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Telecommunications in the Philippines

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  • 5 chapters

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Through Joint-stock company, Joint venture and World Bank Group

History

Pre-reform

Colonial period

Two private companies offered telecom services namely Eastern Extension Australasia and China Telegraph Company which is a subsidiary of Britain's Cable and Wireless. The Spanish authorizes Eastern Extension to construct and operate the first submarine cable linking the Philippines and Hong Kong.

A telephone network was established in Iloilo City in 1894. Jose de Olagier y Feliu requested permission from the Spanish officials in the Philippines in 1892 to operate a telephone network covering the Spanish cities of Iloilo, Jaro, and the town of Molo. Permission was granted for a 10-kilometer (6.2 mi) radius telephone network with bidding for the public works done in Madrid and Manila. By May 1894, all necessary posts and ridges were installed. The telephone network in Iloilo City was operational by June 1, 1894.

The Philippine Islands Telephone and Telegraph Company is American-owned which started operations in 1905 in the present-day Metro Manila. In 1928, merged with Cebu, Panay, and Negros Telephone and Telegraph companies to form the Philippine Long Distance Telephone Company (PLDT). In 1932, the colonial Philippine congress granted PLDT a 50-year franchise to operate a national telephone system.

The establishment of the Public Service Commission to regulate the industry as well as other utilities, meanwhile the Bureau of Posts was created to operate telegraph services nationwide.

Post-independence, 1946–1969

Initially, PLDT was managed by Americans, including the American company General Telephone and Electric Corporation (GTE) as a major stockholder. However in March 1967, perhaps in anticipation of the end of "parity rights" by 1974, GTE announced their intent to dispose of their 28% controlling interest in PLDT.

On November 7, 1967, the Philippines Telecommunications Investment Corporation (PTIC) was registered to buy GTE's controlling interest. Ramon Cojuangco, who was part of one of the most influential clans in Philippine history, was a main incorporator. PTIC formally took control of PLDT on January 1, 1968. This led to the takeover of PLDT by the Filipinos, becoming a dominant player in telecommunications because of its authorization to operate a national network. Company officials however dispute that they were a monopoly because of the existence of a government telephone system (Republic Telephone Corporation or simply ReTelCo), and over 60 provincial companies operating in the country. The Bureau of Telecommunications (BuTel) handled the government telephone system, which by 1975 had 34,643 operational telephone lines, or about 10.2% of the total telephone capacity of the country.

There were also four major companies with license for international data communication:

  • Eastern Extension, a franchise was transferred to the Eastern Telecommunication Philippine Incorporated (ETPI) in 1974. Eventually, they restructured its ownership, with 60% now owned by Filipino businessmen.
  • Globe Mackay Cable and Radio Corporation (GMCR) was established in 1928. It is now majority-owned by the Zóbel de Ayala family, which is one of the oldest and most established elite families in the country, as a joint venture with SingTel.
  • Capitol Wireless Inc (Capwire), established in 1962, which is owned by the Santiago family which is also the group which owned Retelco, then-second largest telephone company.
  • Philippine Global Communications (Philcom) was established in 1977. During the term of Ferdinand Marcos, he gave Philcom exclusive rights to handle calls to Japan, Australia, Korea, Guam, and Thailand.

Paptelco vs. PLDT

In 1976, the Philippine Association of Private Telephone Companies was organized to protect the interest of small telephone companies. By 1975, around 60 small telephone companies provided 11.7% of the total telephone capacity at the time. These small companies were dependent on PLDT to place inter-provincial and overseas calls, in which PLDT used this interconnection to their advantage.

PLDT could allow, slow down, or deny interconnection at will. Some companies which found it financially impossible to operate without interconnection sold their companies to PLDT. They also dictated the interconnection access rates, which meant that PLDT cornered most telecommunications revenues. Eventually, by 1991, PLDT had 94% of the total lines.

Martial law developments

Ferdinand Marcos's Presidential Decree No. 217 in 1973 mandated all PLDT subscribers to invest in PLDT to raise its equity and finance its expansion program. This law, known as the Subscribers Investment Plan (SIP) required all PLDT subscribers to buy non-voting shares in the company. Mandatory investors held about 85% of the total company equity shares but had no actual power in controlling the company.

PLDT also had access to international loans from the World Bank. These loans assisted PLDT's dominance, and PLDT became the single largest private recipient of foreign loans to the Philippines.

In 1981, a National Telecommunications Development Plan was released. A section of the plan recommended the integration of all private telephone companies under one monopoly. Marcos issued a presidential directive to Retelco, PLDT's main competitor in Metro Manila, to merge with PLDT. The merger was met with objection by the owners of Retelco, but the merger was continued because Marcos threatened to withdraw the companies' franchises.

Developments under Aquino

The Corazon Aquino government's policy was two-pronged: it was to increase public spending in underserved or unserved municipalities, and allow entry of new players. In 1987, the DOTC adopted a series of policies aimed at rationalizing the development of the industry. This led to the reversal of Marcos' push towards the integration of the telecommunications system under a monopoly. It also affirmed that development of the national telcos needs an introduction of competition and regulated entry into the market. During the end of Cory's term however, telecommunications was poor but PLDT prevailed with their tactics in maintaining their monopoly.

Reform

Liberalization

Under the Ramos administration, a coalition named the Movement for Reliable and Efficient Phone System (MORE Phones) was formed with the goal of liberalizing the telecommunications industry. Until the mid-1990s, MORE Phones continued to pressure PLDT to be more transparent and accountable. Ricardo Manapat, who wrote about the illegitimate activities of the Marcoses and their cronies, wrote a follow-up report entitled "Wrong Number: the PLDT Telephone Monopoly." The report revealed PLDT's questionable management practices as well as how the Cojuangco family controlled the company, despite owning only 1.6% of the total stock.

As a countermeasure against PLDT's earlier attempts at refusing interconnection with its competitors, President Ramos signed an Executive Order 59 on 24 February 1993. EO 59 required interconnection among all authorized telecommunications companies, in order for subscribers on one operator to reach the subscribers of another. In the Senate, anti-monopoly bills were filed in the House of Representatives and it was reported that PLDT was the main target of these bills. The Congress had already approved nine telecom franchise, their applications pending at the NTC for provisional authority to operate international, cellular, or value-added services. This also led to the Congress controlling who could obtain a franchise. But PLDT would successfully block new entrants to the industry by filing various legal challenges.

In 1994, the NTC and several other industry players devised the Service Area Scheme (SAS) This scheme was in response to imbalanced demand of telecom companies in urban areas over rural areas.The SAS attempted to allow companies to earn profits but also ensure that part of those profits would be channeled to serve less profitable areas. Companies were allocated both profitable and unprofitable areas to ensure operational viability and the provision of rural telephony.

Prominent industry players

Globe Telecom

Globe Telecom (Globe) is a joint venture between Ayala Corporation and Singapore Telecommunications Limited (SingTel). Globe was the first foreign company to be granted entry into the Philippine's liberalized market. In 1994, Globe launched its digital cellular services, pioneering the use of Global System for Mobile Communications Technology (GSM). In fact, Globe popularized the short messaging service (SMS) through adding it for free with their basic services.

When the 1997 Asian financial crisis stuck, there were two consolidations that happened in the industry. In June 2001, the Globe-Islacom merger was completed. This merger resulted to providing improved services and a wider coverage for the two companies’ subscribers.

Smart Communications

Smart Communications (Smart) was the first company to enter the liberalised market. In September 1999, PLDT purchased Smart Communications absorbing it as a 100-percent owned subsidiary. Smart was financially supported by First Pacific. This partnership resulted in the rapid construction of Smart's network and more importantly, the subsidization of handsets. Smart was also authorized to offer both international gateway and cellular telephone services. At the end of 2005, Smart became the largest cellular operator in the Philippines with over 15.4 million subscribers.

Dito Telecommunity

Dito Telecommunity (Dito), formerly known as Mindanao Islamic Telephone Company, Inc. (Mislatel), is a consortium of Davao businessman Dennis Uy's Udenna Corporation (through its subsidiary Dito CME Holdings Corporation) and Chinese state-owned China Telecommunications Corporation, a parent company of China Telecom. As the third player, it began its commercial operations on March 8, 2021. As of February 2023, Dito's total mobile subscriber base reached 13.1 million.

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