Understanding the Philippine Competition Act (R.A. 10667)

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Presented by: Augusto B. Agosto

Graduate Program, University of San Carlos

PCA was enacted in 2015 and its IRR became effective on June 18, 2016

Content

• Overview of objectives and rationale

• Major Provisions of PCA

• One year record of PCA

Objectives of competition policy and law

To safeguard, protect and promote competition and the competitive process

Benefits: efficiency and consumer welfare- better prices, quality and variety of products

Why the need? Market failure

Making sure that firms play “fair”

Prevent firms from “unfairly” obtaining market power

– “Unfairly’ erecting barriers to entry (exclusionary abuse)

What is “unfair?”

Attaining dominant market position by means other than becoming more efficient than other playersExamples: Forming cartels (horizontal agreements), predatory pricing; refusal to sell to intentionally increase costs of rival

Prevent firms from exercising abuse of market power (Exploitative abuse):

– A firm has market power if because of its dominant position, it is able to affect the selling price of its output by controlling how much it produces.

– Limiting output/supply that would raise prices (providing monopoly ‘rents’ )

Examples: Agreement to fix prices, outputs; shutting down capacity after acquisition of rival firm

Making sure that firms play “fair”

Promoting competition

Addressing information asymmetries (publication of relevant information)

Implementing measures to make markets contestable Bringing down barriers to entry, allowing

more players-- make sure that there are no unnecessary government regulations

The Philippine Competition Commission (PCC) was formed in February 2016. The PCC is headed by a Chairman (currently Dr. Arsenio Balisacan) and comprises four other Commissioners.

Creation of the Philippine Competition Commission

Arsenio M. Balisacan is a Filipino economist and academic serving as the first chairperson of the Philippine Competition Commission, the country's antitrust agency enforcing prohibitions against anti-competitive business acts and practices.

Economic Planning Secretary Director-General of the National

Economic and Development Authority (NEDA)

Dean and Professor of the University of the Philippines School of Economics

Executive Director of the Philippine Center for Economic Development

PhD in Economics from the University of Hawaii

MS degree in Agricultural Economics from the University of the Philippines Los Baños.

Creation of the Philippine Competition Commission

• Independent, quasi-judicial body, attached agency to the OP

• Composition:

• One Chairman and four commissioners; with rank equivalent to a cabinet secretary and undersecretaries, respectively; with expertise in economics, law, finance

• Term: Seven years without re-appointment

• Powers and function: sole authority to initiate and conduct preliminary investigation– “No civil case shall be filed or instituted by a private party in

court, unless the PCC has completed a preliminary inquiry.” (Section 45, PCA)

Powers and Functions of the PCC

• Conduct inquiry, investigate, hear and decide cases• Review mergers and acquisition• Monitor compliance• Stop, redress, apply remedies based on finding• Issue subpoenas• Undertake inspection of business premises, under order

of court• Deputize enforcement agencies • Issue advisory opinions on competition matters• Monitor and analyze competition practices in markets;

conduct, publish and disseminate studies, etc

Prohibited behaviors, agreements, and processes

• Agreements entered into by competitors resulting in price fixing or manipulation, or setting, or controlling production, markets, or investment and restricting competition as to price, or components, or other terms of trade;

• The abuse of dominant positions by selling goods or services below cost with the object of driving competition out of the market; setting prices or other terms or conditions that discriminate unreasonably between customers or sellers of the same goods or services; and limiting production, markets or technical development to the prejudice of consumers;

• The abuse of dominant positions by limiting production or technical development to the prejudice of consumers; and

• Merger or acquisition agreements that substantially prevent, restrict or lessen competition in the relevant market or in the market for goods or services are likewise prohibited.

Prohibited Acts• Anti-Competitive Agreements (Sec 14)• a. Per se Prohibitions

– Restricting competition as to price (or other terms of trade)– Price fixing at an auction/bid-rigging, market allocation and

other analogous practices of bid manipulation per se violations are limited to price-fixing and bid rigging.

• b. The following agreements with the object to substantially prevent, restrict and lessen competition (‘Rule of Reason”)– Setting, limiting, or controlling production, markets…– Dividing or sharing the market (whether by volume, teritory,

type of goods, buyers, sellers...• Only these (14a and 14b) are punishable as criminal

offenses (Sec 30)

Prohibited ActsAbuse of Dominant Position (Sec 15)a. Pricing below cost to drive out competition (predatory pricing)b. Creating barriers to market entry or growth, … except those ...

arising from superior product or prices…c. 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 (tying arrangement)

d. Setting prices or other terms or conditions that discriminate unreasonably between customers or sellers of the same goods or services (price discrimination), with list of exceptions

e. 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, where the object or effect of the restrictions is to prevent, restrict or lessen competition substantially.– E. g. fixing prices, giving preferential discounts or rebate upon such

price, or imposing conditions not to deal with competing entities,– Exception: Permissible franchising, licensing, exclusive

merchandising or exclusive distributorship agreements; protecting IPR

Mergers and Acquisition (M&A)• Prohibited Mergers or Acquisitions (M&A)

Those that “substantially prevent, restrict or lessen competition in the relevant market or in the market for goods or services”. Exception: Efficiency gains offsetting impact of lessening competition

• Compulsory Notification to the PCC For with M&As transaction value over PhP1 Billion (USD21.7 million);

M&A cannot be consummated until after 30 days from notification;

Violation of compulsory notification requirement will have following consequences:

– Agreement is void; and

– Parties shall be subjected to administrative fine of 1% to 5% of transaction value.

• In case of violations of the Act, the Commission may impose administrative fines of up to P100 million for first offenders, and up to P250 million for repeat offenders. Aside from the payment of fines, offenders of any anti-competitive agreement risk imprisonment from a minimum of two years up to a maximum of seven years.

One year record

• As of 30 January 2017, the Commission has already received 80 notifications for mergers and acquisitions and 8 referrals for possible anticompetitive behavior in different sectors of the economy.

• The Commission has also issued a total of 4 procedural guidelines as of today.

Battle over telco frequencies

• The legal battle emerged after the PCC wanted to review the almost P70-billion acquisition of SMC’s Vega Telecom, which had access to valuable telco frequencies, including those in the powerful 700-MHz band.

• The resulting deal gave PLDT and Globe control over about 80 percent of all available telco frequencies.

• Thank you.