The Promise of December
One of the events to watch out by the end of this year may not be the complete eradication of COVID-19. That seems impossible if past pandemics are to be used as predictors. If there is one thing that we may be excited of, it is the telcos’ compliance to President Duterte’s “shape up or ship out” order by December of this year. Will the big players measure up to the President’s expectations? Let us wait and see.
A nagging problem in oligopolistic industries is when market leaders know that they are big and customers have no other choice but to turn to their products or services regardless of quality, they tend to put aside innovation and continuous improvement in favor of huge profits they can juice out from their customers.
This is true to the telco industry. For so many years, their position in the market has never been challenged. The result of this situation gives us a notorious record of being one of the few countries with very slow internet speed. The problem appears to be complex but one of the reasons causing this problem is the unchallenged position of our telcos. Due to lack of competition, there is really no incentive to innovate and to put public service on top of the telco’s insatiable appetite for profits.
With the passage of the Philippine Competition Act (R.A. No. 10667), companies which dominate certain industries in our country must now carefully guard their actions since any abuse of their dominant position is now prohibited and punished under the Philippine anti-trust law.
Dominant position refers to a position of economic strength that an entity or entities hold which makes it capable of controlling the relevant market independently from any or a combination of the following: competitors, customers, suppliers, or consumers [Sec. 4(g)]. Relevant market refers to the market in which a particular good or service is sold and which is a combination of the relevant product market and the relevant geographic market. A relevant product market comprises all those goods and/or services which are regarded as interchangeable or substitutable by the consumer or the customer, by reason of the goods and/or services’ characteristics, their prices and their intended use while the relevant geographic market comprises the area in which the entity concerned is involved in the supply and demand of goods and services, in which the conditions of competition are sufficiently homogenous and which can be distinguished from neighboring areas because the conditions of competition are different in those areas [Sec. 4 (k)].
The law does not give an exact definition as to what constitutes an abuse of dominant position, however, it enumerates certain actions which are deemed abuse of dominant position. A company which enjoys a dominant position in the market cannot sell goods or services below cost with the object of driving competition out of relevant market [Sec. 15 (a)]. However, the company may raise as a defense that the price established was in good faith to meet or compete
with the lower price of a competitor in the same market selling the same or comparable product or service of like quality.
Also prohibited is the act of imposing barriers to entry or committing acts that prevent competitors from growing within the market in an anti-competitive manner except those that develop in the market as a result of or arising from a superior product or process, business acumen, or legal rights or laws [Sec. 15 (b)].
The practice of some companies in making a transaction subject to acceptance by the other parties of other obligations which, by their nature or according to commercial usage, have no connection with the transaction is now prohibited [Sec. 15 (c)]. Practices of banks in requiring their borrowers to transfer all the borrowers’ deposits to the bank as a condition for the grant of loan or of some food and beverage companies prohibiting stores or dealers from selling the products of a competitor in exchange for a free use of freezer or other equipment may now be put under a close scrutiny for any possible violation of the law.
Imposing restrictions on the lease or contract for sale or trade of goods or services concerning where, to whom, or in what forms goods or services may be sold or traded, such as fixing prices, giving preferential discounts or rebate upon such price, or imposing conditions not to deal with competing entities, where the object or effect of the restrictions is to prevent, restrict or lessen competition substantially is likewise prohibited [Sec. 15 (e)]. Also proscribed is the practice of making supply of particular goods or services dependent upon the purchase of other goods or services from the supplier which have no direct connection with the main goods or services to be supplied [Sec. 15 (f)].
In the classic case of International Business Machines Corp. vs. US, 298 U.S. 131 (1936), IBM and Remington Rand were sued by the government for leasing its tabulating and other machines upon the condition that the lessees shall use with such machines only tabulating cards manufactured by IBM. IBM and Remington are manufacturers of punching machines, sorters and tabulators which are designed to function with the use of manufacturers’ tabulating cards only. To insure satisfactory performance of the machines, it is necessary that the cards used in them conform to precise specifications as to size and thickness and that they be free from defects due to slime or carbon spots, which cause unintended electrical contacts and consequent inaccurate results. The cards manufactured by IBM and Remington are electrically tested for such defects. The lease of the machines is for a specified rental and period, upon condition that the lease shall terminate in case any cards not manufactured by the lessor are used in the leased machine. A special form of lease has been granted to the Government by which it is permitted to use cards of its own manufacture upon paying a 15% increase in the rental of the leased machines, but upon condition that the lease shall be terminable if the Government uses such cards without payment of the additional rental. In the contract of lease, this provision is called “tying clause”.
The court held that the lease contracts violate Section 3 of the Clayton Act which provides that “It shall be unlawful for any person engaged in commerce, in the course of such commerce, to lease . . . machinery . . . whether patented or unpatented, for use . . . within the United States . . . on the condition . . . that the lessee . . .shall not use . . . supplies or other commodities of a competitor. . ., where the effect of such lease . . . or such condition . .. may be to substantially lessen competition or tend to create a monopoly in any line of commerce.” The statute thus in precise terms makes unlawful a condition that the lessee shall not use the supplies or commodities of a competitor of the lessor if the effect of the condition “may be” to lessen competition substantially, or if it tends to create a monopoly. The agreed use of the “tying clause” by appellant and its only competitors, and the agreement by each of them to restrict its competition in the sale of cards to the lessees of the others, have operated to prevent competition and to create a monopoly in the production and sale of tabulating cards suitable for appellant’s machines, as the district court found.
There are several company practices in the Philippines which are anti-competitive. More often, these are imbedded in certain provisions in the contract which we commonly enter into such as contract of lease, supply agreement, franchise agreement and business contracts. These provisions engineered by companies enjoying dominant position are designed to perpetuate their dominance in the market. We hope that the Philippine Competition Act will successfully level the playing field in a market where David and Goliath have continued to play.
With the President’s expression of dismay over the services provided by our telcos, it is hoped that the entry of new market players with support from no less than the country’s top executive and his recent tirade against existing telcos will end the era of customer exploitation. After all, customers deserve to receive value-for-money services.