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

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
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

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

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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