Top Philippine telcos ordered to refund subscribers

Manila (Philippine Daily Inquirer/ANN) - The National Telecommunications Commission (NTC) has ordered the Philippines' top telecommunications firms to refund millions of subscribers after finding that the telcos have been overcharging customers for text messages.

The order, one of the three directives issued by the NTC yesterday, is effective immediately.

"These orders are immediately executory upon receipt, but the telcos have the right to appeal," Dennis Babaran, NTC legal director, said at a press briefing yesterday.

Estimates by the Philippine Daily Inquirer showed that Smart Communications, affiliate Sun Cellular and Globe Telecom may have to return at least 1.42 billion pesos (US$34 million) to their subscribers.

The telcos have been collecting 20 centavos more (1 peso instead of 80 centavos) for each off-net text message, or those sent from one network to another, since December last year, the NTC said in a ruling.

Text messages between subscribers of the same network and those under unlimited or "bucket-priced" offers are not covered by the order.

About 20 million off-net messages are sent every day, based on 2010 records, which are the latest the NTC has. This is just 1 per cent of the 2 billion text messages that were sent daily on average that year in the Philippines, for years considered the world's texting capital.

Assuming that daily text message volumes have not changed since 2010, the telcos stand to pay at least 1.42 billion pesos to refund 20 centavos for every regularly-priced off-net text message.

Globe, Smart and Sun Cellular had a combined subscriber base of 100.65 million at the end of September 2012. This translates to about one active SIM for every Filipino, although a growing number of users now carry at least two accounts at the same time.

Smart and Sun refused to comment on the matter, but said the companies would explore possible legal remedies.

Globe said the NTC move could spell the end of unlimited services, which in the company's opinion had made text messages affordable more than any government-mandated reduction in rates could.

"Since the very beginning of the case, we have clearly stated that SMS is a deregulated service and telcos have the right to set the retail price of this service," said Froilan Castelo, head of Globe corporate and legal affairs.

"In fact, this has worked for the benefit of the consumer because the prices have gone down drastically with the advent of customisation, bucket and combo promos, and unlimited services," Castelo said.

Extra prepaid credits

Refunds for prepaid subscribers could be given in the form of extra prepaid credits that could be used for calls, text messages, and data services, the NTC said. For postpaid users, the telcos could offer rebates to cover the refund.

In three separate orders, the NTC directed the telcos to reduce the maximum price of text messages from 1 peso to 80 centavos each, stemming from the reduction of interconnection charges to 15 centavos from the previous 35 centavos.

The reduction of interconnection charges was ordered by the NTC in December last year. The telcos agreed to reduce interconnection charges but refused to pass on savings to consumers, the NTC said.

This meant that text message prices remained at 1 peso each, instead of the NTC's intent of reducing it to 80 centavos.

Apart from the refund, the telcos were also ordered to pay a fine of 200 pesos per day from Dec 1, 2011, until the companies lower their text message charges by 20 pesos per off-net text message.

Circular order defied

The NTC said the telcos had defied Memorandum Circular No. 02-10-2011, which took effect on December 1 last year. The circular was aimed at making text messaging more affordable to the public, pursuant to directives from the Office of the President.

While text messaging was considered a value-added service (VAS), which the telcos technically are not required to deliver, nothing in the law prohibited the NTC from regulating text message rates, the industry regulator said.

A ruling to order refunds, this time covering off-net voice calls, may also be released within the year, said Edgardo Cabarios, head of the NTC's Common Carrier's Authorisation Division.

Rexmond Fang, a sales executive at a multinational dairy company operating in the country, said the NTC decision was a welcome relief for subscribers who have been paying 1 peso per text message for over a decade.

Despite the popularity of alternative modes of communications such as social networking sites, profits from text message services make up the bulk of telecom company earnings in the Philippines.

"It's really about time that the government flexes its muscles against telecom firms," Fang said.

But Fang, 44, said he was worried about the financial strain that the NTC order might have on telcos.

"There's been a lot of talk in the news about bad service by companies. But can telcos still push through with their upgrades if they have to pay these refunds?" he said.

Anthony Ian Cruz, president of consumer group TXTPower, shared Fang's sentiments, saying it was refreshing to see the NTC finally enforcing its own rules.

"Those interconnection charges are the biggest stumbling block for lower text message rates. They have been charging us 1 peso for more than a decade," Cruz said in an interview.

"The next logical step is for inter-network messages to be cheaper," he said. "This should be the last straw to number portability," he added, referring to one of the group's previous initiatives for companies to allow subscribers to switch from one network to another without changing numbers.

Japan Airlines passenger service agent Janina Amonte, a frequent subscriber of unlimited promos offered by telcos, said the NTC's order would have little impact on her.

"It's not a big deal for me because I'm used to unli promos. But I wish they did this before because I used to text my friends a lot and there weren't any unli promos then," she said in an interview.

The 25-year-old said she was spending much less every month on cell phone bills, but was still able to stay in touch with friends and relatives.

Providing cellular phone service is a profitable business.

Philippine Long Distance Telephone Co. (PLDT), the parent firm of Smart and Sun, posted a net income of 28.7 billion pesos in the January to September period. Globe's net income for the period was at 8.7 billion pesos.

In 2011, PLDT's wireless revenue amounted to 102.1 billion pesos, of which 99 billion pesos was accounted for by Smart. Globe's revenue reached an all-time high of 67.8 billion pesos last year and its net income rose to 9.8 billion pesos.

*US$1= 41 pesos

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