Tuesday, July 12, 2011

Competition v. Market Share in the Telecom Industry.


Telecommunications is one of the most important industries affecting the lives of the Filipino people. A country divided by 7,107 islands will certainly have problems in terms of connecting and communicating with each other. With the tremendous improvement in the service of telecommunications in the past 20 years, bridging that inherent gap has been faster and easier.

However, recent events are posing a serious threat to the progress of the telecom industry in our country. The issue regarding the proposed merger of PLDT, (which owns Smart Communications) and Digitel (which owns Sun Cellular) is the single most important issue facing the telecom industry in the Philippines. The pending merger between the 2 telecom giants is something that every Filipino consumer should be concerned about because it is us consumers that stand to be benefited, or affected, by such proposed merger.

In the event of the approval of the proposed PLDT-Digitel share-swap agreement, they will control 70% of the entire market and establish a virtual monopoly. There are 2 perspectives to this merger. First, that the merger would be beneficial to consumers because big business usually lead to lower prices. It could also lead to economies of scale, greater efficiency, and better service. These are actually the arguments espoused by PLDT and Digitel, although they haven’t elaborated on how exactly they propose to achieve such objectives.

Second, the merger would be detrimental to the consumer. I personally believe that this would be the case here. If we look back at the history of the telecom industry in the Philippines, we will see that during the period when PLDT had a virtual monopoly of the industry, the reign was characterized by a) poor quality of services and gross inefficiency; b) high costs for consumers; c) and wanton impunity against competition. I can still remember the time when it took forever before you can get a telephone line in this country and that several areas in our country did not even had the chance nor the opportunity to apply for a telephone line. Of course, we have since moved on from the dark ages of the telecom industry. Now, the Philippines is considered the “Text Capital of the World”, by the sheer number of users and subscribers using the services of these telecom companies. But such fete is no accident.

Competition is the driving force behind the vast improvement of the telecom industry. Real competition encourages innovation in the market by constantly providing improved goods and services. It also serves as a check and balance mechanism in the industry. Without competition, there is no pressure to improve services. When the majority of the market is controlled by a single service provider, that service provider will have the latitude to control the direction of the entire industry. In such a case, that service provider will have no incentive to innovate or improve its services since the consumers have no choice but to subscribe to them. And this is exactly what our country has experienced with PLDT between 1932-1992. Do we want to go back or move forward?

Source: (http://mytxtmate.com).

Entry # 4

Mark Garrido

1 comment:

Jason Norin said...

Telecom industry in the Philippines is somehow small so the competition is tight. There are few companies that offer a 1800 Number to companies but despite that, I personally believe Telecommunications industry in the Philippines will further progress.