarly acquired

by SMC in 2015 by buying out its holding company, MultiTech Holdings, Inc.

Under the terms of the sale of SMC telecom assets in May 2016, and with the approval of

the NTC, Smart and Globe got to use 35 MHz each of SMC’s 90-MHz stake in the 700

MHz spectrum. 20 MHz was left unassigned for use by a new player. The remaining 10

MHz of the 700 MHz band is owned by New Century Telecom, Inc, a Pasig-based telecom

consultancy company which was granted a franchise to provide commercial telecom

services in 1997. With the realignment of radio frequencies from SMC to PLDT and

Globe, a whopping 91% of all frequencies assigned to telecom service companies are now

in the hands of the duopoly

.
II. Methods of Research

A. Objectives of the Study

The main objective of this study is to identify the challenges and opportunities of having

duopoly market structure in Philippines’ Telecommunication Industry.

B. Methodology

The study is based on secondary data and which is collected from available published

sources.

Herfindahl-Hirschman index (HHI), also called HH index, in economics and finance, a

measure of the competitiveness of an industry in terms of the market concentration of its

participants. Developed by the American economist Orris C. Herfindahl and the German

economist Albert O. Hirschman, it is based on the following formula:

HHI = s12 + s22 + ⋯ + sn2

Where n is the number of firms in the market and sn denotes the market share of the nth

firm. Higher values of the index indicate higher market concentration

 and monopoly power as well as decreased competitiveness. For example, if there is only

one firm in a market with 100 percent market share, then the value of the index would

equal 10,000 (1002). The index decreases when a market is made up of a larger number

of firms, each with a smaller market share.

By calculating the numbers showed above using HHI shows that we have a duopoly

market structure in the Philippine telecom industry. Common sense suggests that data

provided above show that Globe and PLDT’s share, when it comes to spectrum and

infrastructure, are the only players in the market who can only build infrastructure, this

the outcome that show GLOBE and PLDT have an unfair market advantage.

III. Opportunities and Challenges

Establishing new Telco player in market will boost the healthy competition is one of the

opportunities that the Philippines may look into to break the existing duopoly. Another player

means more choices for Filipino consumers. Although PLDT and Globe claims that we do not

have duopoly since they are having fierce competition when it comes to the services offered they

are just playing the waiting game. According to OOKLA, mobile and fixed broadband internet

speeds in the country stood at 14.73 Mbps and 18.66 Mbps, respectively. Despite the improved

speeds, the Philippines’ global ranking slipped one place to 104th place for the mobile

broadband internet speed and slipped seven places to 108th in fixed broadband internet speeds.

It’s like one is just waiting for the other on its next step, with both readying to react to whoever

makes the first move. Another reason is since two players are only involved; it’s easier for both

to predict what the other company will do next. Putting a third contender into the mix and it

would be harder for them to prepare for the competitor’s next agenda.
 Major challenges the new player have is the barrier to entry: this concept is wide and its

impact is largely seen with new organizations or organizations striving to enter a new market.

The formidable cost of investment, operations, red tape and current regulation – these are the

factors affecting new player barrier to entry.

IV. Conclusion

Evidence shows that duopoly in the Philippine telecom industry is not beneficial to the

Filipinos consumer as Philippines is still have the slowest internet connection in Asia. Entry of

new players in the local telecommunications industry will foster a healthy competitive

environment that will ultimately benefit consumers. Competition has the potential of opening up

new sources of revenue streams for telecommunications players while benefiting consumers with

more innovative products and services at competitive rates however in order for the new player

to do this, aside from the hefty investment there is a need to activate more cell sites but the

bureaucratic red tape gets in the way of network deployment. The tedious process of securing

permits from many local governments, national government agencies, barangays and

subdivisions impedes construction, thus affecting the availability of service in certain areas.

Controversial issues surrounding frequency allocation also needs to be tackled against mobile

spectrum hoarding. The being said, the government must take action to put explicit competition

policy framework, curb red tape and corruption and regulate spectrum distribution.
V. References:

1. Arun Kumar, Rachana Sharma, Managerial Economics. Atlantic Publishers & Dist, 1998

2. Godfrey, Neale, "Duopoly: A New Board Game Or A New Way To Do Business?”, Forbes,
September 18, 2016, https://www.forbes.com/sites/nealegodfrey/2016/09/18/duopoly-a-new-
board-game-or-a-new-way-to-do-business/#2dbb957857d7

3. Medalla, Erlinda, “Philippine Competition Policy in Perspective”, Philippines Institute for

Development Studies, September 2002,
https://pidswebs.pids.gov.ph/CDN/PUBLICATIONS/pidsbk03-ppscompetition.pdf

4. Advincula, Jack, “Antitrust Laws: A Glance at the Philippine Competition Act”, October
2016, https://www.zglaw.com/~zglaw/blog/2017/01/05/antitrust-laws-a-glance-at-the-
philippine-competition-act

5. Marasigan, Lorenz & Paden, Sharmain, “4 major issues to be tackled before 3 rd telco player is
chosen”, Business Mirror, June 2018, https://businessmirror.com.ph/2018/06/04/4-major-
issues-to-be-tackled-before-3rd-telco-player-is-chosen/

6. Blackstone, Erwin, Darby, Larry et.al., “The Case of Duopoly”, December 2012,
https://www.cato.org/sites/cato.org/files/serials/files/regulation/2012/6/v34n4-3.pdf

7. Bahague, Rick, “The 700 Mhz Frequency and the Philippine Telecom Duopoly”, June 2016,
https://www.bulatlat.com/2016/06/26/the-700-mhz-frequency-and-the-philippine-telecom-
duopoly/

8. Qui, Winston, “Cable Landing Stations in the Philippines”, Submarin Networks, February
202, https://www.submarinenetworks.com/stations/asia/philippines

9. Natividad, Rommel, “Spectrum Policy Assessment System (SPAS)”, ITU, May 2017,
https://www.itu.int/en/ITU-D/Regional-
Presence/AsiaPacific/Documents/Events/2017/May%20BKK/Presentations/SPAS%20-
%20APSMC%202017%20Philippines.pdf

10. Bondarenko, Peter, “Herfindahl-Hirschman index”, Brittanica, February 2020,

https://www.britannica.com/topic/Herfindahl-Hirschman-index