DICT and NTC Philippines release draft circular for selection of new telco player

The Department of Information and Communications Technology (DICT) in the Philippines and the National Telecommunications Commission (NTC) have issued a draft Memorandum Circular (MC) containing the Terms of Reference (TOR) for the selection and assignment of frequencies for a new major player (NMP) in the country’s telecom market.

DICT will conduct the Second Stakeholders Consultation on the Entry of a New Major Telecommunications Player in the Public Telecommunications Market on 27 February 2018 in Quezon City. At least 300 participants, consisting of local telecommunication players, embassy representatives, and the media, will be invited to provide inputs on the draft MC before it will be finalized and take effect by March 2018.

Currently, the telecom market in the Philippines is controlled by PLDT Inc. and Globe Telecom. Previously, whenever frequencies have been awarded to new entrants, they have been acquired by one of the two or even jointly by both.

Last November, President Duterte expressed his wish to see a new telecommunications company, possibly from China, enter into the market, in order to stimulate competition and improve connectivity in the country. According to Akamai Q3 2016 report, Philippines had the second slowest fixed line broadband Internet speed in the world.

According to a report in the Inquirer, the President directed the DICT, National Telecommunications Commission (NTC) and local governments to approve all the new company’s applications and licenses within seven days upon the submission of complete requirements. A target date was set to get the new player in by the first quarter of 2018.

During the 22nd Cabinet Meeting, DICT OIC Eliseo M. Rio Jr. brought up the idea of extending the timeline for the selection process for the new major telecommunications player by at least two months –a consensus suggestion raised by members of the private sectors and interested firms during a forum held on January 24, 2018. The President, however, was insistent to have a new major player by the first quarter of 2018 for the benefit of the public.

DICT reached an agreement with PLDT regarding the return of the Connectivity Unlimited Resource Enterprise (CURE) frequencies to the government without cost.

Previously, the President rejected the idea of the government buying back the frequencies when they were assigned for free in the first place. Yesterday it was reported in the Manila Times that PLDT is preparing an official letter waiving all rights and benefits involving CURE frequencies turned over in 2012. The to-be surrendered frequencies will be available for the new major player.

The NTC shall create a Selection Committee for the purpose of undertaking the selection process. The Committee shall be composed of a Chairperson and two members. The Chairperson shall create a Technical Working Group and/or Selection Committee Secretariat for technical and legal assistance.

The Selection Committee shall determine the new major player with the highest calculated and responsive bid out of all the Participants. The proposed formula for the computation shall be as follows: Highest Bid = Net Present Value (NPV; calculated at 10% annual discount rate) of committed investment for five years + Net Book Value (NBV) of existing telecommunications facilities, if any.

According to the draft MC, the committed investment shall only be telecommunications facilities directly related to the installation, operation and maintenance of fixed (wired and 13 wireless) networks, mobile networks, and national and international telecommunications services. The NBV of telecommunications facilities shall be subjected to evaluation by the Selection Committee only if its inclusion is sufficiently significant to affect the determination of the winning participant.

This formula takes into account the bidder’s committed investment, committed cost for subscribers, committed speed of internet and network coverage. The idea is to ensure that the new major player has the capacity to compete with the two existing telecommunication companies.

The NMP will be required to post a performance bond equivalent to 0.005 per cent of the amount of the committed investment for the first five years, pro-rated based on the amount of the committed investment per year. The Bond shall be forfeited in favour of the government if the selected entity fails to invest the amount specified.

The NMP will be required to deposit a minimum of 30% of the committed investment for the first year with a government financial institution specified by the Department of Finance (DOF) within thirty days from the award. Thereafter, the NMP shall deposit a minimum of 30% of the succeeding year’s committed investment within the same period from the anniversary date until the fifth year. The NMP shall be permitted to draw from the deposit for payments through letters of credit mechanisms for capital expenditures in relation to telecommunications facilities.

The NMP will also have to submit its roll-out plan within fifteen days from date of the award start commercial operations not later than twelve months from the date of award. Its operations should cover at least 80% of the provincial capital cities and towns and 80% of the chartered cities* within five years from the date of award.

The NMP will be required to strictly comply with the prescribed service performance standards and ensure that its networks and facilities will abide with the National Cybersecurity Plan.

This entry of a new player to spur competition will tie in with the objectives of the Philippines Government to improve Internet speed. Last year, DICT released the National Broadband Plan to accelerate the deployment of fiber optics cables and wireless technologies. The vision is to have Open, Pervasive, Inclusive, Affordable and Trusted Internet Access. The plan states that in line with this vision, the government will set policy, regulatory, and infostructural interventions to spur competition in the telecommunications and ICT industry.

In November 2017, DICT and the Bases Conversion and Development Authority (BCDA) launched the Luzon Bypass Infrastructure project to build an ultra-high speed information highway that will greatly improve the speed, affordability and accessibility of broadband Internet throughout the country. It is expected to be online at the end of 2019. Facebook will the first party to utilise the infrastructure and will construct and operate a submarine cable system that will land in the cable stations on the East and West Coasts of Luzon. The cable will provide direct connections from Luzon to Internet hubs in the United States and Asia. In exchange for utilising the bypass infrastructure, Facebook will provide the Philippine Government with bandwidth equivalent to at least 2 million Mbps, significantly expanding the capacity available for the Government’s connectivity programs.

* All Philippine cities are chartered cities, whose existence as corporate and administrative entities is governed by their own specific municipal charters in addition to the Local Government Code of 1991, which specifies their administrative structure and powers. There are over 140 chartered cities.

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