1. PLDT-Digitel Merger Pro- or Anti-consumer?

2. The Financial ImplicationDoes the deal increase shareholder value?

4. 51.55% stake in Digitel

5. Offer for remaining 48.45% stake

6. Debt consideration

7. Zero-coupon convertible bonds2

9. The Market Implication- Market Power Concentration: Revenue and SIM share- The Spectrum Play: Scarcity of Resources

11. The NTC regulates the industry and responsible for healthy competition and protect consumers from monopoly, or quasi-monopoly powers.

12. However, there are no specific rules governing significant market power (SMP) in the industry

13. In December 2005, the NTC proposed rules on restraining SMP but were never adopted because of PLDT’s opposition

14. Any market with HHI >1,800 is considered highly concentrated

15. Any increase beyond 100 HHI point would then be considered anti-competitive+1,813 +958 1,800 Before merger After merger Before merger After merger Merger will be hard to prevent in the current Philippine legislation Subscribers Service revenues 1 Herfindahl–Hirschman Index (HHI) as a measure of market concentration SOURCE: McKinsey 5

16. After the merger, Smart/Sun would have ~66% revenue market share in mobile market Mobile revenues and revenue market share Mobile subscribers and subscriber market share Revenues PhP billions Subscribers Millions -0.3% 15.8% 7.9% 150 88 88 149 149 24.6% 129 66 (54%) (56%) (52%) (66%) (71%) (57%) (54%) 42 (5%) (17%1) (8%1) (2%) (57%) (9%) (6%) (35%) (38%) (34%) (31%) (29%) (29%) (38%) (37%) 2006 2010 2010 (post-merger) 2008 2010 (post-merger) 2010 2008 2006 1 Based on extrapolating 2010 Q1-Q3 results SOURCE: Merrill Lynch; Digitel Annual Report

17. In many markets, the regulator required the return of spectrum when market concentration increased due to mergers Spectrum to be surrendered to competition MHz Threshold for concerns of competition authorities Smart / Sun merger changes the industry concentration by a 0.18 HHI points and will justify a major disposal of spectrum Change in industry concentration(HHI change) 1 Herfindahl–Hirschman Index (HHI) as a measure of market concentration SOURCE: ML Wireless Matrix, WCIS

18. Philippines has one of the highest concentrations in Asia Industry concentration for Telecom industry of countries in Asia HHI, Dec 2010 Philippines (after merger) China Philippines(before merger) Korea Japan Singapore Malaysia Thailand Australia Indonesia Bangladesh Pakistan India 8 Ø 0.35 SOURCE: Merrill Lynch

21. The consolidation of PLDT/Smart and Digitel/Sun will result in an lopsided imbalance of spectrum allocation in their favor. 155 MHz vs 55 MHz 3.5 : 1 Ratio On 3G alone, the ratio is 1:4.5 in favor of PLDT/Digitel

22. All other usable spectrum resources considered, including bands in the 3400 MHz and 5400 MHz ranges, the gap widens further. Globe serves 26.5M subscribers with only 69 MHz while Smart + Sun shall effectively serve 60M subscribers with 372MHz. Therefore, Globe serves 384K subscribers with every 1 MHz of spectrum whereas Smart + Sun will only address 161K subscribers with every 1 MHz of spectrum. 5.4 : 1 Ratio Theoretically, Smart + Sun should NOT be assigned more than 224 MHz of spectrum (vs 372 MHz post-consolidation) to cater to 60M subscribers.

24. Subscriber usage profiles (e.g. data-savvy users tend to take up more bandwidth);

25. Richer services (e.g. video streaming requires more bandwidth);

26. Service quality levels ( e.g. “budget” quality calls possible with less bandwidth) –

27. Between two players seteris paribus, it costs less to serve the same number of subscribers with more spectrum from an investment-to-capacity perspective.

28. Ultimately, using the real estate or commercial space analogy, the player with more land does not have to build as tall a structure to serve the same number of people as the player with less land (and is compelled to go “high rise” at more cost).

30. At in-country mergers, most regulators have required merging companies to return or sell parts of their 2G/3G spectrum

31. Consistent with international examples, Smart/Sun should be required to surrender/sell a part of its spectrum (i.e., 2x10 MHz) to Globe to minimize the anti-competitive effect of the merger

32. The merger significantly extends the calling circle of Smart and the attractiveness of its on-net offers. e.g., unlimited, to customers

33. This can be countered by asymmetric interconnection charges in which Globe is granted a discounted interconnection charge (i.e., by 1 PHP per minute) to increase the commercial viability of competitive off-net offers in Globe

34. Many regulators have strict rules to ensure fixed mobile bundling does not lead to unfair competitive advantages, e.g., in South Korea ensuring that bundles are replicable and In France and Spain where quadruple play bundling is banned

35. Furthermore, any exclusivity deals limited to the Philippine market for, e.g., content, distribution channels, will restrict fair competition1 Significant gap in competitiveness already prevalent prior to merger with, e.g., Smart owning 2x25 MHz in 2,100 MHz band vs. Globe’s 2x10 Mhz

39. Danish regulator required Telia to return one set of GSM 900/1800 by end of 2005. it was also required and to return or sell one of the two UMTS licenses the merged entities have no later than 31 January 2005Denmark Telia Orange 2004 SOURCE: Press; NRAs

41. VimpelCom subsequently announced plan to volun-tary refarming its spectrum amongst domestic mobile operators and relinquish excess spectrum. This move was clearly to appease opposition from smaller players (e.g. Astelit) who oppose the dealBeeline/Vimpelcom 2010 Kyivstar Ukraine SOURCE: Press; NRAs

42. What will this merger bring to the Consumer?

43. What’s in it for the consumer? Monopoly is back 95% of broadband is theirs! Pricing dictatorship Full interconnection was never a reality, even after 21 years! Lack of IP peering, affecting internet services Product and Service Innovation Could we be happier with just analogue?

44. We need a level playing field for free market competition to work! Consumers should be given the choice!