Thursday, December 8, 2011

Underscoring the Importance of Government Intervention on the Teleconopoly in the Philippines

Markets are not always perfect. Sometimes, the private sector is not always performing efficiently or effectively. These are instances wherein any improvement to one area would cause a corresponding harm to something else. Sometimes, when there are too few markets and the behaviours are non-competitive, monopolies exist and the distribution of information in the market becomes asymmetrical.[1]

Such is the case in the local telecommunications industry. For the longest time, the PLDT captured the market of providing telecommunication services to the public. PLDT used to have undue advantage over the industry because it has all the necessary facilities and capability to provide such services to the public. The prospected competitors are discouraged to enter the market and compete because of the high cost of starting up such business. However later on, when new players came in to compete, telecommunication providers became more competitive and were able to get a share of the market of PLDT.

When such failure exists, it is important that interventions are made to correct these failures. This is when the government’s role comes in the form of regulation through laws, taxes, or subsidies.

The current issues on the telecommunications industry further underscore the importance of government intervention to address market failures. In the case of the current issue of the PLDT-Digitel merger, PLDT is poising again to regain its former stance of having control over the telecommunications industry. The days when the public are at the mercy of PLDT officials just to get phone lines, which usually takes years before an application can be granted, have long been gone. However, these inefficiencies might happen again especially when this merger is fully implemented.

This issue is a clear example of when government should wield its power in order to protect the interests of the public. The telecommunication industry is a public utility; thus, its infrastructure and services are vital to the lives of the people. By ensuring that no monopolies will dominate the market, the government can uphold the general welfare.

The government may also exercise its power by ensuring that all the necessary information is provided to the public, especially when they are making economic choices. People should also be made aware of the consequences of their choices. They should be able to understand, for instance, why the costs of calling other networks are expensive and what will be the effect if the costs for interconnection fee between networks are lowered or waived. They should also be made aware of the implications if the PLDT-Digitel merger. This is not solely in the purview of government functions; however, it would be a big push if the government will lead in promoting the dissemination of information and in promoting transparency in its actions.

The decision of the NTC to allow the PLDT-Digitel merger presents another challenge for the government: that is to ensure that no monopoly will indeed take place in the telecommunications industry. Such a decision has major impact on the public. If it turns out to be a mistake, rectifying the situation will be much more difficult than preventing it to happen in the first place.

[1] Ledyard, John O., "Market Failure", "The New Palgrave Dictionary of Economics", Eds. Steven N. Durlauf and Lawrence E. Blume, Palgrave Macmillan, 2008 (accessed from on 02 December 2011).

Angeli I. Serapio, Entry #2

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