Life Inside a Conglomerate

By Jake Maxwell Watts Features Dow Jones Newswires

Brian Chuahiock lives in a community built and owned by Ayala Corp., one of the Philippines' largest conglomerates. His savings account is managed by an Ayala-owned bank, his phone operates on Ayala's telecommunications network and he studies in a school in an Ayala-owned district.

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Like many Filipinos, the 25-year-old's life is dependent on services provided by one of a handful of powerful and politically connected conglomerates. He admits he is "about as Ayala as you can be."

Manila is now confronting allegations of anticompetitive practices by conglomerates amid evidence from economists that their dominance is locking out competition, concentrating wealth and restraining development. The goal: introduce more competition to help modernize the economy.

The Philippine government isn't alone in its quest. Developing countries in Asia, Africa and Latin America have struggled for decades to dislodge long-entrenched oligopolies. The new South Korean leader, Moon Jae-in, has pledged to curb the power of that country's conglomerates, called chaebols. The Philippine effort to create a regulator of uncompetitive practices began 24 years ago and finally succeeded in the legislature last year.

In its first major case, the Philippine Competition Commission last year challenged a planned acquisition by the country's two telecommunications companies, Philippine Long Distance Telephone and Globe Telecom, which is 30% owned by Ayala. But the companies won a court injunction to prevent the commission from completing its review and issuing a judgment.

Last month, the case moved to the Philippines' Supreme Court, whose decision -- which may take months -- will mark commission's scope and influence. The two companies are set to complete their joint acquisition this month in defiance of the commission's demands, complicating its potential undoing.

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"The progress and eventual outcome of the case is being carefully followed," said John Forbes, senior adviser at Philippine business advocacy group Arangkada.

Philippine Long Distance Telephone declined to comment, citing the continuing legal dispute. A Globe spokeswoman said "everything we are doing is actually within the interest of consumers." The commission is "overstretching their mandate."

The two companies generally say they have had to invest large amounts of money into building their own networks because the government failed to do so. That, they say, has added cost for consumers. They also say that even if another player could raise enough cash to enter the market, the added competition would result in less money to reinvest in infrastructure.

Ayala says the company is good for economic development in the Philippines. "Beyond our products and services, our businesses create multiplier effects for society and the economy, as we are committed to improving the lives of more people across the country," an Ayala spokeswoman said, adding that the company is open to competition.

The Competition Commission said it "will not back down or be intimidated by companies who have grown accustomed to unregulated business practices that hamper competition and ultimately hurt the consumers."

Consumer advocates say mobile service illustrates a broader problem with many goods and services in the Philippines, where regional monopolies in property or utilities such as electricity and water contribute to high prices.

Mobile and internet service is worse and the cost higher than many of its peers in Southeast Asia, according to data from the International Telecommunication Union. Filipinos spend nearly $10 on a basket of just 30 calls and 100 text messages, the union says, more than 3.4% of an average person's annual income. In the U.S., consumers spend an average 0.78% of their annual income for the same service.

The Competition Commission came into force under the previous administration, but Philippines President Rodrigo Duterte has been vocally supportive of its goals. Last year Mr. Duterte warned the two telecom companies that "if you cannot do it right, you wait, I'm going to China and I'll open everything for competition," according to local media.

The top 10 listed companies in the Philippines, including billionaire Henry Sy's retail giant SM Investments Corp. and John Gokongwei's beverage-to-airline conglomerate JG Summit Holdings Inc., had revenues worth 11% of Philippine economic output in 2015, according Wall Street Journal calculations of data from New York-based S&P Global Market Intelligence.

These 10 companies, many of them part-owned by foreign sovereign-wealth and pension funds, have combined market capitalization of about a third of a stock exchange with nearly 300 listed companies.

Their political connections often run deep. Sen. Grace Poe said conglomerate San Miguel Corp. had lent her a private jet during her presidential campaign last year and that it had done the same for other politicians. Six months after Mr. Duterte won the election, he thanked San Miguel President Ramon Ang for donating to his campaign and for financing a drug rehabilitation center. San Miguel didn't respond to a request for comment.

The business community generally appears to support the mission.

"No one should be above the law, not even family conglomerates," said Jose Luis U. Yulo Jr., president of the Chamber of Commerce of the Philippine Islands.

But the government also faces the perception of many consumers who view the companies as providing vital services, from road building to health care to telecommunications, that the government doesn't.

"We're stuck in a can't-live-with-them, can't-live-without-them scenario, " said Myles Tan, 30, a sales manager in Manila. Like Mr. Chuahiock, his home utilities, cellphone and home all come from Ayala-owned companies.

Write to Jake Maxwell Watts at jake.watts@wsj.com

(END) Dow Jones Newswires

May 14, 2017 07:14 ET (11:14 GMT)