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Messy battle for last 3G license in Philippines

Court injunctions and lawsuits have been filed by operators amid scramble for country's fifth 3G license, which if awarded, may do local industry more harm than good, industry analyst says.
Written by Melvin G. Calimag, Contributor

MANILA--The mad scramble for the final 3G license in the Philippines has escalated into a ferocious scuffle with competing telcos bringing their battle to the legal arena.

Local telcos including established players as well as startups have joined the fray in an attempt to grab the last frequency band awarded by the National Telecommunications Commission (NTC), the industry's regulatory body.

Unlike other countries where radio frequencies, such as 3G license, are granted through a lucrative bidding process, the Philippine government has opted to award the radio band to the most qualified applicant.

The NTC in 2005 awarded four licenses to Smart Communications, Globe Telecom, Digital (Sun Cellular) and Cure (Connectivity Unlimited Resources Enterprises). It kept the final fifth license until now because it had then deemed that the other players did not have the capability to roll out a 3G network.

The top three telcos--Smart, Globe, and Digitel--have all installed and currently operate their own 3G networks. Cure had initially attempted to build a 3G network but an apparent lack of funds pushed the company to just "sell" its license to bigger rival Smart Communications.

In March this year, the NTC drew up a new set of rules for the distribution of the final 3G license in which a rating system will be used to determine the qualifications of applicants.

Since then, various petitions have been filed, particularly with the Court of Appeals (CA), regarding how the permit will be granted.

Aside from the big players, the last 3G license is also being contested by Bayan Telecommunications, Extelcom and Multi-Media Telephony (MTI), among others.

Bayan Telecommunications, which application was denied in 2005, earlier this year sought an injunction to prevent the NTC from implementing its new rules in appointing the last 3G licensee. The CA decided in its favor but the NTC countered with an appeal which the appellate court has yet to resolve.

Meanwhile, Extelcom also got the court's nod on its motion to intervene and oppose a petition filed by MTI to force the NTC to grant MTI the last 3G license. MTI, along with Bayan, were among the losing applicants in 2005.

In its suit, Extelcom argued that "any disposition [the NTC] had… under the 2005 rules will prejudice [Extelcom's] legal right to apply for the last remaining bandwidth under the 2010 rules".

The NTC's public information office declined to comment for this story, noting that any pronouncement on the issue may prejudice the case pending in the court.

Fifth license may hurt market
Research firm, XMG Global, said the distribution of the remaining license could spell bad news to the industry since the general market has yet to appreciate the benefits of 3G.

Larissa Vila, senior analyst at XMG, said only some 4 percent to 6 percent of mobile phone owners here currently consume 3G services. "Granting a fifth 3G license would only increase worries of local players already hurting [from the low demand]," she said.

The ongoing price war is another key concern of the local mobile phone industry, Vila told ZDNet Asia in an e-mail interview.

"Since second quarter-2009, the contracting market, intense competition and price war started pulling down [operators'] yields. The pressure to shift toward unlimited, fixed-rate and bucket promotions are causing considerable decline on the category's bottomline which will eventually have an effect on service quality, and possibly in the long run, be unable to sustain existing and new infrastructure," the analyst explained.

"In the current scenario where a new [3G] operator will possibly come in, the market competition may not at all accelerate the pace of development and technological advances but might rather be detrimental to the health of the industry," she noted.

The entry of a new operator, she said, would spell out new rock bottom prices as it needs to gain a critical mass of subscribers.

"In the short term, this should benefit consumers. But given the stable mobile phone subscription level in the Philippines, it will translate to more customer churning, which would adversely affect the local players' net income and eventually hurt service quality and capabilities," Vila noted.

She added that there is a need for the NTC to "polish its set of regulations and impose sustainable requirements".

"It should also settle the issue involving Cure for the its alleged failure to roll out 3G mobile operations, and review the terms that legalized the 'sharing' of network facilities between Cure and Smart," she said.

There is currently an effort to have Cure's 3G license revoked because the operator allegedly failed to comply with a requirement that the licensee must roll out its own 3G network even if the license has been ceded to Smart.

Moreover, the petitioners contend that Smart has not made full use of Cure's 3G license, which is a violation of terms stated by the NTC.

Melvin G. Calimag is a freelance IT writer based in the Philippines.

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