Development of a strong regulatory framework towards convergence for the telecom industry in the Philippines / Lemuel Luansing Magracia. 6

Thesis (Ph.D.) -- Pamantasan ng Lungsod ng Maynila, 2005.;A dissertation presented to the faculty of the Graduate School of Management in partial fulfillment of the requirements for the degree Doctor of Business Administration. 56

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ABSTRACT: STATEMENT OF THE PROBLEM: This study provides a parallel approach and in-depth analysis in developing a policy model of a strong regulatory framework towards convergence for the Telecom Industry in the Philippines. Specifically, the study sought answers to the following specific questions: 1. What are the status of the telecom policies in the major telecom Carriers in terms of: 1.1 Line installation requirements; 1.2 Roll-out schedule; 1.3 Interconnection with the competitors; and 1.4 Value Added Services or Information Technology Services provisions? 2. How effective are the telecom policies according to the Telecom Carriers with regards to 1.1 to 1.4: 3. What are the problems of the telecom policies according to the Telecom Carriers in relation to 1.1 to 1.4: 4. Are there significant differences among the respondents with regards to the effectiveness and problems of the telecom policies? 5. What are the financial performances of the telecom Carriers as to their: 5.1 Return on shareholders' equity (ROE); 5.2 Invested Capital Turnover (ICT); and 5.3 Debt to Equity Ratio? 6. What are the impacts of the Telecom Policies as mentioned in the 1.1 to 1.4 to the financial performance of the telecom Carriers? 7. What are the measures to address the problems of the telecom policies with regards to 1.1 to 1.4: C. HYPOTHESIS: The policy model of a strong regulatory framework towards convergence was developed upon proving that the following hypotheses are valid: 1. That there are no significant differences among the respondents with regards to the effectiveness upon proving that the following telecom policies on: 1.1 Line installation requirements; 1.2 Roll-out schedule; 1.3 Interconnection with the competitors; and 1.4 Value Added Services or Information Technology Services provisions. 2. That the said Telecom Policies as to 1.1 to 1.4 have no significant impacts to the financial performance of the telecom Carriers. RESEARCH DESIGN: Since the nature of this study is to analyze the correlation of independent variables with the dependent variable, a causal analysis was applied. Hence, because of its need to be interpretative and to describe the present situation in terms of past events, Historical research was used in the application. However, in order to determine the factors on the prevailing conditions to arrive on the most adequate and accurate interpretation, the researcher used the Descriptive method type of research in this study. Initially, qualitative analysis was performed through secondary sources from internal secondary data and external secondary data like: library materials, newsletters, annual reports, departmental reports, government reports, circulars, etc. A survey through a phone interview or a face to face interview with corporate finance, marketing, and operations officers of the Carriers was conducted to generate primary source of information. Two officers from the Department of Transportation and Communication and the National Telecommunications Commission were included. In situations where gathering of data were expensive or time constraint, interviews via mail or via computer links were the means of information collection. Then to validate the results of the qualitative results, to test the hypotheses, and to derive equations needed for the development of a strong regulatory framework towards convergence, a quantitative test was performed. The various data treatments were used: 1. Frequency Distribution, Rating, & Ranking Scales to produce quantitative measures like the status and problems; 2. Measures of Central Tendency to locate and indicate the center of a distribution or data set like the effectiveness; 3. Regression technique to analyze the relationship between a single dependent (criterion) variable and several independent (predictor) variables. The objective is to use the independent variables whose values are known to predict the single dependent value selected by the researcher; 4. ANOVA to test the significance of difference between means of three or more sets of data simultaneously; and 5. Upon looking at the financial performance, researcher used different financial analysis techniques and process based on the Carriers' Consolidated financial statements such as Comparative, Vertical, Horizontal, & Trend Analysis and further verify the performances using applicable measurements using financial ratio analysis in getting the Return on Investment (ROI) particularly on owners equity (ROE) to get the overall performance, the Invested Capital Turnover (ICT) to adequately look at turnover on the Carriers' capital investments, and Debt to Equity (D/E) to further look in their financial condition. FINDINGS AND CONCLUSIONS: The benefits brought by the telecom policies are undeniable as evidenced by the stilted growth in terms of landline capacities installed. In disparity, huge capital for this facility-based service cannot be utilized because of the recorded imbalance in terms of subscriptions and unequal deployments of the facilities. Though about 92% of the target line installations were achieved, about 71.64% were installed in the urban areas resulting to failures in terms of countryside development. In terms of Convergence of services, majority of the Carriers constitutes deficiency in terms of interconnections and VAS/IT services provisions resulting to call congestions and slow provisioning of converged services, especially on broadband-based platforms. The statistical tests applied in measuring the effectiveness of the telecom policies' resulted in unfolding Ineffective rating. Due to the urgency of completing the project on time and the short preparatory period, distribution of facilities were not well managed resulted to over-provisioning in major urban centers and under-provisioning in the countryside. It served as a contributing factor of the under-subscriptions of facilities due to households' low affordability on subscription rates. New Carriers without any track record for massive expansion and full support program due to the magnitude of capital needed and market lag factors. The required supporting program such as rate restructuring was not in placed prior to the enactment of policies, thus made it more difficult to implement such when competitive and economic forces started to play, thus weakening the financial position of the landline sector in the industry. Safety net was not provided by the Government in case of slow market uptake and economic downturn (Agile 2002). Convergence of services especially on IT or broadband-based technology that could somehow address the difficulties was not given ample concern in terms of regulating-framework creation. ANOVA test confirmed the consistent ineffective rating of the respondents on telecom policies and further validated the null hypothesis stating that there are no significant differences among the respondents with regards to the effectiveness of the telecom policies. However, after running the ANOVA test to verify if the respondents conceded significant differences with regards to the problems of the telecom policies, the result rejected the null hypothesis therefore stating that there are significant differences among the respondents with regard to the problems of the telecom policies. This could be attributed to the nature of the Carriers' businesses and areas where the government prescribed them to operate. The SAS participant Carriers incurred substantial losses in their operations during the SAS program implementation from 1996 to 2000, because the income earned both from operations and non-operations were not enough to sustain the huge expenses in their facility deployment efforts, and the initial payments of fixed costs on Assets particularly on PPE. The problems encountered hindered extensively the generation of adequate funds for operations and contributed largely to unfavourable financial performances. To combat the high-cost of fixed charges/ amortization on capital investments in the future, a model for financial projection was developed based on the industry accepted cost-based formula to aid the Carriers and the Government in their future target projections. Overall Performance of the Carriers was unsatisfactory because of the low percentage return expressed in negative figures on their annual ROI (Shareholders Equity).

Likewise, their Investment Utilization confirmed and explained that Carriers should earn a higher profit margin from their Capital due to their very low turnover measures, to achieve an acceptable level of ROI and maintain its liquidity. The costs associated with the PPE are relatively fixed, so when their sales revenue dropped in a recession, the Carriers were unable to cover these costs. On the other hand, the financial condition of the Carriers indicated greater reliance on debt connotes short-run solvency. More debt to equity conversion should be considered to adjust and lower down the interest and repayments in long term, just like 2000. Generally, all regression results on the predictor variables showed no significant impacts to the dependent variables, concluding that the telecom policies have no significant impacts to the financial performances of the telecom Carriers. In general, all measures to address the problems of the telecom policies are indicating a thorough evaluation of the existing policies and a call for a strong regulatory framework. While the program attracted new investments into the telecommunications industry, it is more prudent for the government to adopt a more realistic program consistent with the projected demand, economic fluctuations, and market absorption factors, especially for the basic telephone service where the rate for residential service is highly socialized and dependent on cross-subsidy from toll services.

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