“The consumers suffer when the laws of the country prevent the most efficient entrepreneurs from expanding the sphere of their activities. What made some enterprises develop into big business was precisely their success in filling best the demand of the masses.”-Ludwig von Mises
One thing we can be sure of is that the PLDT buyout of Digitel will reduce the mobile network providers to two major players (Figure 5).
This comes to fore the next important issue: Some politicians have been pondering on expanding political power to avoid “killing a strong competitor”[1] by impliedly calling for the institution of anti-trust laws.
This represents sheer hooey.
Figure 6: ITU/DOTC: Regulatory Framework On Philippine Telecoms
The path towards the monopolistic character of our telecom industry is a product of our existing laws[2]. (see figure 6)
One, there is a constitutional limitation on foreign ownership in public utilities to 40%.
Two, licenses per se are not issued to telecom service operators in the Philippines unlike many countries. Instead, operators are required of a legislative franchise (issued by Congress).
Three, another requirement is the certificate of Public Convenience and Necessity issued by the National Telecommunication Commission (NTC), and
Lastly, approval to provide telecom service via grant authority for operation also from the NTC, which usually covers a provisional period of 5 years.
The above is a manifestation of the huge structural obstacle imposed against companies wishing to enter and compete with present participants in the telecom industry.
Such regulatory labyrinth represents as the anti-competitive anti-business nature of the Philippine business climate that enables such monopolistic character to take place because it substantially raises the barriers to entry, increases the hurdle rate for investors just to comply with these web of statutes and whose success to secure license-to-operate would depend on the whims of venal politicians.
Imagine, any business entity wishing to enter and compete with the entrenched bigwigs would need huge sums of lobby money to get a franchise, and to outbid the existing companies protected by these laws, who would likewise spend enormous amounts of lobby money to oppose their entry!
And that’s not all. There are other administrative regulatory compliance costs such as the NTC requirements et. al. with which prospective new players need to deal with.
So in effect, alot of productive capital will go down the drain just to acquire licenses, pay regulatory fees, and also to oppose entry of competition! And alot of those wasted money would only go to the pockets of these grandstanding politicians and the bureaucrats. And this doesn’t even count on the productive time lost to secure licenses and to comply with such regulations.
The point is: Buyouts and mergers don’t kill competition, (anti-competition) laws do.
These politicians are barking at the wrong tree!
Yet by adding more layers of legal impediments to an environment already stultified by barriers of anti-competitive laws will only punish consumers and reward politically connected persons (Could this also be the reason why Gokongwei is very much interested with PLDT?)
What these politicians should instead do to enhance competition is to dismantle the constitutional restrictions on foreign ownership of the domestic telecom industry, liberalize investments by revoking the need for Congressional franchise, and to streamline administrative regulations. I might add that income and capital gains taxes should likewise be substantially reduced, if not abolished.
Surely, in a blink of an eye competition will flourish.
Also, for politicians to claim that they can politically impose competition is nothing but sheer absurdity.
Using monopolistic coercion to induce competition only translates to institutionalizing crony capitalism and corruption.
Investors operate on the discipline and incentives of profit and loss. An unviable project will not be undertaken by free market agents. Coercing institutions to “compete” would only translate to endowments of political privileges to ensure the viability of favoured political economic agents.
Thus, crony capitalists have little intention to please the consumers but would work steadfastly to satisfy the desires of their political masters whom they owe their economic rent privileges.
Nevertheless competition is not about the number of companies.
Competition, according to Murray Rothbard[3], is a process, whereby individuals and firms supply goods on the market without using force. To preserve "competition" does not mean to dictate arbitrarily that a certain number of firms of a certain size have to exist in an industry or area; it means to see to it that men are free to compete (or not) unrestrained by the use of force.
In short, even if there are only two players in the industry, for as long as they are free to compete without political restraints then marketplace competition will prevail. All politicians have to do is to lay their hands-off these firms.
But with the huge profits the industry has been raking (even if they have recently been declining[4]), the temptation for politicians to dip into them seems so irresistible. That’s one of the reasons why politicos have been looking at various ways to intervene and call for more regulation of the industry; remember proposals by politicos to impose free texting[5]? Or how about recent clamor to have prepaid cards registered[6] in the name of security?
For politicians, profits signify signs of evil or misconduct. Only they deserve to profit by pocketing on more revenues (legit or otherwise) by forcibly extracting or extorting from productive agents. And it is one reason why publicly listed companies would be incentivize to dampen income or profit reporting by padding on expenses (or spend on lobbies)—to keep away from the prying eyes of the envious the political class. Achieving inefficiencies translate to lost productivity which means reduced capital accumulation or wealth and more unemployment and poverty.
Like in most cases, politicians and their apologists always put up a strawman, embellished by noble intentions, to justify their interventionist desires. Yet like in most instances unintended consequences defeats such noble intentions.
We should be vigilant against these forces who always work to curb our freedom.
[1] Inquirer.net Solons fear monopoly to rise from PLDT purchase of Digitel, March 31, 2011
[2] International Telecommunication Union (ITU) Pinoy Internet: Philippine Case Study, March 2002
[3] Rothbard, Murray N. Abolish Antitrust Laws, Mises.org
[4] Inquirer.net PH telecom companies facing tough challenges, February 26, 2011
[5] See Why Forcible “Free Texting” Will Only Lead To Increased Poverty, June 1, 2008
[6] Abs-cbnnews.com NTC powerless vs SMS rumourmongers, March 15, 2011
