The Road to Third Major Telco (PART 1: HCLOS vs. HCI, and why "uncontested" is a cop-out)

Can the mayor from the South make the Philippines into the network hub of Asia?” – Ma. Lourdes Tiquia, “Is Duterte the ICT president?” The Manila Times, March 20, 2018

As of this writing, the Terms of Reference (TOR) for the bidding for the third telco have not yet been released. On the afternoon of March 22, 2018, Palace spokesperson Harry Roque said “Wala na po siyang (Duterte) deadline na si-net basta deadline niya March, [but] it was not met then [so] as soon as possible [na lang]”i Meanwhile, the Department of Information and Communications Technology (DICT) has said that they will release the TOR after the Lenten holidaysii and the announcement of the third telco may have to wait until the “end of June or early July,” but definitely before the State of the Nation Address of President Rodrigo

Duterte on July 23, 2018.iii This, despite a previous commitment to release the TOR by mid-March and hold the bidding itself on May 24, 2018.

Many sectors are waiting with bated breath, not least of these being several million frustrated Internet users. But even ICT advocates have to take a deep breath and take stock of what this delay means. The delay is not all bad, is not all good, it just is – and we merely have to understand the implications.


The fundamental threat to the third telco initiative is as of today, there is no TOR to speak of. Any conversation regarding how the bid will go is no more valuable than idle speculation at this point. No TOR, no bid; no bid, no third telco. Uwian na, panalo na ang duopoly.

The major threat to the third telco initiative are the strong disagreements over the TOR itself. In her article “Is Duterte the ICT President?” Tiquia discusses a conflict between the Department of Finance (DOF) and the DICT over the model that should be used, something verified by multiple independent sources. The DOF favors a highest committed investment (HCI) model, while the DICT – supported by ICT advocates and consultants from the International Telecommunications Union (ITU) – is pushing for a highest committed level of service (HCLOS) model. What are these models?

The HCI is simply a straight bid. The entity that promises the most billions of investment pesos wins. Even if the TOR specifies commitments and perhaps some technical considerations, it will all boil down to which bidder has the most money.

The HCLOS model, on the other hand, is a formula that will require several commitments: how fast will the bidders roll-out; where will the bidders prioritize their roll-outs; what the telecommunications services to be rolled-out are; what are the promised average minimum wireless and wired internet speeds; and when 5G will be made available. The HCLOS model also includes a factor that prioritizes the underserved class 3 to 6 municipalities over the relatively better-served cities and class 1 to 2 municipalities. Only when these factors are analyzed will the resulting rating be multiplied against the investment commitment, resulting in an index that will be the basis for comparison. HCLOS thus takes many more factors into account, beyond the initial investment commitment.

Complicated? Not really. Merely hours after the HCLOS model was announced in the DICT forum held in Novotel Araneta last February 27, 2018, advocates had readily created working spreadsheet templates for HCLOS calculation. A few days after the ITU recommended that individual barangays could be made a factor in calculation, advocates converted their templates to include all 43,026 barangays across the country. The DICT is in possession of these templates and has commented positively on their ease of use. We, advocates, hope that these templates will be used officially, as we believe it will push for the best and most aggressive bidder to win the bid.

What is the advantage of the HCLOS model? Consider these numbers:

The bulk of class 3 to 6 municipalities are in Mindanao and the Visayas. The President wants to prioritize rural development. The HCLOS model prioritizes rural development, while the HCI does not. In fact, using HCI will concentrate prioritization in the cities, particularly NCR, as mathematically NCR has the bulk of the nation’s potential subscribers. With HCI, Visayas and Mindanao will likely be shunt aside (again).

Now, if NCR is prioritized, it will pit the third player directly against the duopoly where the duopoly is strong, lessening its chances of competing effectively. To simplify the matter, what the DOF wants is not only contra to what the President wants, but it will also make it easier for the President to fail.

Secondly, HCLOS is a transparent model, and transparent models prevent corruption. The bidder will have to openly commit when, where, and how they will meet the country’s demands for ICT services, and will have to show the math that includes how much will be spent. The HCI model which the DOF wants does not promote transparency; a single figure promising a billion-peso value will not provide the public any information as to what is promised, and what we should expect. “Huwag namang masyadong transparent!” is not in keeping with President’s drive against corruption.

We do not understand why the DOF seems to be opposing the spirit of the President’s instructions, even as the DICT is doing its best to comply with the President’s orders/ It would be best if those involved in crafting the TOR get their acts together. The DICT, strongly supported by the NTC, has already presented a viable model that follows both the word and the spirit of the President’s intent; why then this insistence on their model by the DOF?

Still on the issue of threats and the TOR, Democracy.Net.PH recently learned through an FOI request to the National Telecommunications Commission (NTC)iv about how much money some legislative franchise holders owe the government:

Thus perhaps more importantly – in the draft TORs, the rules make mention of entities with “uncontested liabilities” being disallowed from joining the selection process. This means that anyone with “contested liabilities” can still be qualified. The rule on “contested liabilities” is a loophole as it is easily evaded. After all, one can readily and easily “contest” just about anything. This means that anyone with “contested liabilities” can still be qualified. This is not very sensible.

A liability is just another fancy term for the word “debt/” May utang ako. An “uncontested liability” simply means, a debt that you accept that you have to pay. Oo, may utang ako, babayaran ko ito.“ A contested liability” means that you do not accept that you have a debt you have to pay/ Excuse me, wala akong utang sa iyo.

This is the sticky part: some of these legislative franchise holders have millions, and even billions, of so-called “contested liabilities”, for over a decade. And, some of those with “contested” liabilities have publicly expressed their intention to join the third telco selection process.

This "uncontested” provision is a bad idea. It’s an easy “out” for the bidding company, with the public at the losing end. After all, would it make sense to award a bid to a company that has committed to pay (the government) in the past, but then upon award subsequently contests the terms of its own commitments?

Further, anyone with contested liabilities who joins the selection process and wins the bid, but then later loses the cases contesting or seeking to reduce these liabilities – will have to pay the government somehow. In that event, from whom will they get the money to pay for these debts? Of course, from subscribers. A contested liability is an existential threat, not just to the entity with the debt, but to the entity’s subscribers, to whom the payment of debts would be passed on to via subscription fees, call and SMS charges, data charges, and other charges levied upon subscribers, either directly or indirectly. It would be in accordance with the provision on obligations, and make better sense to ensure that any potential entrant does not have any baggage before joining the selection process; otherwise, how competitive can this potential winner even be?

It remains to be seen if the TOR will retain this gaping loophole of allowing entities with “contested” liabilities to join the third telco selection process. For as long as the TOR has not yet been finalized and published, we simply do not know.

(Next up: Weaknesses)

i "Palace: No more deadline for entry of 3rd telco player". Inquirer.Net.

ii "DICT likely to issue terms for third telco after the Holy Week". GMA News Online.

iii "Third telco selection may have to wait until July - DICT". ABS-CBN News.

iv "List of spectrum rights holders with outstanding obligations." FOI Philippines.