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Why we’ve let foreigners dominate our telecom sector

Second of a three-part series on reviving nationalism
THERE has been very little press coverage—except for two columns in this paper and a reply to those in a column by a notoriously mercenary hack in the Philippine Star —of the fact that Smart Communications is racing against time to get a law passed before Congress adjourns March 21 that would extend for 25 years its franchise (permit) to operate. Smart’s current franchise, acquired in 1992 when it was still 100 percent Filipino-owned, expires March 27.

The Liberal Party last May had made a last-minute attempt to get Congress to enact a franchise law for Smart days before it adjourned and before a new administration assumed power. The plot was patriotically blocked in the Senate by Senators Alan Cayetano and Vicente Sotto.

 I suspect Smart’s media plan has been precisely that: Little if at all should be reported on the deliberations on the franchise. Indeed, if the hearings by the committee on legislative franchises had received just half the media coverage as, for instance, those on alleged extra-judicial killings, there would be public outrage over the following, among others:

(1) That Smart (through PLDT of which it is a 100 percent subsidiary) is effectively 76 percent owned by foreigners, the biggest stockholder being the Indonesian tycoon Anthoni Salim, despite the Constitution’s 40 percent limit on aliens’ ownership of a public utility;

(2) That 24 years after it got its existing franchise in 1992, Smart hasn’t complied with that law’s requirement that it list 30 percent of its shares in the stock market;

(3) That despite, or because of, the telecom duopoly, our mobile phone and internet services are among the worst in the region, which may be explained by the fact that PLDT has been making huge investments in other sectors, even abroad, such as its P22 billion investment in the German firm Rocket Internet, and distributing profits to its foreign owners that amounted to $7 billion from 2000 to 2015;

(4) How—if it is true—former President Estrada helped the Indonesian tycoon Anthoni Salim to acquire PLDT in 1998, for a P3 billion “commission”, according to now Foreign Affairs Secretary Perfecto Yasay, Jr. and other accounts, to the extent of threatening to jail on trumped-up illegal drug charges stockholder Alfonso Yuchengco’s son if he didn’t sell his shares, as the tycoon himself alleged; and

(5) Why we are letting foreigners dominate such a strategic industry as telecom, which is vital to the growth of the economy and to our national security.

Speaks volumes
The de facto ban on coverage of the hearings speaks volumes on how the mainstream press can be manipulated, how such a crucial issue—authorizing a firm that is 76 percent owned by foreigners to operate a public utility and take out of the country billions of dollars in profits—can be practically hidden from public awareness. (The Indonesian tycoon Anthoni Salim indirectly controls or has substantial shares in, through a unit of PLDT, a big part of Philippine media, among them the Philippine Star, the Philippine Daily Inquirer, TV 5 with its two dozen radio stations, and the news website interaksyon.com.)

However, the press could have acquiesced to such a media ban to a great extent because of the widespread ignorance in our country that the telecom industry in nearly all of Asia is considered such a crucial and strategic sector that it is dominated by state firms or by corporations of their nationals.

It had not occurred to a succession of Philippine governments that the telecom sector is such a crucial public utility that the industry cannot be left alone in the hands of the private sector. There is a history behind this view.

This dereliction of state responsibility is a direct consequence of our American rulers letting Philippine Long Distance Telephone Co. be set up in 1928 as a monopoly, owned by the biggest telephone firm in the world in that era, General Telephone and Electric (GTE, a grandparent of Verizon Communications), until 1974, when it was taken over by a group led by Ramon Cojuangco (the father of Antonio “Tony Boy” Cojuangco).

GTE could own PLDT because of the so-called Parity Amendment to the 1935 Constitution that allowed American businesses the same right as Filipino nationals to operate public utilities (and exploit the host country’s natural resources). It was because of the private ownership of the Philippine telecom monopoly since the American era that Filipino political leaders and economists had the mistaken presumption that this sector should be privately owned, and outside the purview of state economic development planning.

In contrast, all of our Asian neighbors (except for Hong Kong which had the British Cable and Wireless as its telecom monopoly) had no such experience of foreign or private firms operating their telephone systems. Rather, their governments set up telephone systems as part of the state’s delivery of service to its people, or as part of its infrastructure program, and later on organized state corporations to undertake such duties.

While state-owned monopolies in other Asian countries proved efficient, the privately owned and controlled PLDT failed to deliver the efficiency demanded of a national telecom service provider, as indicated by its almost unchanged fixed-line telephony density—at 1 per 100 people—in the 17 years to 1992.

Did foreigners do better?
There is a perception that these firms, under foreign control, have done well in providing telecom services, in contrast to the decades under the management of the elite Cojuangcos who could not meet the huge demand for telephones. That is another reason why many Filipinos seem to not mind the Constitution being trampled upon with Salim and Singtel’s control, respectively, of PLDT and Globe.

The reality is that foreigners got to control PLDT and Globe just when mobile phone technology and diffusion swept the world, creating the illusion that the two foreign-controlled firms delivered telecom facilities better than the old, Filipino-owned monopoly.

The fact is that PLDT and Globe under foreign control did not even meet the huge backlog for fixed-line phones in the country. The country’s fixed-line density has even declined from a peak of 4.5 in 2009 to 3 per 100 people in 2015. That is much lower than that of Thailand’s 8.5 percent, Indonesia’s 11.7, and even war-ravaged Vietnam’s 6.

The country’s mobile-phone density, on the other hand, zoomed from 0.7 per 100 in 1993 to 47 in 2005 and 111 by 2014, as it similarly expanded in nearly all countries.

Even without Salim and Singtel, the global wave of phone usage would have carried the Philippines toward mobile telephony. PLDT, in fact, before Salim captured it, was being positioned to take advantage of the worldwide boom in the mobile segment, having set up its Pilipino Telecommunications (Piltel) subsidiary in 1991, which by 1997 had attracted 400,000 subscribers. (see graph on the right)

Growth of the mobile phone industry in Southeast Asia
Technology was not an obstacle in the case of the Philippines since European, American, Japanese, South Korean and Chinese companies have been in fierce competition to sell their cellphone technology abroad without requiring an equity stake—especially since this would open up countries as markets for their cellphone manufacturers.

Mobile telephony has been one of the most important developments in communications worldwide since the invention of the telephone. Its diffusion was the result of computer technology that made prepaid, micro-subscriptions possible.

This opened up the huge mass market, which few cellular phone manufacturers had expected to be a lucrative business for them. The mammoth market for mobile phones that opened up in China as well as those in other populous countries (such as India and the Philippines) created manufacturing economies of scale that made mobile phone devices cheap enough to be afforded by the masses. Even the poorest nations in the world have been inundated with cheap devices due to the growing tide of cellphone usage. The sub-Saharan countries’ cellphone density, for instance, has surged to 80 per 100 inhabitants this year.
subscriptions20161228To claim that Filipinos could not have set up their cellphone industry—without the capital and management skills of an Indonesian tycoon and a Singaporean state firm, both of which don’t even have their own cellphone technology—would be an insult to our nation.

Mobile phone usage has spread even faster and wider outside the Philippines where the telecom operators were either state-controlled or controlled by their nationals. Vietnam’s and Indonesia’s mobile phone sectors are state-owned, while Malaysia’s is dominated by a domestic corporation. A Thai firm had dominated that of Thailand, until its owner sold it to Singtel in 2012, for political reasons.

Yet, the mobile-phone penetration rates of these countries are much higher than in the Philippines where foreign companies dominate the telecom industry. Those of Malaysia, Thailand, and even Vietnam, are all above 140 per 100 people, compared with our 111. Indonesia, which has a lower GDP per capita than the Philippines, overtook us in terms of mobile penetration rate in 2011.

Neoliberalism’s dominance
Another major reason why there is nonchalance over foreigners’ control of our telecom industry is the rise and dominance of neoliberal economics as embraced by our governments since the 1990s. That is still the prevailing view among our leaders, bureaucrats, and the intellectual elite.

This is the naive view that a global market has emerged and that national economies no longer exist or matter; therefore it is unimportant what nationality owns a country’s telecoms industry. According to this world view, the state’s role in developing the economy is limited to containing inflation and interest rates, raising sufficient revenues, building infrastructure and improving bureaucratic efficiency. In that framework, state intervention, especially in nurturing industries, deemed to be crucial in overall economic development, is frowned upon.

While this is still the dominant view in our country, numerous studies after the groundbreaking reports by the UN Conference on Trade and Development (UNCTAD) since 1994 and a slew of studies by distinguished economists, such as Nobel laureate economists Paul Krugman and Joseph Stiglitz, have debunked that paradigm.* This has been done not only theoretically but also, and even more importantly, through empirical and historical studies of how the Asian Tigers grew to developed-country status within a generation.

Stiglitz, former chief economist of the World Bank that had been a champion of the neoliberal framework, in a 1998 speech at an UNCTAD event, for instance, made statements which our Filipino economists would claim smack of economic nationalism and statist thinking:

“Many countries followed the dictums of liberalization, stabilization and privatization, the central premises of the so-called Washington consensus, and still did not grow… The East Asian miracle countries did not follow the standard prescriptions. In most cases, government played a large role. They followed some of the standard technical prescriptions, such as (by and large) stable macroeconomic policies, but ignored others. For example, rather than privatizing, government actually started some highly productive steel mills, and more generally pursued industrial policies to promote particular sectors. Governments intervened in trade, though more to promote exports than to inhibit particular imports.”

The gist of it is that the Asian Tigers grew because their leaders were economic nationalists, pragmatists without the dogma, or the illusion, that free markets alone would magically lead to the most efficient allocation of resources, and thus, result in the prosperity of their peoples.

How this was actually done will be discussed in the third, and last part of this series on reviving nationalism.

* For UNCTAD, see its annual Trade and Development Reports, particularly 1994, part 2, chapter 1; 1996, part two; 1997, part 2, chapters V and VI; and 1998, part 1, chapter 3. See also: Stiglitz, Joseph E. “An Agenda for the New Development Economics.” Draft paper prepared for the discussion at the UNRISD meeting on The Need to Rethink Development Economics, 2001: 7-8.

________. “Towards a New Paradigm for Development: Strategies, Policies and Processes.” Applied Econometrics and International Development 2, no. 1, 2002: 116-12. Krugman, Paul. “Dutch Tulips and Emerging Markets: Another Bubble Bursts.” Foreign Affairs 74, no. 4 (1995): 28-44.
Note: A big part of this column is from Chapter 13 of my book Colossal Deception: How Foreigners Control our Telecoms Sector—A Case Study of Corruption, Cronyism, and Regulatory Capture in the Philippines. Details on the bulleted points after the third paragraph is also in that book, well documented.

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