The Committee on Information and Communications Technology of the House of Representatives has started the deliberations on the Telco Tower Bill sponsored by Deputy Speaker Arthur Yap.
Yap filed House Bill 7410, proposing the Telecom Tower REIT (Real Estate Investment Trust) Act.
Yap filed the Bill on March 14 and it is now on committee deliberations.
During the committee deliberation yesterday, Yap explained that his proposal is also a way of “advocating for more Filipinos to own a piece of telco by investing in telco towers and converting them into REITs”.
In HB 7410, Yap proposed that wireless telecommunication companies be mandated to “tranfer their over five-year old towers to REIT corporations.
In introducing HB 7410, Yap cited the report of the Department of Information and Communications Technology (DICT) “that to date, the Philippines has one of the lowest cellular tower densities in the world, with less than 20,000 towers serving a population of 105 million people”.
“According to Globe Telecom, user-per-site density in the Philippines is about 2,244, based on estimates of 21,000 total cell sites against internet users of around 47.1 million. Vietnam, which is similar in size to the Philippines, has a much lower user-per-site density of only 860 based on a total number of 55,000 cell sites against 47.3 million internet users. Malaysia, with a 22,000 cell sites against 20.6 million internet users, has a user-per-site density of 937. Japan, with 220,000 cell sites against 115 million internet users, has a user-per-site density of 522 while China, with 1.18 million cell sites against 688 million internet users, has a user-per-site density of 566,” Yap added.
He said this is the main reason why the Philippines has the slowest internet speed in ASEAN.
“More cellular towers in an area will de-congest the network traffic which improves the internet speed. This shows that wireless infrastructure plays a crucial role in how businesses, citizens and governments operate. These networks are critical to everything from education and business to public safety and health care,” Yap explained.
He also cited a report from Rappler on the profile of internet users which shows that “in recent years, the mobile Internet penetration rate is growing at a rate of 1.5x (or 30 million users) and consume about 150k terabytes of every year”.
“To support this massive growth in usage, today’s wireless networks require robust wireless infrastructure. Wireless infrastructure provides the foundation upon which the wireless industry will deliver the applications, services, and jobs that will fuel the Philippine economy for years to come. Hence, it is critical for policy makers to continue to support the wireless infrastructure industry through prudent policies,” Yap added.
He also cited a 2016 World Bank Study entitled “Exploring the Relationship Between Broadband and Economic Growth”, which shows that a 10-percent increase in fixed broadband penetration would increase GDP growth by 1.21 percent in developed economies and 1.38 percent in developing ones.
“In the United States, wireless infrastructure providers, the largest being organized as real estate investment trusts (“REITs”) have played a key role in wireless infrastructure funding for years. As REITS, these companies are able to drive the industry forward with increased investments as wireless carriers demand more network capacity to deliver their growing lists of mobile services to customers,” according to Yap.
In the Philippines, Real Estate Investment Trusts (“REITs”) was created upon the passage into law of Republic Act 9856 or the Real Estate Investment Trust Law of 2009.
“However, despite the excitement during the passage of the REIT law, we still have a dearth in the REIT market to date,” according to Yap.
He further said that “one of the main reasons is the imposition of the 12 percent VAT on the transfer of real property to a REIT even if the transfer is a tax free exchange”.
“However, one amendment introduced by the TRAIN law may help push the development of the REIT market in the country. Section 109 of the Tax Code has been amended to include transfers of property under Section 40 (c) (2) of the Tax Code or tax-free exchanges as exempt from value added tax. The TRAIN amendment directly addresses one of the main reasons cited by property developers as hindrance to forming REIT corporations. With the amendment, property owners can now transfer qualified real property assets to the REIT corporations without incurring the 12 percent value added tax,” Yap explained.
On this, Yap believes that “the creation of REIT corporations for cellular towers may now provide new capital for wireless telecommunications infrastructure investments”.
To facilitate this, Yap filed HB 7410 which “seeks to mandate all telecommunications company to transfer their cell towers to REIT corporations”.
Atty. Eleanor Lucas Roque had earlier explained in her March 9, 2018 column entitled, A TRAIN ride for the REIT, in The Manila Times, that “a REIT is a stock corporation established principally for the purpose of owning income-generating real estate assets”.
She further elaborated that “what differentiates REITs from other real estate companies listed on the stock market are the tax breaks specifically granted by the law”.
“Just like regular corporations, REITs are subject to the 30 percent income tax on its taxable net income. However, unlike regular corporations, only REITs can deduct from its gross income the dividends distributed to shareholders. With 90 percent of the retained earnings required to be distributed as dividends, the corporate income tax liability of the REIT is substantially reduced. A portion of the tax savings is expected to translate to more distributable income to the shareholders, making the REIT presumably a better investment alternative,” according to Roque.