SECOND DIVISION

[G.R. No. 143964. July 26, 2004]

GLOBE
TELECOM,
INC., petitioner,
vs. THE
NATIONAL
TELECOMMUNICATIONS
COMMISSION,
COMMISSIONER
JOSEPH A. SANTIAGO, DEPUTY COMMISSIONERS AURELIO M.
UMALI and NESTOR DACANAY, and SMART COMMUNICATIONS,
INC. respondents.
DECISION
TINGA, J.:

Telecommunications services are affected by a high degree of public interest.

Telephone companies have historically been regulated as common carriers, and
indeed, the 1936 Public Service Act has classified wire or wireless communications
systems as a public service, along with other common carriers.
[1]

[2]

[3]

Yet with the advent of rapid technological changes affecting the telecommunications
industry, there has been a marked reevaluation of the traditional paradigm governing
state regulation over telecommunications. For example, the United States Federal
Communications Commission has chosen not to impose strict common regulations on
incumbent cellular providers, choosing instead to let go of the reins and rely on market
forces to govern pricing and service terms.
[4]

In the Philippines, a similar paradigm shift can be discerned with the passage of the
Public Telecommunications Act of 1995 (PTA). As noted by one of the laws principal
authors, Sen. John Osmea, under prior laws, the government regulated the entry of
pricing and operation of all public telecommunications entities. The new law proposed to
dismantle gradually the barriers to entry, replace government control on price and
income with market instruments, and shift the focus of governments intervention
towards ensuring service standards and protection of customers. Towards this goal,
Article II, Section 8 of the PTA sets forth the regulatory logic, mandating that a healthy
competitive environment shall be fostered, one in which telecommunications carriers
are free to make business decisions and to interact with one another in providing
telecommunications services, with the end in view of encouraging their financial viability
while maintaining affordable rates. The statute itself defines the role of the government
to promote a fair, efficient and responsive market to stimulate growth and development
of the telecommunications facilities and services.
[5]

[6]

[7]

The present petition dramatizes to a degree the clash of philosophies between

traditional notions of regulation and the au corant trend to deregulation. Appropriately, it
involves the most ubiquitous feature of the mobile phone, Short Messaging Service

(SMS) or text messaging, which has been transformed from a mere technological
fad into a vital means of communication. And propitiously, the case allows the Court to
evaluate the role of the National Telecommunications Commission (NTC) in this day
and age.
[8]

The NTC is at the forefront of the government response to the avalanche of

inventions and innovations in the dynamic telecommunications field. Every regulatory
action it undertakes is of keen interest not only to industry analysts and players but to
the public at large. The intensive scrutiny is understandable given the high financial
stakes involved and the inexorable impact on consumers. And its rulings are
traditionally accorded respect even by the courts, owing traditional deference to
administrative agencies equipped with special knowledge, experience and capability to
hear and determine promptly disputes on technical matters.
[9]

At the same time, judicial review of actions of administrative agencies is essential,

as a check on the unique powers vested unto these instrumentalities. Review is
available to reverse the findings of the specialized administrative agency if the record
before the Court clearly precludes the agencys decision from being justified by a fair
estimate of the worth of the testimony of witnesses or its informed judgment on matters
within its special competence, or both. Review may also be warranted to ensure that
the NTC or similarly empowered agencies act within the confines of their legal mandate
and conform to the demands of due process and equal protection.
[10]

[11]

[12]

Antecedent Facts
Globe and private respondent Smart Communications, Inc. (Smart) are both
grantees of valid and subsisting legislative franchises, authorizing them, among
others, to operate aCellular Mobile Telephone System (CMTS), utilizing the Global
System for Mobile Communication (GSM) technology. Among the inherent services
supported by the GSM network is the Short Message Services (SMS), also known
colloquially as texting, which has attained immense popularity in the Philippines as a
mode of electronic communication.
[13]

[14]

[15]

On 4 June 1999, Smart filed a Complaint with public respondent NTC, praying that
NTC order the immediate interconnection of Smarts and Globes GSM networks,
particularly their respective SMS or texting services. The Complaint arose from the
inability of the two leading CMTS providers to effect interconnection. Smart alleged that
Globe, with evident bad faith and malice, refused to grant Smarts request for the
interconnection of SMS.
[16]

[17]

On 7 June 1999, NTC issued a Show Cause Order, informing Globe of

the Complaint, specifically the allegations therein that, among othersdespite formal
request made by Smart to Globe for the interconnection of their respective SMS or text
messaging services, Globe, with evident bad faith, malice and to the prejudice of Smart
and Globe and the public in general, refused to grant Smarts request for the
interconnection of their respective SMS or text messaging services, in violation of the

mandate of Republic Act 7925, Executive Order No. 39, and their respective
implementing rules and regulations.
[18]

Globe filed its Answer with Motion to Dismiss on 7 June 1999, interposing grounds
that the Complaint was premature, Smarts failure to comply with the conditions
precedent required in Section 6 of NTC Memorandum Circular 9-7-93, and its
omission of the mandatory Certification of Non-Forum Shopping. Smart responded
that it had already submitted the voluminous documents asked by Globe in connection
with other interconnection agreements between the two carriers, and that with those
voluminous documents the interconnection of the SMS systems could be expedited by
merely amending the parties existing CMTS-to-CMTS interconnection agreements.
[19]

[20]

[21]

On 19 July 1999, NTC issued the Order now subject of the present petition. In
the Order, after noting that both Smart and Globe were equally blameworthy for their
lack of cooperation in the submission of the documentation required for interconnection
and for having unduly maneuvered the situation into the present impasse, NTC held
that since SMS falls squarely within the definition of value-added service or
enhanced-service given in NTC Memorandum Circular No. 8-9-95 (MC No. 8-9-95)
the implementation of SMS interconnection is mandatory pursuant to Executive Order
(E.O.) No. 59.
[22]

[23]

The NTC also declared that both Smart and Globe have been providing SMS
without authority from it, in violation of Section 420 (f) of MC No. 8-9-95 which requires
PTEs intending to provide value-added services (VAS) to secure prior approval from
NTC through an administrative process. Yet, in view of what it noted as the peculiar
circumstances of the case, NTC refrained from issuing a Show Cause Order with a
Cease and Desist Order, and instead directed the parties to secure the requisite
authority to provide SMS within thirty (30) days, subject to the payment of fine in the
amount of two hundred pesos (P200.00) from the date of violation and for every day
during which such violation continues.
[24]

Globe filed with the Court of Appeals a Petition for Certiorari and Prohibition to
nullify and set aside the Order and to prohibit NTC from taking any further action in the
case. It reiterated its previous arguments that the complaint should have been
dismissed for failure to comply with conditions precedent and the non-forum shopping
rule. It also claimed that NTC acted without jurisdiction in declaring that it had no
authority to render SMS, pointing out that the matter was not raised as an issue before it
at all. Finally, Globe alleged that the Order is a patent nullity as it imposed an
administrative penalty for an offense for which neither it nor Smart was sufficiently
charged nor heard on in violation of their right to due process.
[25]

[26]

The Court of Appeals issued a Temporary Restraining Order on 31 August 1999.

In its Memorandum, Globe also called the attention of the appellate court to the
earlier decision of NTC pertaining to the application of Isla Communications Co., Inc.
(Islacom) to provide SMS, allegedly holding that SMS is a deregulated special feature
of the telephone network and therefore does not require the prior approval of NTC.
Globe alleged that its departure from its ruling in the Islacom case constitutes a denial
of equal protection of the law.
[27]

On 22 November 1999, a Decision was promulgated by the Former Special Fifth

Division of the Court of Appeals affirming in toto the NTC Order. Interestingly, on the
same day Globe and Smart voluntarily agreed to interconnect their respective SMS
systems, and the interconnection was effected at midnight of that day.
[28]

[29]

[30]

Yet, on 21 December 1999, Globe filed a Motion for Partial Reconsideration,

seeking to reconsider only the portion of the Decision that upheld NTCs finding that
Globe lacked the authority to provide SMS and its imposition of a fine. Both Smart and
NTC filed their respective comments, stressing therein that Globe indeed lacked the
authority to provide SMS. In reply, Globe asserted that the more salient issue was
whether NTC complied with its own Rules of Practice and Procedure before making the
finding of want of authority and imposing the fine. Globe also reiterated that it has been
legally operating its SMS system since 1994 and that SMS being a deregulated special
feature of the telephone network it may operate SMS without prior approval of NTC.
[31]

[32]

After the Court of Appeals denied the Motion for Partial Reconsideration, Globe
elevated the controversy to this Court.
[33]

Globe contends that the Court of Appeals erred in holding that the NTC has the
power under Section 17 of the Public Service Law to subject Globe to an
administrative sanction and a fine without prior notice and hearing in violation of the due
process requirements; that specifically due process was denied Globe because the
hearings actually conducted dwelt on different issues; and, the appellate court erred in
holding that any possible violation of due process committed by NTC was cured by the
fact that NTC refrained from issuing a Show Cause Order with a Cease and Desist
Order, directing instead the parties to secure the requisite authority within thirty days.
Globe also contends that in treating it differently from other carriers providing SMS the
Court of Appeals denied it equal protection of the law.
[34]

The case was called for oral argument on 22 March 2004. Significantly, Smart has
deviated from its original position. It no longer prays that the Court affirm the
assailed Decision andOrder, and the twin rulings therein that SMS is VAS and that
Globe was required to secure prior authority before offering SMS. Instead, Smart now
argues that SMS is not VAS and that NTC may not legally require either Smart or Globe
to secure prior approval before providing SMS. Smart has also chosen not to make any
submission on Globes claim of due process violations.
[35]

As presented during the oral arguments, the central issues are: (1) whether NTC
may legally require Globe to secure NTC approval before it continues providing SMS;
(2) whether SMS is a VAS under the PTA, or special feature under NTC MC No. 14-1197; and (3) whether NTC acted with due process in levying the fine against Globe.
Another issue is also raised whether Globe should have first filed a motion for
reconsideration before the NTC, but this relatively minor question can be resolved in
brief.
[36]

Necessity of Filing Motion for Reconsideration

Globe deliberately did not file a motion for reconsideration with the NTC before
elevating the matter to the Court of Appeals via a petition for certiorari. Generally, a
motion for reconsideration is a prerequisite for the filing of a petition for certiorari. In
opting not to file the motion for reconsideration, Globe asserted before the Court of
Appeals that the case fell within the exceptions to the general rule. The appellate court
in the questioned Decision cited the purported procedural defect, yet chose anyway to
rule on the merits as well.
[37]

[38]

[39]

Globes election to elevate the case directly to the Court of Appeals, skipping the
standard motion for reconsideration, is not a mortal mistake. According to Globe,
the Order is a patent nullity, it being violative of due process; the motion for
reconsideration was a useless or idle ceremony; and, the issue raised purely one of law.
Indeed, the circumstances adverted to are among the recognized exceptions to the
general rule. Besides, the issues presented are of relative importance and novelty so
much so that it is judicious for the Court to resolve them on the merits instead of hiding
behind procedural fineries.
[40]

[41]

[42]

The Merits
Now, on to the merits of the petition.
Deregulation is the mantra in this age of globalization. Globe invokes it in support of
its claim that it need not secure prior authority from NTC in order to operate SMS. The
claim has to be evaluated carefully. After all, deregulation is not a magic incantation
that wards off the spectre of intrusive government with the mere invocation of its name.
The principles, guidelines, rules and regulations that govern a deregulated system must
be firmly rooted in the law and regulations that institute or implement the deregulation
regime. The implementation must likewise be fair and evenhanded.
[43]

Globe hinges its claim of exemption from obtaining prior approval from the NTC on
NTC Memorandum Circular No. 14-11-97 (MC No. 14-11-97). Globe notes that in a 7
October 1998 ruling on the application of Islacom for the operation of SMS, NTC
declared that the applicable circular for SMS is MC No. 14-11-97. Under this ruling, it
is alleged, NTC effectively denominated SMS as a special feature which under MC
No. 14-11-97 is a deregulated service that needs no prior authorization from NTC.
Globe further contends that NTCs requiring it to secure prior authorization violates the
due process and equal protection clauses, since earlier it had exempted the similarly
situated Islacom from securing NTC approval prior to its operation of SMS.
[44]

[45]

On the other hand, the assailed NTC Decision invokes the NTC Implementing Rules
of the PTA (MC No. 8-9-95) to justify its claim that Globe and Smart need to secure prior
authority from the NTC before offering SMS.
The statutory basis for the NTCs determination must be thoroughly examined. Our
first level of inquiry should be into the PTA. It is the authority behind MC No. 8-9-95. It is
also the law that governs all public telecommunications entities (PTEs) in the
Philippines.
[46]

Public Telecommunications Act

The PTA has not strictly adopted laissez-faire as its underlying philosophy to
promote the telecommunications industry. In fact, the law imposes strictures that
restrain within reason how PTEs conduct their business. For example, it requires that
any access charge/revenue sharing arrangements between all interconnecting carriers
that are entered into have to be submitted for approval to NTC. Each
telecommunication category established in the PTA is governed by detailed
regulations. Also, international carriers and operators of mobile radio services are
required to provide local exchange service in unserved or underserved areas.
[47]

[48]

[49]

At the same time, the general thrust of the PTA is towards modernizing the legal
framework for the telecommunications services sector. The transmutation has become
necessary due to the rapid changes as well within the telecommunications industry. As
noted by Senator Osmea in his sponsorship speech:
[D]ramatic developments during the last 15 years in the field of semiconductors have drastically
changed the telecommunications sector worldwide as well as in the Philippines. New
technologies have fundamentally altered the structure, the economics and the nature of
competition in the telecommunications business. Voice telephony is perhaps the most popular
face of telecommunications, but it is no longer the only one. There are other faces such as data
communications, electronic mail, voice mail, facsimile transmission, video conferencing, mobile
radio services like trunked radio, cellular radio, and personal communications services, radio
paging, and so on. Because of the mind-boggling developments in semiconductors, the
traditional boundaries between computers, telecommunications, and broadcasting are
increasingly becoming blurred.
[50]

One of the novel introductions of the PTA is the concept of a value-added service
(VAS). Section 11 of the PTA governs the operations of a value-added service
provider, which the law defines as an entity which relying on the transmission,
switching and local distribution facilities of the local exchange and inter-exchange
operators, and overseas carriers, offers enhanced services beyond those ordinarily
provided for by such carriers. Section 11 recognizes that VAS providers need not
secure a franchise, provided that they do not put up their own network. However, a
different rule is laid down for telecommunications entities such as Globe and PLDT. The
section unequivocally requires NTC approval for the operation of a value-added
service. It reads, viz:
[51]

[52]

Telecommunications entities may provide VAS, subject to the additional requirements that:
a)

prior approval of the Commission is secured to ensure that such VAS

offerings are not cross-subsidized from the proceeds of their utility
operations;

b)

other providers of VAS are not discriminated against in rates nor denied
equitable access to their facilities; and

c)

separate books of accounts are maintained for the VAS. (Emphasis supplied)
[53]

Oddly enough, neither the NTC nor the Court of Appeals cited the above-quoted
provision in their respective decisions, which after all, is the statutory premise for the
assailed regulatory action. This failure is but a mere indicia of the pattern of ignorance
or incompetence that sadly attends the actions assailed in this petition.
It is clear that the PTA has left open-ended what services are classified as valueadded, prescribing instead a general standard, set forth as a matter of principle and
fundamental policy by the legislature. The validity of this standard set by Section 11 is
not put into question by the present petition, and there is no need to inquire into its
propriety. The power to enforce the provisions of the PTA, including the
implementation of the standards set therein, is clearly reposed with the NTC.
[54]

[55]

[56]

It can also be gleaned from Section 11 that the requirement that PTEs secure prior
approval before offering VAS is tied to a definite purpose, i.e., to ensure that such
VAS offerings are not cross-subsidized from the proceeds of their utility
operations. The reason is related to the fact that PTEs are considered as public
services, and mandated to perform certain public service functions. Section 11 should
be seen in relation to E.O. 109, which mandates that international gateway operators
shall be required to provide local exchange service, for the purpose of ensuring
availability of reliable and affordable telecommunications service in both urban and rural
areas of the country. Under E.O. No. 109, local exchange services are to be crosssubsidized by other telecommunications services within the same company until
universal access is achieved. Section 10 of the PTA specifically affirms the
requirements set by E.O. No. 109. The relevance to VAS is clear: public policy
maintains that the offer of VAS by PTEs cannot interfere with the fundamental provision
by PTEs of their other public service requirements.
[57]

[58]

[59]

[60]

More pertinently to the case at bar, the qualification highlights the fact that the legal
rationale for regulation of VAS is severely limited. There is an implicit recognition that
VAS is not strictly a public service offering in the way that voice-to-voice lines are, for
example, but merely supplementary to the basic service. Ultimately, the regulatory
attitude of the State towards VAS offerings by PTEs is to treat its provisioning as a
business decision subject to the discretion of the offeror, so long as such
services do not interfere with mandatory public service requirements imposed on PTEs
such as those under E.O. No. 109. Thus, non-PTEs are not similarly required to
secure prior approval before offering VAS, as they are not burdened by the public
service requirements prescribed on PTEs. Due regard must be accorded to this
attitude, which is in consonance with the general philosophy of deregulation expressed
in the PTA.
[61]

The Pertinent NTC Memorandum Circulars

Next, we examine the regulatory framework devised by NTC in dealing with VAS.

NTC relied on Section 420(f) of the Implementing Rules of the PTA (Implementing
Rules) as basis for its claim that prior approval must be secured from it before Globe
can operate SMS. Section 420 of the Implementing Rules, contained in MC No. 8-9-95,
states in full:
VALUE ADDED SERVICES (VAS)
(a) A non-PTE VAS provider shall not be required to secure a franchise from Congress.
(b) A non-PTE VAS provider can utilize its own equipment capable only of routing,
storing and forwarding messages in whatever format for the purpose of providing
enhanced or augmented telecommunications services. It shall not put up its own
network. It shall use the transmission network, toll or local distribution, of the
authorized PTES.
(c) The provision of VAS shall not in any way affect the cross subsidy to the local
exchange network by the international and national toll services and CMTS service.
(d) Entities intending to provide value added services only shall submit to the
commission application for registration for approval. The application form shall
include documents showing, among others, system configuration, mode of
operation, method of charging rates, lease agreement with the PTE, etc.
(e) The application for registration shall be acted upon by the Commission through an
administrative process within thirty (30) days from date of application.
(f) PTEs intending to provide value added services are required to secure prior
approval by the Commission through an administrative process.
(g) VAS providers shall comply strictly with the service performance and other
standards prescribed commission. (Emphasis supplied.)
Instead of expressly defining what VAS is, the Implementing Rules defines what
enhanced services are, namely: a service which adds a feature or value not ordinarily
provided by a public telecommunications entity such as format, media conversion,
encryption, enhanced security features, computer processing, and the like. Given that
the PTA defines VAS as enhanced services, the definition provided in the
Implementing Rules may likewise be applied to VAS. Still, the language of the
Implementing Rules is unnecessarily confusing. Much trouble would have been spared
had the NTC consistently used the term VAS as it is used in the PTA.
[62]

The definition of enhanced services in the Implementing Rules, while more distinct
than that under the PTA, is still too sweeping. Rather than enumerating what possible
features could be classified as VAS or enhanced services, the Implementing Rules
instead focuses on the characteristics of these features. The use of the phrase the
like, and its implications of analogy, presumes that a whole myriad of technologies
can eventually be subsumed under the definition of enhanced services. The NTC
[63]

should not be necessarily faulted for such indistinct formulation since it could not have
known in 1995 what possible VAS would be available in the future. The definition laid
down in the Implementing Rules may validly serve as a guide for the NTC to determine
what emergent offerings would fall under VAS.
[64]

Still, owing to the general nature of the definition laid down in the Implementing
Rules, the expectation arises that the NTC would promulgate further issuances defining
whether or not a specific feature newly available in the market is a VAS. Such
expectation is especially demanded if the NTC is to penalize PTEs who fail to obtain
prior approval in accordance with Section 11 of the PTA. To our knowledge, the NTC
has yet to come out with an administrative rule or regulation listing which of the offerings
in the market today fall under VAS or enhanced services.
Still, there is MC No. 14-11-97, entitled Deregulating the Provision of Special
Features in the Telephone Network. Globe invokes this circular as it had been
previously cited by the NTC as applicable to SMS.
On 2 October 1998, Islacom wrote a letter to the NTC, informing the agency that it
will be offering the special feature of SMS for its CMTS, and citing therein that the
notice was being given pursuant to NTC Memorandum Circular No. 14-11-97. In
response, the NTC acknowledged receipt of the letter informing it of Islacoms
offering the special feature of SMS for its CMTS, and instructed Islacom to adhere to
the provisions of MC No. 14-11-97. The clear implication of the letter is that NTC
considers the Circular as applicable to SMS.
[65]

[66]

An examination of MC No. 14-11-97 further highlights the state of regulatory

confusion befalling the NTC. The relevant portions thereof are reproduced below:
SUBJECT: DEREGULATING THE PROVISION OF SPECIAL FEATURES IN THE
TELEPHONE NETWORK.
For the purpose of exempting specific telecommunications service from rate or tariff regulations
if the service has sufficient competition to ensure fair and reasonable rates or tariffs, the
Commission hereby deregulates the provision of special features inherent to the Telephone
Network.
Section 1. For the purpose of this Circular, Special Feature shall refer to a feature inherent
to the telephone network which may not be ordinarily provided by a Telephone Service
Provider such as call waiting, call forwarding, conference calling, speed dialing, caller ID,
malicious call ID, call transfer, charging information, call pick-up, call barring, recorded
announcement, no double connect, warm line, wake-up call, hotline, voicemail, and special
features offered to customers with PABXs such as direct inward dialing and number hunting, and
the like; provided that in the provision of the feature, no law, rule, regulation or international
convention on telecommunications is circumvented or violated. The Commission shall
periodically update the list of special features in the Telephone Network which, including
the charging of rates therefor, shall be deregulated.

Section 2. A duly authorized Telephone Service Provider shall inform the Commission in writing
of the special features it can offer and the corresponding rates thirty (30) days prior to launch
date.
xxx
Section 4. Authorized Telephone Service Providers shall continue to charge their duly approved
rates for special services for 3 months from the effectivity of this circular, after which they may
set their own rates.
xxx (Emphasis supplied)
Just like VAS as defined under the PTA, special features are also not ordinarily
provided by the telephone company. Considering that MC No. 14-11-97 was
promulgated after the passage of the PTA, it can be assumed that the authors of the
Circular were well aware of the regulatory scheme formed under the PTA. Moreover,
MC No. 14-11-97 repeatedly invokes the word deregulation, and it cannot be denied
that the liberalization ethos was introduced by the PTA. Yet, the net effect of MC No. 1411-97 is to add to the haze beclouding the NTCs rationale for regulation. The
introduction of a new concept, special feature, which is not provided for in the PTA just
adds to the confusion, especially in light of the similarities between special features
and VAS. Moreover, there is no requirement that a PTE seeking to offer special
features must secure prior approval from the NTC.
Is SMS a VAS, enhanced service, or a special feature? Apparently, even the
NTC is unsure. It had told Islacom that SMS was a special feature, then subsequently
held that it was a VAS. However, the pertinent laws and regulations had not changed
from the time of the Islacom letter up to the day the Order was issued. Only the thinking
of NTC did.
More significantly, NTC never required ISLACOM to apply for prior approval in order
to provide SMS, even after the Order to that effect was promulgated against Globe and
Smart. This fact was admitted by NTC during oral arguments. NTCs treatment of
Islacom, apart from being obviously discriminatory, puts into question whether or not
NTC truly believes that SMS is VAS. NTC is unable to point out any subsequent rule or
regulation, enacted after it promulgated the adverse order against Globe and Smart,
affirming the newly-arrived determination that SMS is VAS.
[67]

In fact, as Smart admitted during the oral arguments, while it did comply with the
NTC Order requiring it to secure prior approval, it was never informed by the NTC of
any action on its request. While NTC counters that it did issue a Certificate of
Registration to Smart, authorizing the latter as a provider of SMS, such Certificate of
Registration was issued only on 13 March 2003, or nearly four (4) years after Smart had
made its request. This inaction indicates a lack of seriousness on the part of the NTC
to implement its own rulings. Also, it tends to indicate the lack of belief or confusion on
NTCs part as to how SMS should be treated. Given the abstract set of rules the NTC
has chosen to implement, this should come as no surprise. Yet no matter how content
[68]

[69]

the NTC may be with its attitude of sloth towards regulation, the effect may prove
ruinous to the sector it regulates.
Every party subject to administrative regulation deserves an opportunity to
know, through reasonable regulations promulgated by the agency, of the
objective standards that have to be met. Such rule is integral to due process, as it
protects substantive rights. Such rule also promotes harmony within the service or
industry subject to regulation. It provides indubitable opportunities to weed out the most
frivolous conflicts with minimum hassle, and certain footing in deciding more substantive
claims. If this results in a tenfold in administrative rules and regulations, such price is
worth paying if it also results in clarity and consistency in the operative rules of the
game. The administrative process will best be vindicated by clarity in its exercise.
[70]

In short, the legal basis invoked by NTC in claiming that SMS is VAS has not been
duly established. The fault falls squarely on NTC. With the dual classification of SMS as
a special feature and a VAS and the varying rules pertinent to each classification, NTC
has unnecessarily complicated the regulatory framework to the detriment of the industry
and the consumers. But does that translate to a finding that the NTC Order subjecting
Globe to prior approval is void? There is a fine line between professional mediocrity and
illegality. NTCs byzantine approach to SMS regulation is certainly inefficient.
Unfortunately for NTC, its actions have also transgressed due process in many ways,
as shown in the ensuing elucidation.
Penalized Via a Quasi-Judicial Process,
Globe and Smart are Entitled to
Corresponding Protections
It is essential to understand that the assailed Order was promulgated by NTC in the
exercise of its quasi-judicial functions. The case arose when Smart had filed the initial
complaint against Globe before NTC for interconnection of SMS. NTC issued a Show
Cause Order requiring Globe to answer Smarts charges. Hearings were conducted,
and a decision made on the merits, signed by the three Commissioners of the NTC,
sitting as a collegial body.
[71]

[72]

The initial controversy may have involved a different subject matter, interconnection,
which is no longer contested. It cannot be denied though that the findings and penalty
now assailed before us was premised on the same exercise of jurisdiction. Thus, it is
not relevant to this case that the process for obtaining prior approval under the PTA and
its Implementing Rules is administrative in nature. While this may be so, the assailed
NTCs determination and corresponding penalty were rendered in the exercise of quasijudicial functions. Therefore, all the requirements of due process attendant to the
exercise of quasi-judicial power apply to the present case. Among them are the seven
cardinal primary rights in justiciable cases before administrative tribunals, as
enumerated in Ang Tibay v. CIR. They are synthesized in a subsequent case, as
follows:
[73]

There are cardinal primary rights which must be respected even in proceedings of this character.
The first of these rights is the right to a hearing, which includes the right of the party interested
or affected to present his own case and submit evidence in support thereof. Not only must the
party be given an opportunity to present his case and to adduce evidence tending to establish the
rights which he asserts but the tribunal must consider the evidence presented. While the duty to
deliberate does not impose the obligation to decide right, it does imply a necessity which cannot
be disregarded, namely, that of having something to support its decision. Not only must there be
some evidence to support a finding or conclusion, but the evidence must be substantial. The
decision must be rendered on the evidence presented at the hearing, or at least contained in the
record and disclosed to the parties affected.
[74]

NTC violated several of these cardinal rights due Globe in the promulgation of the
assailed Order.
First. The NTC Order is not supported by substantial evidence. Neither does it
sufficiently explain the reasons for the decision rendered.
Our earlier discussion pertained to the lack of clear legal basis for classifying SMS
as VAS, owing to the failure of the NTC to adopt clear rules and regulations to that
effect. Muddled as the legal milieu governing SMS already is, NTCs attempt to apply its
confusing standards in the case of Globe and Smart is even more disconcerting. The
very rationale adopted by the NTC in its Order holding that SMS is VAS is short and
shoddy. Astoundingly, the Court of Appeals affirmed the rationale bereft of intelligent
inquiry, much less comment. Stated in full, the relevant portion of the NTC Order reads:
xxx Getting down [to] the nitty-gritty, Globes SMS involves the transmission of data over its
CMTS which is Globes basic service. SMS is not ordinarily provided by a CMTS operator like
Globe, and since SMS enhances Globes CMTS, SMS fits in to a nicety [sic] with the
definition of value-added-service or enhanced-service under NTC Memorandum Circular
[8]-9-95 (Rule 001, Item [15]).
[75]

The Court usually accords great respect to the technical findings of administrative
agencies in the fields of their expertise, even if they are infelicitously worded. However,
the above-quoted finding is nothing more than bare assertions, unsupported by
substantial evidence. The Order reveals that no deep inquiry was made as to the
nature of SMS or what its provisioning entails. In fact, the Court is unable to find how
exactly does SMS fits into a nicety with NTC M.C. No. 8-9-95, which defines
enhanced services as analogous to format, media conversion, encryption, enhanced
security features, computer processing, and the like. The NTC merely notes that SMS
involves the transmission of data over [the] CMTS, a phraseology that evinces no
causal relation to the definition in M.C. No. 8-9-95. Neither did the NTC endeavor to
explain why the transmission of data necessarily classifies SMS as a VAS.
[76]

[77]

In fact, if the transmission of data over [the] CMTS is to be reckoned as the

determinative characteristic of SMS, it would seem that this is already sufficiently
covered by Globe and Smarts respective legislative franchises. Smart is authorized
under
its
legislative
franchise
to
establish
and
operate
integrated
telecommunications/computer/ electronic services for public domestic and international
[78]

communications, while Globe is empowered to establish and operate domestic

telecommunications, and stations for transmission and reception of messages by
means of electricity, electromagnetic waves or any kind of energy, force, variations or
impulses, whether conveyed by wires, radiated through space or transmitted through
other media and for the handling of any and all types of telecommunications services.
[79]

[80]

The question of the proper legal classification of VAS is uniquely technical, tied as
at is to the scientific and technological application of the service or feature. Owing to
the dearth of substantive technical findings and data from the NTC on which a judicial
review may reasonably be premised, it is not opportunely proper for the Court to make
its own technical evaluation of VAS, especially in relation to SMS. Judicial fact-finding
of the de novo kind is generally abhorred and the shift of decisional responsibility to the
judiciary is not favored as against the substantiated and specialized determination of
administrative agencies. With greater reason should this be the standard for the
exercise of judicial review when the administrative agency concerned has not in the first
place come out with a technical finding based on evidence, as in this case.
[81]

Yet at the same time, this absence of substantial evidence in support of the finding
that SMS is VAS already renders reversible that portion of the NTC Order.
Moreover, the Order does not explain why the NTC was according the VAS
offerings of Globe and Smart a different regulatory treatment from that of Islacom.
Indeed, to this day, NTC has not offered any sensible explanation why Islacom was
accorded to a less onerous regulatory requirement, nor have they compelled Islacom to
suffer the same burdens as Globe and Smart.
While stability in the law, particularly in the business field, is desirable, there is no
demand that the NTC slavishly follow precedent. However, we think it essential, for
the sake of clarity and intellectual honesty, that if an administrative agency
decides inconsistently with previous action, that it explain thoroughly why a
different result is warranted, or if need be, why the previous standards should no
longer apply or should be overturned. Such explanation is warranted in order to
sufficiently establish a decision as having rational basis. Any inconsistent
decision lacking thorough, ratiocination in support may be struck down as being
arbitrary. And any decision with absolutely nothing to support it is a nullity.
[82]

[83]

[84]

[85]

Second. Globe and Smart were denied opportunity to present evidence on the
issues relating to the nature of VAS and the prior approval.
Another disturbing circumstance attending this petition is that until the promulgation
of the assailed Order Globe and Smart were never informed of the fact that their
operation of SMS without prior authority was at all an issue for consideration. As a
result, neither Globe or Smart was afforded an opportunity to present evidence in their
behalf on that point.
NTC asserts that since Globe and Smart were required to submit their respective
Certificates of Public Convenience and Necessity and franchises, the parties were
sufficiently notified that the authority to operate such service was a matter which NTC
could look into. This is wrong-headed considering the governing law and regulations. It
is clear that before NTC could penalize Globe and Smart for unauthorized provision of

SMS, it must first establish that SMS is VAS. Since there was no express rule or
regulation on that question, Globe and Smart would be well within reason if they
submitted evidence to establish that SMS was not VAS. Unfortunately, no such
opportunity arose and no such arguments were raised simply because Globe and Smart
were not aware that the question of their authority to provide SMS was an issue at all.
Neither could it be said that the requisite of prior authority was indubitable under the
existing rules and regulations. Considering the prior treatment towards Islacom, Globe
(and Smart, had it chosen to do so) had every right to rely on NTCs disposal of
Islacoms initiative and to believe that prior approval was not necessary.
Neither was the matter ever raised during the hearings conducted by NTC on
Smarts petition. This claim has been repeatedly invoked by Globe. It is borne out by
the records or the absence thereof. NTC could have easily rebuffed this claim by
pointing to a definitive record. Yet strikingly, NTC has not asserted that the matter of
Globes authority was raised in any pleading or proceeding. In fact, Globe in
its Consolidated Reply before this Court challenged NTC to produce the transcripts of
the hearings it conducted to prove that the issue of Globes authority to provide SMS
was put in issue. The Court similarly ordered the NTC to produce such transcripts.
NTC failed to produce any.
[86]

[87]

The opportunity to adduce evidence is essential in the administrative process, as

decisions must be rendered on the evidence presented, either in the hearing, or at least
contained in the record and disclosed to the parties affected. The requirement that
agencies hold hearings in which parties affected by the agencys action can be
represented by counsel may be viewed as an effort to regularize this struggle for
advantage within a legislative adversary framework. It necessarily follows that if no
evidence is procured pertinent to a particular issue, any eventual resolution of that issue
on substantive grounds despite the absence of evidence is flawed. Moreover, if the
parties did have evidence to counter the ruling but were wrongfully denied the
opportunity to offer the evidence, the result would be embarrassing on the adjudicator.
[88]

[89]

Thus, the comical, though expected, result of a definitive order which is totally
unsupported by evidence. To this blatant violation of due process, this Court stands
athwart.
Third. The imposition of fine is void for violation of due process
The matter of whether NTC could have imposed the fine on Globe in the
assailed Order is necessarily related to due process considerations. Since this question
would also call to fore the relevant provisions of the Public Service Act, it deserves its
own extensive discussion.
Globe claims that the issue of its authority to operate SMS services was never
raised as an issue in the Complaint filed against it by Smart. Nor did NTC ever require
Globe to justify its authority to operate SMS services before the issuance of
the Order imposing the fine.
The Court of Appeals, in its assailed decision, upheld the power of NTC to impose a
fine and to make a pronouncement on Globes alleged lack of operational authority
without need of hearing, simply by citing the provision of the Public Service Act which
[90]

enumerates the instances when NTC may act motu proprio. That is Section 17,
paragraph (a), which reads thus:
Sec. 17. Proceedings of [the National Telecommunications Commission] without previous
hearing. The Commission shall have power, without previous hearing, subject to established
limitations and exceptions and saving provisions to the contrary:
(a) To investigate, upon its own initiative, or upon complaint in writing, any matter concerning
any public service as regards matters under its jurisdiction; to require any public service to
furnish safe, adequate, and proper service as the public interest may require and warrant; to
enforce compliance with any standard, rule, regulation, order or other requirement of this Act or
of the Commission, and to prohibit or prevent any public service as herein defined from
operating without having first secured a certificate of public convenience or public necessity and
convenience, as the case may be, and require existing public services to pay the fees provided for
in this Act for the issuance of the proper certificate of public convenience or certificate of public
necessity and convenience, as the case may be, under the penalty, in the discretion of the
Commission, of the revocation and cancellation of any acquired rights.
On the other hand, NTC itself, in the Order, cites Section 21 as the basis for its
imposition of fine on Globe. The provision states:
Sec. 21. Every public service violating or failing to comply with the terms and conditions of any
certificate or any orders, decisions or regulations of the Commission shall be subject to a fine of
not exceeding two hundred pesos per day for every day during which such default or violation
continues; and the Commission is hereby authorized and empowered to impose such fine, after
due notice and hearing. [Emphasis supplied.]
Sections 17 and 21 of the Public Service Act confer two distinct powers on NTC.
Under Section 17, NTC has the power to investigate a PTE compliance with a standard,
rule, regulation, order, or other requirement imposed by law or the regulations
promulgated by NTC, as well as require compliance if necessary. By the explicit
language of the provision, NTC may exercise the power without need of prior hearing.
However, Section 17 does not include the power to impose fine in its enumeration. It is
Section 21 which adverts to the power to impose fine and in the same breath requires
that the power may be exercised only after notice and hearing.
Section 21 requires notice and hearing because fine is a sanction, regulatory and
even punitive in character. Indeed, the requirement is the essence of due process.
Notice and hearing are the bulwark of administrative due process, the right to which is
among the primary rights that must be respected even in administrative proceedings.
The right is guaranteed by the Constitution itself and does not need legislative
enactment. The statutory affirmation of the requirement serves merely to enhance the
fundamental precept. The right to notice and hearing is essential to due process and its
non-observance will, as a rule, invalidate the administrative proceedings.
[91]

[92]

In citing Section 21 as the basis of the fine, NTC effectively concedes the necessity
of prior notice and hearing. Yet the agency contends that the sanction was justified by

arguing that when it took cognizance of Smarts complaint for interconnection, it may
very well look into the issue of whether the parties had the requisite authority to operate
such services. As a result, both parties were sufficiently notified that this was a matter
that NTC could look into in the course of the proceedings. The parties subsequently
attended at least five hearings presided by NTC.
[93]

[94]

That particular argument of the NTC has been previously disposed of. But it is
essential to emphasize the need for a hearing before a fine may be imposed, as it is
clearly a punitive measure undertaken by an administrative agency in the exercise of its
quasi-judicial functions. Inherently, notice and hearing are indispensable for the valid
exercise by an administrative agency of its quasi-judicial functions. As the Court held
in Central Bank of the Phil. v. Hon. Cloribel:
[95]

[T]he necessity of notice and hearing in an administrative proceeding depends on the character of
the proceeding and the circumstances involved. In so far as generalization is possible in view of
the great variety of administrative proceedings, it may be stated as a general rule that notice and
hearing are not essential to the validity of administrative action where the administrative body
acts in the exercise of executive, administrative, or legislative functions; but where a public
administrative body acts in a judicial or quasi-judicial matter, and its acts are particular and
immediate rather than general and prospective, the person whose rights or property may be
affected by the action is entitled to notice and hearing.
[96]

The requirement of notice and hearing becomes even more imperative if the statute
itself demands it, as in the case of Section 21 of the Public Service Act.
As earlier stated, the Court is convinced that prior to the promulgation of the
assailed Order Globe was never notified that its authority to operate SMS was put in
issue. There is an established procedure within NTC that provides for the steps that
should be undertaken before an entity such as Globe could be subjected to a
disciplinary measure. Section 1, Rule 10 of the NTC Rules of Procedure provides that
any action, the object of which is to subject a holder of a certificate of public
convenience or authorization, or any person operating without authority from NTC, to
any penalty or a disciplinary or other measure shall be commenced by the filing of a
complaint. Further, the complaint should state, whenever practicable, the provisions of
law or regulation violated, and the acts or omissions complained of as constituting the
offense. While a complaint was indeed filed against Globe by Smart, the lack of
Globes authority to operate SMS was not raised in the Complaint, solely predicated as
it was on Globes refusal to interconnect with Smart.
[97]

[98]

Under the NTC Rules of Procedure, NTC is to serve a Show Cause Order on the
respondent to the complaint, containing therein a statement of the particulars and
matters concerning which the Commission is inquiring and the reasons for such
actions. The Show Cause Order served on Globe in this case gave notice of Smarts
charge that Globe, acting in bad faith and contrary to law, refused to allow the
interconnection of their respective SMS systems. Again, the lack of authority to
operate SMS was not adverted to in NTCs Show Cause Order.
[99]

[100]

The records also indicate that the issue of Globes authority was never raised in the
subsequent hearings on Smarts complaint. Quite noticeably, the respondents
themselves have never asserted that the matter of Globes authority was raised in any
pleading or proceeding. In fact, Globe in its Consolidated Reply before this Court
challenged NTC to produce the transcripts of the hearings it conducted to prove that the
issue of Globes authority to provide SMS was put in issue. It did not produce any
transcript.
Being an agency of the government, NTC should, at all times, maintain a due
regard for the constitutional rights of party litigants. In this case, NTC blindsided Globe
with a punitive measure for a reason Globe was not made aware of, and in a manner
that contravened express provisions of law. Consequently, the fine imposed by NTC on
Globe is also invalid. Otherwise put, since the very basis for the fine was invalidly laid,
the fine is necessarily void.
[101]

Conclusion
In summary: (i) there is no legal basis under the PTA or the memorandum circulars
promulgated by the NTC to denominate SMS as VAS, and any subsequent
determination by the NTC on whether SMS is VAS should be made with proper regard
for due process and in conformity with the PTA; (ii) the assailed Order violates due
process for failure to sufficiently explain the reason for the decision rendered, for being
unsupported by substantial evidence, and for imputing violation to, and issuing a
corresponding fine on, Globe despite the absence of due notice and hearing which
would have afforded Globe the right to present evidence on its behalf.
Thus, the Order effectively discriminatory and arbitrary as it is, was issued with
grave abuse of discretion and it must be set aside. NTC may not legally require Globe
to secure its approval for Globe to continue providing SMS. This does not imply though
that NTC lacks authority to regulate SMS or to classify it as VAS. However, the move
should be implemented properly, through unequivocal regulations applicable to all
entities that are similarly situated, and in an even-handed manner.
Concurrently, the Court realizes that the PTA is not intended to constrain the
industry within a cumbersome regulatory regime. The policy as pre-ordained by
legislative fiat renders the traditionally regimented business in an elementary free state
to make business decisions, avowing that it is under this atmosphere that the industry
would prosper. It is disappointing at least if the deregulation thrust of the law is skirted
deliberately. But it is ignominious if the spirit is defeated through a crazy quilt of vague,
overlapping rules that are implemented haphazardly.
[102]

[103]

By no means should this Decision be interpreted as removing SMS from the ambit
of jurisdiction and review by the NTC. The issue before the Court is only the prior
approval requirement as imposed on Globe and Smart. The NTC will continue to
exercise, by way of its broad grant, jurisdiction over Globe and Smarts SMS offerings,
including questions of rates and customer complaints. Yet caution must be had. Much
complication could have been avoided had the NTC adopted a proactive position,

promulgating the necessary rules and regulations to cope up with the advent of the
technologies it superintends. With the persistent advent of new offerings in the
telecommunications industry, the NTCs role will become more crucial than at any time
before. If NTCs behavior in the present case is but indicative of a malaise pervading
this crucial regulatory arm of the State, the Court fears the resultant confusion within the
industry and the consuming public. The credibility of an administrative agency entrusted
with specialized fields subsists not on judicial doctrine alone, but more so on its
intellectual strength, adherence to law, and basic fairness.
WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals
dated 22 November 1999, as well as its Resolution dated 29 July 2000, and the
assailed Order of the NTC dated 19 July 1999 are hereby SET ASIDE. No cost.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.

[1]

Boiser v. Court of Appeals, G.R. No. L-61438, 24 June 1983, 122 SCRA 945, 956.

[2]

See K. Middleton, R. Trager & B. Chamberlin, The Law of Public Communication 5th ed., 578
(2001), citing 47 U.S.C. secs. 201, 202. See also Section 13 (b), Public Service Act, as amended
(1936). But seenote 4.

[3]

See Section 13(b), Public Service Act, as amended. (1936)

[4]

In a recent speech, US Federal Communications Commission (FCC) Commissioner Kathleen Q.

Abernathy noted that after federal oversight over the wireless industry was granted to the FCC
under the Communications Act in 1993, the FCC was faced with the choice of imposing strict
common carrier regulations on incumbent cellular providers based on their supposed
entrenchment, thus mandating for example, price regulation, service quality controls and
mandated certain technologies. Instead, the FCC went the other direction, opting for less
government regulation to allow for market forces to dictate pricing and service
mandates. See Fifth Annual Midwestern Telecommunications Conference Keynote Address of
FCC
Commissioner
Kathleen
Q.
Abernathy,
Milwauke
WS

May
10,
2002 atwww.fcc.gov/Speeches/Abernathy/2002/spkqa211.html (Visited 28 June 2004).

[5]

See III RECORD OF THE SENATE No. 50, p. 810. The sponsorship remarks of Congressman Jerome
Paras, another principal author of the law, are in the same vein: The guiding principle of the
abovementioned bill is to liberalize the telecommunications industry in order to meet unmet
demand. It is the objective of this bill to promote competition in the telecommunications market.
This will allow the Philippines to be part of the worldwide information highway. During the recent
decade, irreversible forces have begun to change the telecommunications environment.
Technology has led to the development of new services and has enabled alternative providers to
offer those services economically. As business has come to recognize the importance of
telecommunications as a strategic tool, business users have become more sophisticated and
more demanding in their request for services. Both technological forces and consumer demand
are pushing toward a competitive approach to the provision of services. (Records of the House
of Representatives of 5 December 1994, p. 3)

[6]

Art. II, Sec. 4, par. (f), Rep. Act No. 7925.

[7]

Art. II, Sec. 4, par. (b), Rep. Act No. 7925.

[8]

SMS is the technology that allows the transmission and receipt of text messages to and from mobile
telephones, personal digital assistants and personal computers. It is a type of Instant Messaging
communications service and it enables users to exchange messages in real time with other
users. It was created as part of the GSM (Global System for Mobile Communication) Phase 1
standard. SeeSMS An Introduction, at http://www.ewh.ieee.org/r10/bombay/news6/
SMSAndMMS/SMS.htm (Last visited 23 April 2004) It first appeared on the wireless scene in
1991 in Europe, where digital wireless technology first took root. The European standard for
digital wireless, now known as the GSM, included SMS from the outset. See Wireless Short
Message Service (SMS), at http://www.iec.org(Last visited 24 April 2004).

[9]

See e.g., China Banking Corp. v. Court of Appeals, 337 Phil. 223, 235 (1997).

[10]

Administrative agencies threaten this system of safeguards [of separation of powers within
government] by combining powers in ways that threaten to short-circuit the checks relied upon by
Madison. xxx Because agency decisionmaking is not highly visible and is not directly subject to
the electoral check, there is a danger that the redistributive authority of agencies will be exercised
in favor of a limited group of organized interests with a special stake in an agencys policies. S.
Breyer & R. Stewart, Administrative Law and Regulatory Policy 105 (1979). Co-author Stephen
Breyer, who currently sits in the United States Supreme Court, is recognized as one of the
preeminent experts in Administrative Law in the United States.

[11]

Universal Camera Corp. v. NLRB, 340 U.S. 474 (1951).

[12]

Judicial review of the decision of an administrative official is of course subject to certain guideposts
laid down in many decided cases. Thus, for instance, findings of fact in such decision should not
be disturbed if supported by substantial evidence; but review is justified when there has been a
denial of due process, or mistake of law, or fraud, collusion or arbitrary action in the administrative
proceeding. Atlas Cement Corp, v. Hon. Gozon, et al., 127 Phil. 271, 279 (1967).

[13]

Smarts franchise is covered by Rep. Act No. 7294 (1992), while Globes franchise is ordained in Rep.
Act No. 7229 (1992).

[14]

Rollo, p. 149.

[15]

Ibid.

[16]

Docketed as NTC Case No. 99-047. See Rollo, p. 36.

[17]

Rollo, pp. 149-150.

[18]

Id. at 152.

[19]

Section 6 of NTC Memorandum Circular 9-7-93 requires that the NTC can only intervene [s]hould
parties fail to reach an agreement in ninety (90) days from the start of negotiations in accordance
with Section 6.1.3 Article II hereof. The start of negotiations is in turn explicitly defined in the
same Memorandum Circular as being from the time the party requesting interconnection shall
have submitted to the other party the complete data or information required elsewhere in the
Memorandum Circular. Globe alleges that Smart admits to not having complied with these
conditions precedent. (Rollo, p. 37.)

[20]

Rollo, p. 37.

[21]

Id. at 83.

[22]

Id. at 86. Particularly, Smart was faulted for its failure to resubmit the voluminous documents which it
had already previously submitted to Globe in relation to previous interconnections, considering
that all Smart would have to do would be to reproduce said documents. On the other hand, Globe
was faulted for insisting on the submission of these voluminous documents, and yet in the same
breath, claiming that the SMS service is not a value-added-service and thus not covered by the
mandatory interconnection requirement. Id. at 84-85.

[23]

Section 5 of E.O. No. 59 provides: Interconnection shall be mandatory with regard to connecting other
telecommunications services such as but not limited to value-added services of radio paging,
trunking radio, store and forward systems of facsimile or messaging (voice or data), packet
switching and circuit data switching (including the conveyance of messages which have been or
are to be transmitted or received at such points of connection), information and other services as
the NTC may determine to be in the interest of the public and in the attainment of the objective of
a universally accessible, fully integrated nationwide telecommunications network.

[24]

Rollo, p. 87.

[25]

Docketed as CA-G.R. SP No. 54262.

[26]

Rollo, p. 40.

[27]

Id. at 43.

[28]

Rollo, p. 67.

[29]

Justice A. Tuquero penned the decision, which was concurred in by Justices B. L. Salas and E.J. S.
Asuncion.

[30]

Ibid.

[31]

Rollo, p. 89.

[32]

Smart, on the other hand, filed an application with the NTC on 22 July 1999, seeking authorization to
operate SMS services. NTC Records, pp. 8-12.

[33]

In a Resolution dated 29 July 2000.

[34]

Commonwealth Act No. 146, as amended. The provisions of the Public Service Act, as amended,
govern the National Telecommunications Commission. As explained in Radio Communications of
the Philippines, Inc. v. National Telecommunications Commission, G.R. No. L-68729, 29 May
1987, 150 SCRA 455; Pursuant to Presidential Decree No. 1 dated September 23, 1972,
reorganizing the executive branch of the National Government, the Public Service Commission
was abolished and its functions were transferred to three specialized regulatory boards, as
follows: the Board of Transportation, the Board of Communications and the Board of Power and
Waterworks. The functions so transferred were still subject to the limitations provided in sections
14 and 15 of the Public Service Law, as amended. With the enactment of Executive Order No.
546 on July 23, 1979 implementing P.D. No. 1, the Board of Communications and the
Telecommunications Control Bureau were abolished and their functions were transferred to the
National Telecommunications Commission (Sec. 19(d), Executive Order No. 546). See also
Republic v. Express Telecommunication Co., Inc. , G.R. No. 147096, 15 January 2002, 373 SCRA
316, 334.

[35]

See Memorandum for Smart Communications, Inc., pp. 17-19.

[36]

TSN dated 22 March 2004, p. 1.

[37]

Pilipino Telephone Corporation v. NTC, G.R. No. 138295, 28 August 2003, citing Bernardo v. Abalos
Sr., G.R. No. 137266, 5 December 2001, 371 SCRA 459.

[38]

Specifically, Globe asserted that the Order was issued without jurisdiction or with grave abuse of
discretion amounting to lack of jurisdiction, the Order was a patent nullity, that the deprivation of
due process rendered the proceedings as nullity, and that motion for reconsideration was a
useless and inutile or idle ceremony, and that the issue raised was one purely of law. Rollo, pp.
175-176.

[39]

See Rollo, p. 22.

[40]

Supra, note 26.

[41]

The Court has ruled that a motion for reconsideration may be dispensed with prior to commencement
of an action for certiorari where the decision is a patent nullity or where petitioner was deprived of
due process. PNCC v. NLRC, et al., G.R. No. 103670, 10 July 1998, 292 SCRA 266, 271.

[42]

See NFSW v. Ovejera, No. L-59743, 31 May 1982, 114 SCRA 354, 363; Filoteo, Jr. v. Sandiganbayan,
G.R. No. 79543, 331 Phil. 539, 569 (1996.

[43]

During legislative deliberations, Congressman Paras clarified that the deregulation contemplated in the
Public PTA was insofar as pricing and operating modalities are concerned Records of the House
of Representatives of 6 December 1994, p.2.

[44]

Captioned, Deregulating the Provision of Special Features in the Telephone Network.

[45]

Rollo, p. 60.

[46]

See Rep. Act No. 7925 (1994), art I, sec. 2. Article I, Section 3 of the PTA defines a public
telecommunications entity as any person, firm, partnership or corporation, government or private,
engaged in the provision of telecommunications services to the public for compensation.

[47]

Id., art. VI, sec. 18.

[48]

Id., article IV, Sec. 7. There are six telecommunications categories provided for in the PTA. They are
local exchange operator, inter-exchange carrier, international carrier, value-added service
provider, mobile radio services, and radio paging systems. Id., art. IV.

[49]

Id., art. IV, secs. 10 and 12.

[50]

IV RECORD OF THE SENATE No. 73, p. 870.

[51]

Id., art. I, sec. 3(h).

[52]

Provided that it does not put its own network, a VAS provider need not secure a franchise. A VAS
provider shall be allowed to competitively offer its services and/or expertise, and lease or rent
telecommunications equipment and facilities necessary to provide such specialized services, in
the domestic and/or international market in accordance with network compatibility. Rep. Act No.
7925 (1994), art. IV, Sec. 11.

[53]

Id., art. IV, sec. 11.

[54]

See Edu v. Ericta, 146 Phil. 469, 485 (1970); Agustin v. Edu, G.R. No. L-49112 February 2, 1979; Free
Telephone Workers Union vs. MOLE, et al.; G.R. No. L-58184, 30 October 1981, 108 SCRA 757,
768; De La Llana v. Alba, G.R. No. 57883, 12 March 1982, 112 SCRA 292, 335; A standard thus
defines legislative policy, marks its limits, maps out its boundaries and specifies the public agency
to apply it. It indicates the circumstances under which the legislative command is to be effected. It
is the criterion by which legislative purpose may be carried out. Thereafter, the executive or
administrative office designated may in pursuance of the above guidelines promulgate
supplemental rules and regulations. Edu v. Ericta, id.

[55]

An eminent member of this Court enunciated the following test for valid delegation: "Although
Congress may delegate to another branch of the Government the power to fill details in the
execution, enforcement or administration of a law, it is essential, to forestall a violation of the
principle of separation of powers, that said law: (a) be complete in itself - it must set forth therein
the policy to be executed, carried out or implemented by the delegate - and (b) to fix a standard the limits of which are sufficiently determinate or determinable - to which the delegate must
conform in the performance of his functions. Indeed, without a statutory declaration of policy,
which is the essence of every law, and, without the aforementioned standard, there would be no
means to determine, with reasonable certainty, whether the delegate has acted within or beyond
the scope of his authority. J.Puno, concurring and dissenting, Defensor-Santiago v. COMELEC,
336 Phil. 848, 912; citing Pelaez v. Auditor General, 15 SCRA 569 (1965).

[56]

Section 5 of Rep. Act No. 7925 reads:

SEC.

5. Responsibilities of the National Telecommunications Commission. - The National

Telecommunications Commission (Commission) shall be the principal administrator of this Act
and as such shall take the necessary measures to implement the policies and objectives set forth
in this Act. xxx

[57]

Supra note 3.

[58]

Local exchange service refers to a telecommunications service, primarily but not limited to voice-tovoice service, within a contiguous geographic area furnished to individual See Sec. 1(c), E.O.
109 (1992).

[59]

Termed under E.O. 109 as universal access.

[60]

Section 4, E.O. 109.

[61]

Nor are they required to secure a legislative franchise. See Section 11, Rep. Act No. 7925.

[62]

Section 001 (15), MC No. 8-9-95.

[63]

Ibid.

[64]

The year the Implementing Rules was promulgated.

[65]

Rollo, p. 267.

[66]

Ibid.

[67]

See TSN dated 22 March, 2004, pp. 105, 134-135, 153.

[68]

TSN dated 22 March 2004, pp. 107-108.

[69]

Annex B to NTCs Memorandum.

[70]

Phelps Dodge Corp. v. Labor Board, 313 U.S. 177, 197.

[71]

NTC has jurisdiction to [M]andate a fair and reasonable interconnection of facilities of authorized public
network operators and other providers of telecommunications services. See Art. III, Section 5(c),
Rep. Act No. 7925.

[72]

See GMCR, Inc. v. Bell Telecommunications, Phils., Inc., 338 Phil. 507, 520 (1997).

[73]

69 Phil. 635 (1940).

[74]

National Development Co., et al. v. Coll. of Customs of Manila, 118 Phil. 1265, 1270-1271. (1963),
citing Ang Tibay v. CIR, id.

[75]

Rollo, p. 85. The cited paragraph actually refers to Memorandum Circular 9-9-95 (Rule 001, Item 16)
as providing for the definition of an enhanced service. However, Memorandum Circular No. 9-995 does not exist. It is Memorandum Circular 8-9-95 (Rule 001, Item 15) that defines what an
enhanced service is. We can reasonably presume that it is the latter circular that the NTC was
referring to in its assailed Order.

[76]

Substantial evidence is such relevant evidence as a reasonable mind might accept as adequate to
support a conclusion. Ang Tibay v. CIR, supra note 73.

[77]

Supra note 62.

[78]

As aptly noted by Senator J. Osmea in his sponsorship speech of the Public PTA; Because of the
mind-boggling developments in semiconductors, the traditional boundaries between computers,
telecommunications, and broadcasting are increasingly becoming blurred. Supra note 50.

[79]

Section 1, Rep. Act No. 7294 (1992).

[80]

Section 1, Rep. Act No. 4540, in relation to Section 1, Rep. Act No. 7229. The reason why the language
contained in Smarts legislative franchise sounds more modish is that it was drawn up in 1992,
while Globes franchise is the franchise issued to Clavecilla Radio System in 1965.

[81]

. . . de novo judicial fact-finding would destroy many of the reasons for creating administrative agencies
in the first place. Speedy and cheap administrative resolution of controversies would be
threatened. The capability of administrative agencies to draw specialized inferences based on
their experience would be lost. xxx Administrative agencies would become little more than
evidence gatherers, and most decisional responsibility would be shifted to the judiciary. S. Breyer
& R. Stewart, supra note 10, at 184.

[82]

See Philippine Trust Co. and Smith, Bell & Co. vs. Mitchell, 59 Phil. 30, 36 (1933); Osmea v.
COMELEC, G.R. No. 132231, 31 March 1998., 288 SCRA 447, 964.

[83]

While administrative agencies can change previously announced policies xxx and can fashion
exceptions and qualifications, they must explain departures from agency policies or rules
apparently dispositive of a case. xxx Brennan v. Gilles & Cotting, Inc., 504 F.2d 1255 (4 th Cir.
1974); as cited in Breyer & Stewart, supra note 10, at 353.

[84]

Patently inconsistent application of agency standards to similar situations lacks rationality and is
arbitrary. Contractors Transport Corp. v. U.S., 537 F.2d 1160 (4 th Cir. 1976), cited in Breyer &
Stewart,supra note 10, at 352.

[85]

Edwards v. McCoy, 22 Phil. 598; Ang Tibay v. C.I.R., 69 Phil. 635, 642; Bataan Shipyard Co. v. PCGG,
G.R. No. L-75885, 27 May 1987; 150 SCRA 181, 217.

[86]

TSN dated 22 March 2004, p. 155.

[87]

In a Manifestation and Motion dated 3 May 2004, the NTC manifested that the TSNs could no longer be
located. An affidavit executed by the Chief of the Secretariat Division of the NTC was attached,
attesting to the fact that the case folder of NTC Adm. Case No. 99-047 has been lost, and was
alleged to have been last seen in the possession of former Deputy Commissioner Aurelio M.
Umali. Interestingly, while the affidavit attests to the entries of the docket book with respect to the
said NTC Adm. Case, as well as the contents of the records previously submitted to this Court, no
mention whatsoever is made therein of any transcript to any hearing conducted by NTC on the
matter.

[88]

Air Manila, Inc. v. Balatbat, L-29064, 29 April 1971, 38 SCRA 489, 493; citing Garcia v. Executive
Secretary, 6 SCRA 1 (1962); Ang Tibay v. CIR, 69 Phil. 635.

[89]

S. Breyer & R. Stewart, supra note 10, at 105.

[90]

Rollo, p. 21.

[91]

Ang Tibay v. CIR, 65 Phil. 635 (1940).

[92]

Matuguina Integrated Wood Products, Inc. v. CA, 331 Phil. 795, 812 (1996).

[93]

Rollo, p. 334.

[94]

Ibid.

[95]

150-A Phil. 86, 102 (1972).

[96]

Ibid.

[97]

Rule 10, Section 3, NTC Rules of Procedure.

[98]

Rollo, pp. 148-150.

[99]

Rule 10, Section 4, NTC Rules of Procedure.

[100]

Rollo, p. 152.

[101]

Danan and Fernandez v. Aspillera and Galang, et al., 116 Phil. 921, 924 (1962).

[102]

The following remarks of Sen. J. Osmea in his sponsorship speech of the Public PTA bear noting;
Technology, for one, has radically changed the nature and scope of telecommunications. The
very reason for the States intervention in telecommunications has been altered. In many parts of
the world, the trend is toward deregulation; or more accurately, less meddling from the
bureaucratic hands has taken place. IV Record of the Senate No. 73, p. 870.

[103]

Primary reliance for this statement is premised on par.(f), Section 4 of the Public PTA. Supra note 24.
The same provision has been used to justify the exercise by the NTC of its regulatory powers,
albeit under different factual circumstances. See Pilipino Telephone Corporation v. NTC, G.R. No.
138295, 28 August 2003, citing Republic v. Express Telecommunications Co., Inc., G.R. No.
147096, 15 January 2002, 373 SCRA 316, both cases pertaining to the authority of the NTC to
issue provisional authority or certificates of public convenience and necessity. The discretionary
authority of the NTCvis--vis these licenses, is, of course, also explicitly provided for by the
statute. See Art. VI, Section 16, Public PTA. Apparently, the aforementioned para. (f) affirms at
the same time the due respect accorded PTEs in making business decisions and the authority of
the NTC to enforce the law. This is indicative of the judicious balance adopted by the law towards
state concerns and business concerns.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. 88404 October 18, 1990
PHILIPPINE LONG DISTANCE TELEPHONE CO. [PLDT], petitioner,
vs.
THE NATIONAL TELECOMMUNICATIONS COMMISSION AND CELLCOM, INC., (EXPRESS
TELECOMMUNICATIONS CO., INC. [ETCI]), respondents.
Alampan & Manhit Law Offices for petitioner.
Gozon, Fernandez, Defensor & Parel for private respondent.

MELENCIO-HERRERA, J.:
Petitioner Philippine Long Distance Telephone Company (PLDT) assails, by way of certiorari and
Prohibition under Rule 65, two (2) Orders of public respondent National Telecommunications
Commission (NTC), namely, the Order of 12 December 1988 granting private respondent Express
Telecommunications Co., Inc. (ETCI) provisional authority to install, operate and maintain a Cellular
Mobile Telephone System in Metro-Manila (Phase A) in accordance with specified conditions, and
the Order, dated 8 May 1988, denying reconsideration.
On 22 June 1958, Rep. Act No. 2090, was enacted, otherwise known as "An Act Granting Felix
Alberto and Company, Incorporated, a Franchise to Establish Radio Stations for Domestic and
Transoceanic Telecommunications." Felix Alberto & Co., Inc. (FACI) was the original corporate
name, which was changed to ETCI with the amendment of the Articles of Incorporation in 1964.
Much later, "CELLCOM, Inc." was the name sought to be adopted before the Securities and
Exchange Commission, but this was withdrawn and abandoned.
On 13 May 1987, alleging urgent public need, ETCI filed an application with public respondent NTC
(docketed as NTC Case No. 87-89) for the issuance of a Certificate of Public Convenience and
Necessity (CPCN) to construct, install, establish, operate and maintain a Cellular Mobile Telephone
System and an Alpha Numeric Paging System in Metro Manila and in the Southern Luzon regions,
with a prayer for provisional authority to operate Phase A of its proposal within Metro Manila.
PLDT filed an Opposition with a Motion to Dismiss, based primarily on the following grounds: (1)
ETCI is not capacitated or qualified under its legislative franchise to operate a systemwide telephone
or network of telephone service such as the one proposed in its application; (2) ETCI lacks the
facilities needed and indispensable to the successful operation of the proposed cellular mobile
telephone system; (3) PLDT has itself a pending application with NTC, Case No. 86-86, to install and
operate a Cellular Mobile Telephone System for domestic and international service not only in Manila
but also in the provinces and that under the "prior operator" or "protection of investment" doctrine,

PLDT has the priority or preference in the operation of such service; and (4) the provisional authority,
if granted, will result in needless, uneconomical and harmful duplication, among others.
In an Order, dated 12 November 1987, NTC overruled PLDT's Opposition and declared that Rep. Act
No. 2090 (1958) should be liberally construed as to include among the services under said franchise
the operation of a cellular mobile telephone service.
In the same Order, ETCI was required to submit the certificate of registration of its Articles of
Incorporation with the Securities and Exchange Commission, the present capital and ownership
structure of the company and such other evidence, oral or documentary, as may be necessary to
prove its legal, financial and technical capabilities as well as the economic justifications to warrant
the setting up of cellular mobile telephone and paging systems. The continuance of the hearings was
also directed.
After evaluating the reconsideration sought by PLDT, the NTC, in October 1988, maintained its ruling
that liberally construed, applicant's franchise carries with it the privilege to operate and maintain a
cellular mobile telephone service.
On 12 December 1988, NTC issued the first challenged Order. Opining that "public interest,
convenience and necessity further demand a second cellular mobile telephone service provider and
finds PRIMA FACIE evidence showing applicant's legal, financial and technical capabilities to provide
a cellular mobile service using the AMPS system," NTC granted ETCI provisional authority to install,
operate and maintain a cellular mobile telephone system initially in Metro Manila, Phase A only,
subject to the terms and conditions set forth in the same Order. One of the conditions prescribed
(Condition No. 5) was that, within ninety (90) days from date of the acceptance by ETCI of the terms
and conditions of the provisional authority, ETCI and PLDT "shall enter into an interconnection
agreement for the provision of adequate interconnection facilities between applicant's cellular mobile
telephone switch and the public switched telephone network and shall jointly submit such
interconnection agreement to the Commission for approval."
In a "Motion to Set Aside the Order" granting provisional authority, PLDT alleged essentially that the
interconnection ordered was in violation of due process and that the grant of provisional authority
was jurisdictionally and procedurally infirm. On 8 May 1989, NTC denied reconsideration and set the
date for continuation of the hearings on the main proceedings. This is the second questioned Order.
PLDT urges us now to annul the NTC Orders of 12 December 1988 and 8 May 1989 and to order
ETCI to desist from, suspend, and/or discontinue any and all acts intended for its implementation.
On 15 June 1989, we resolved to dismiss the petition for its failure to comply fully with the
requirements of Circular No. 1-88. Upon satisfactory showing, however, that there was, in fact, such
compliance, we reconsidered the order, reinstated the Petition, and required the respondents NTC
and ETCI to submit their respective Comments.
On 27 February 1990, we issued a Temporary Restraining Order enjoining NTC to "Cease and
Desist from all or any of its on-going proceedings and ETCI from continuing any and all acts
intended or related to or which will amount to the implementation/execution of its provisional
authority." This was upon PLDT's urgent manifestation that it had been served an NTC Order, dated
14 February 1990, directing immediate compliance with its Order of 12 December 1988, "otherwise

the Commission shall be constrained to take the necessary measures and bring to bear upon PLDT
the full sanctions provided by law."
We required PLDT to post a bond of P 5M. It has complied, with the statement that it was "post(ing)
the same on its agreement and/or consent to have the same forfeited in favor of Private Respondent
ETCI/CELLCOM should the instant Petition be dismissed for lack of merit." ETCI took exception to
the sufficiency of the bond considering its initial investment of approximately P 225M, but accepted
the forfeiture proferred.
ETCI moved to have the TRO lifted, which we denied on 6 March 1990. We stated, however, that the
inaugural ceremony ETCI had scheduled for that day could proceed, as the same was not covered
by the TRO.
PLDT relies on the following grounds for the issuance of the Writs prayed for:
1. Respondent NTC's subject order effectively licensed and/or authorized a corporate
entity without any franchise to operate a public utility, legislative or otherwise, to
establish and operate a telecommunications system.
2. The same order validated stock transactions of a public service enterprise contrary
to and/or in direct violation of Section 20(h) of the Public Service Act.
3. Respondent NTC adjudicated in the same order a controverted matter that was
not heard at all in the proceedings under which it was promulgated.
As correctly pointed out by respondents, this being a special civil action for certiorari and Prohibition,
we only need determine if NTC acted without jurisdiction or with grave abuse of discretion amounting
to lack or excess of jurisdiction in granting provisional authority to ETCI under the NTC questioned
Orders of 12 December 1988 and 8 May 1989.
The case was set for oral argument on 21 August 1990 with the parties directed to address, but not
limited to, the following issues: (1) the status and coverage of Rep. Act No. 2090 as a franchise; (2)
the transfer of shares of stock of a corporation holding a CPCN; and (3) the principle and procedure
of interconnection. The parties were thereafter required to submit their respective Memoranda, with
which they have complied.
We find no grave abuse of discretion on the part of NTC, upon the following considerations:
1. NTC Jurisdiction
There can be no question that the NTC is the regulatory agency of the national government with
jurisdiction over all telecommunications entities. It is legally clothed with authority and given ample
discretion to grant a provisional permit or authority. In fact, NTC may, on its own initiative, grant such
relief even in the absence of a motion from an applicant.
Sec. 3. Provisional Relief. Upon the filing of an application, complaint or petition or
at any stage thereafter, the Board may grant on motion of the pleaders or on its own
initiative, the relief prayed for, based on the pleading, together with the affidavits and

supporting documents attached thereto, without prejudice to a final decision after

completion of the hearing which shall be called within thirty (30) days from grant of
authority asked for. (Rule 15, Rules of Practice and Procedure Before the Board of
Communications (now NTC).
What the NTC granted was such a provisional authority, with a definite expiry period of eighteen (18)
months unless sooner renewed, and which may be revoked, amended or revised by the NTC. It is
also limited to Metro Manila only. What is more, the main proceedings are clearly to continue as
stated in the NTC Order of 8 May 1989.
The provisional authority was issued after due hearing, reception of evidence and evaluation thereof,
with the hearings attended by various oppositors, including PLDT. It was granted only after a prima
facie showing that ETCI has the necessary legal, financial and technical capabilities and that public
interest, convenience and necessity so demanded.
PLDT argues, however, that a provisional authority is nothing short of a Certificate of Public
Convenience and Necessity (CPCN) and that it is merely a "distinction without a difference." That is
not so. Basic differences do exist, which need not be elaborated on. What should be borne in mind is
that provisional authority would be meaningless if the grantee were not allowed to operate.
Moreover, it is clear from the very Order of 12 December 1988 itself that its scope is limited only to
the first phase, out of four, of the proposed nationwide telephone system. The installation and
operation of an alpha numeric paging system was not authorized. The provisional authority is not
exclusive. Its lifetime is limited and may be revoked by the NTC at any time in accordance with law.
The initial expenditure of P130M more or less, is rendered necessary even under a provisional
authority to enable ETCI to prove its capability. And as pointed out by the Solicitor General, on behalf
of the NTC, if what had been granted were a CPCN, it would constitute a final order or award
reviewable only by ordinary appeal to the Court of Appeals pursuant to Section 9(3) of BP Blg. 129,
and not by certiorari before this Court.
The final outcome of the application rests within the exclusive prerogative of the NTC. Whether or
not a CPCN would eventually issue would depend on the evidence to be presented during the
hearings still to be conducted, and only after a full evaluation of the proof thus presented.
2. The Coverage of ETCI's Franchise
Rep. Act No. 2090 grants ETCI (formerly FACI) "the right and privilege of constructing, installing,
establishing and operating in the entire Philippines radio stations for reception and transmission of
messages on radio stations in the foreign and domestic public fixed point-to-point and public base,
aeronautical and land mobile stations, ... with the corresponding relay stations for the reception and
transmission of wireless messages on radiotelegraphy and/or radiotelephony ...." PLDT maintains
that the scope of the franchise is limited to "radio stations" and excludes telephone services such as
the establishment of the proposed Cellular Mobile Telephone System (CMTS). However, in its Order
of 12 November 1987, the NTC construed the technical term "radiotelephony" liberally as to include
the operation of a cellular mobile telephone system. It said:
In resolving the said issue, the Commission takes into consideration the different
definitions of the term "radiotelephony." As defined by the New International Webster
Dictionary the term "radiotelephony" is defined as a telephone carried on by aid of
radiowaves without connecting wires. The International Telecommunications Union

(ITU) defines a "radiotelephone call" as a "telephone call, originating in or intended

on all or part of its route over the radio communications channels of the mobile
service or of the mobile satellite service." From the above definitions, while under
Republic Act 2090 a system-wide telephone or network of telephone service by
means of connecting wires may not have been contemplated, it can be construed
liberally that the operation of a cellular mobile telephone service which carries
messages, either voice or record, with the aid of radiowaves or a part of its route
carried over radio communication channels, is one included among the services
under said franchise for which a certificate of public convenience and necessity may
be applied for.
The foregoing is the construction given by an administrative agency possessed of the necessary
special knowledge, expertise and experience and deserves great weight and respect (Asturias
Sugar Central, Inc. v. Commissioner of Customs, et al., L-19337, September 30, 1969, 29 SCRA
617). It can only be set aside on proof of gross abuse of discretion, fraud, or error of law (Tupas
Local Chapter No. 979 v. NLRC, et al., L-60532-33, November 5, 1985, 139 SCRA 478). We discern
none of those considerations sufficient to warrant judicial intervention.
3. The Status of ETCI Franchise
PLDT alleges that the ETCI franchise had lapsed into nonexistence for failure of the franchise holder
to begin and complete construction of the radio system authorized under the franchise as explicitly
required in Section 4 of its franchise, Rep. Act No. 2090. 1 PLDT also invokes Pres. Decree No. 36,
enacted on 2 November 1972, which legislates the mandatory cancellation or invalidation of all franchises
for the operation of communications services, which have not been availed of or used by the party or
parties in whose name they were issued.
However, whether or not ETCI, and before it FACI, in contravention of its franchise, started the first
of its radio telecommunication stations within (2) years from the grant of its franchise and completed
the construction within ten (10) years from said date; and whether or not its franchise had remained
unused from the time of its issuance, are questions of fact beyond the province of this Court, besides
the well-settled procedural consideration that factual issues are not subjects of a special civil action
for certiorari (Central Bank of the Philippines vs. Court of Appeals, G.R. No. 41859, 8 March 1989,
171 SCRA 49; Ygay vs. Escareal, G.R. No. 44189, 8 February 1985, 135 SCRA 78; Filipino
Merchant's Insurance Co., Inc. vs. Intermediate Appellate Court, G.R. No. 71640, 27 June 1988, 162
SCRA 669). Moreover, neither Section 4, Rep. Act No. 2090 nor Pres. Decree No. 36 should be
construed as self-executing in working a forfeiture. Franchise holders should be given an opportunity
to be heard, particularly so, where, as in this case, ETCI does not admit any breach, in consonance
with the rudiments of fair play. Thus, the factual situation of this case differs from that in Angeles Ry
Co. vs. City of Los Angeles (92 Pacific Reporter 490) cited by PLDT, where the grantee therein
admitted its failure to complete the conditions of its franchise and yet insisted on a decree of
forfeiture.
More importantly, PLDT's allegation partakes of a Collateral attack on a franchise Rep. Act No.
2090), which is not allowed. A franchise is a property right and cannot be revoked or forfeited without
due process of law. The determination of the right to the exercise of a franchise, or whether the right
to enjoy such privilege has been forfeited by non-user, is more properly the subject of the
prerogative writ of quo warranto, the right to assert which, as a rule, belongs to the State "upon
complaint or otherwise" (Sections 1, 2 and 3, Rule 66, Rules of Court), 2 the reason being that the

abuse of a franchise is a public wrong and not a private injury. A forfeiture of a franchise will have to be
declared in a direct proceeding for the purpose brought by the State because a franchise is granted by
law and its unlawful exercise is primarily a concern of Government.

A ... franchise is ... granted by law, and its ... unlawful exercise is the concern
primarily of the Government. Hence, the latter as a rule is the party called upon to
bring the action for such ... unlawful exercise of franchise. (IV-B V. FRANCISCO, 298
[1963 ed.], citing Cruz vs. Ramos, 84 Phil. 226).
4. ETCI's Stock Transactions
ETCI admits that in 1964, the Albertos, as original owners of more than 40% of the outstanding
capital stock sold their holdings to the Orbes. In 1968, the Albertos re-acquired the shares they had
sold to the Orbes. In 1987, the Albertos sold more than 40% of their shares to Horacio Yalung.
Thereafter, the present stockholders acquired their ETCI shares. Moreover, in 1964, ETCI had
increased its capital stock from P40,000.00 to P360,000.00; and in 1987, from P360,000.00 to
P40M.
PLDT contends that the transfers in 1987 of the shares of stock to the new
stockholders amount to a transfer of ETCI's franchise, which needs Congressional
approval pursuant to Rep. Act No. 2090, and since such approval had not been
obtained, ETCI's franchise had been invalidated. The provision relied on reads, in
part, as follows:
SECTION 10. The grantee shall not lease, transfer, grant the usufruct of, sell or
assign this franchise nor the rights and privileges acquired thereunder to any person,
firm, company, corporation or other commercial or legal entity nor merge with any
other person, company or corporation organized for the same purpose, without the
approval of the Congress of the Philippines first had. ...
It should be noted, however, that the foregoing provision is, directed to the "grantee" of the franchise,
which is the corporation itself and refers to a sale, lease, or assignment of that franchise. It does not
include the transfer or sale of shares of stock of a corporation by the latter's stockholders.
The sale of shares of stock of a public utility is governed by another law, i.e., Section 20(h) of the
Public Service Act (Commonwealth Act No. 146). Pursuant thereto, the Public Service Commission
(now the NTC) is the government agency vested with the authority to approve the transfer of more
than 40% of the subscribed capital stock of a telecommunications company to a single transferee,
thus:
SEC. 20. Acts requiring the approval of the Commission. Subject to established
stations and exceptions and saving provisions to the contrary, it shall be unlawful for
any public service or for the owner, lessee or operator thereof, without the approval
and authorization of the Commission previously had
xxx xxx xxx
(h) To sell or register in its books the transfer or sale of shares of its capital stock, if
the result of that sale in itself or in connection with another previous sale, shall be to

vest in the transferee more than forty per centum of the subscribed capital of said
public service. Any transfer made in violation of this provision shall be void and of no
effect and shall not be registered in the books of the public service corporation.
Nothing herein contained shall be construed to prevent the holding of shares lawfully
acquired. (As amended by Com. Act No. 454).
In other words, transfers of shares of a public utility corporation need only NTC approval, not
Congressional authorization. What transpired in ETCI were a series of transfers of shares starting in
1964 until 1987. The approval of the NTC may be deemed to have been met when it authorized the
issuance of the provisional authority to ETCI. There was full disclosure before the NTC of the
transfers. In fact, the NTC Order of 12 November 1987 required ETCI to submit its "present capital
and ownership structure." Further, ETCI even filed a Motion before the NTC, dated 8 December
1987, or more than a year prior to the grant of provisional authority, seeking approval of the increase
in its capital stock from P360,000.00 to P40M, and the stock transfers made by its stockholders.
A distinction should be made between shares of stock, which are owned by stockholders, the sale of
which requires only NTC approval, and the franchise itself which is owned by the corporation as the
grantee thereof, the sale or transfer of which requires Congressional sanction. Since stockholders
own the shares of stock, they may dispose of the same as they see fit. They may not, however,
transfer or assign the property of a corporation, like its franchise. In other words, even if the original
stockholders had transferred their shares to another group of shareholders, the franchise granted to
the corporation subsists as long as the corporation, as an entity, continues to exist The franchise is
not thereby invalidated by the transfer of the shares. A corporation has a personality separate and
distinct from that of each stockholder. It has the right of continuity or perpetual succession
(Corporation Code, Sec. 2).
To all appearances, the stock transfers were not just for the purpose of acquiring the ETCI franchise,
considering that, as heretofore stated, a series of transfers was involved from 1964 to 1987. And,
contrary to PLDT's assertion, the franchise was not the only property of ETCI of meaningful value.
The "zero" book value of ETCI assets, as reflected in its balance sheet, was plausibly explained as
due to the accumulated depreciation over the years entered for accounting purposes and was not
reflective of the actual value that those assets would command in the market.
But again, whether ETCI has offended against a provision of its franchise, or has subjected it to
misuse or abuse, may more properly be inquired into in quo warranto proceedings instituted by the
State. It is the condition of every franchise that it is subject to amendment, alteration, or repeal when
the common good so requires (1987 Constitution, Article XII, Section 11).
5. The NTC Interconnection Order
In the provisional authority granted by NTC to ETCI, one of the conditions imposed was that the
latter and PLDT were to enter into an interconnection agreement to be jointly submitted to NTC for
approval.
PLDT vehemently opposes interconnection with its own public switched telephone network. It
contends: that while PLDT welcomes interconnections in the furtherance of public interest, only
parties who can establish that they have valid and subsisting legislative franchises are entitled to
apply for a CPCN or provisional authority, absent which, NTC has no jurisdiction to grant them the
CPCN or interconnection with PLDT; that the 73 telephone systems operating all over the Philippines

have a viability and feasibility independent of any interconnection with PLDT; that "the NTC is not
empowered to compel such a private raid on PLDT's legitimate income arising out of its gigantic
investment;" that "it is not public interest, but purely a private and selfish interest which will be served
by an interconnection under ETCI's terms;" and that "to compel PLDT to interconnect merely to give
viability to a prospective competitor, which cannot stand on its own feet, cannot be justified in the
name of a non-existent public need" (PLDT Memorandum, pp. 48 and 50).
PLDT cannot justifiably refuse to interconnect.
Rep. Act No. 6849, or the Municipal Telephone Act of 1989, approved on 8 February 1990,
mandates interconnection providing as it does that "all domestic telecommunications carriers or
utilities ... shall be interconnected to the public switch telephone network." Such regulation of the use
and ownership of telecommunications systems is in the exercise of the plenary police power of the
State for the promotion of the general welfare. The 1987 Constitution recognizes the existence of
that power when it provides.
SEC. 6. The use of property bears a social function, and all economic agents shall
contribute to the common good. Individuals and private groups, including
corporations, cooperatives, and similar collective organizations, shall have the right
to own, establish, and operate economic enterprises, subject to the duty of the State
to promote distributive justice and to intervene when the common good so demands
(Article XII).
The interconnection which has been required of PLDT is a form of "intervention" with property rights
dictated by "the objective of government to promote the rapid expansion of telecommunications
services in all areas of the Philippines, ... to maximize the use of telecommunications facilities
available, ... in recognition of the vital role of communications in nation building ... and to ensure that
all users of the public telecommunications service have access to all other users of the service
wherever they may be within the Philippines at an acceptable standard of service and at reasonable
cost" (DOTC Circular No. 90-248). Undoubtedly, the encompassing objective is the common good.
The NTC, as the regulatory agency of the State, merely exercised its delegated authority to regulate
the use of telecommunications networks when it decreed interconnection.
The importance and emphasis given to interconnection dates back to Ministry Circular No. 82-81,
dated 6 December 1982, providing:
Sec. 1. That the government encourages the provision and operation of public mobile
telephone service within local sub-base stations, particularly, in the highly
commercialized areas;
Sec. 5. That, in the event the authority to operate said service be granted to other
applicants, other than the franchise holder, the franchise operator shall be under
obligation to enter into an agreement with the domestic telephone network, under an
interconnection agreement;
Department of Transportation and Communication (DOTC) Circular No. 87-188, issued in 1987, also
decrees:

12. All public communications carriers shall interconnect their facilities pursuant to
comparatively efficient interconnection (CEI) as defined by the NTC in the interest of
economic efficiency.
The sharing of revenue was an additional feature considered in DOTC Circular No. 90-248, dated 14
June 1990, laying down the "Policy on Interconnection and Revenue Sharing by Public
Communications Carriers," thus:
WHEREAS, it is the objective of government to promote the rapid expansion of
telecommunications services in all areas of the Philippines;
WHEREAS, there is a need to maximize the use of telecommunications facilities
available and encourage investment in telecommunications infrastructure by suitably
qualified service providers;
WHEREAS, in recognition of the vital role of communications in nation building, there
is a need to ensure that all users of the public telecommunications service have
access to all other users of the service wherever they may be within the Philippines
at an acceptable standard of service and at reasonable cost.
WHEREFORE, ... the following Department policies on interconnection and revenue
sharing are hereby promulgated:
1. All facilities offering public telecommunication services shall be
interconnected into the nationwide telecommunications network/s.
xxx xxx xxx
4. The interconnection of networks shall be effected in a fair and nondiscriminatory manner and within the shortest time-frame practicable.
5. The precise points of interface between service operators shall be
as defined by the NTC; and the apportionment of costs and division
of revenues resulting from interconnection of telecommunications
networks shall be as approved and/or prescribed by the NTC.
xxx xxx xxx
Since then, the NTC, on 12 July 1990, issued Memorandum Circular No. 7-13-90 prescribing the
"Rules and Regulations Governing the Interconnection of Local Telephone Exchanges and Public
Calling Offices with the Nationwide Telecommunications Network/s, the Sharing of Revenue Derived
Therefrom, and for Other Purposes."
The NTC order to interconnect allows the parties themselves to discuss and agree upon the specific
terms and conditions of the interconnection agreement instead of the NTC itself laying down the
standards of interconnection which it can very well impose. Thus it is that PLDT cannot justifiably
claim denial of clue process. It has been heard. It will continue to be heard in the main proceedings.
It will surely heard in the negotiations concerning the interconnection agreement.

As disclosed during the hearing, the interconnection sought by ETCI is by no means a "parasitic
dependence" on PLDT. The ETCI system can operate on its own even without interconnection, but it
will be limited to its own subscribers. What interconnection seeks to accomplish is to enable the
system to reach out to the greatest number of people possible in line with governmental policies laid
down. Cellular phones can access PLDT units and vice versa in as wide an area as attainable. With
the broader reach, public interest and convenience will be better served. To be sure, ETCI could
provide no mean competition (although PLDT maintains that it has nothing to fear from the
"innocuous interconnection"), and eat into PLDT's own toll revenue cream PLDT revenue," in its own
words), but all for the eventual benefit of all that the system can reach.
6. Ultimate Considerations
The decisive consideration are public need, public interest, and the common good. Those were the
overriding factors which motivated NTC in granting provisional authority to ETCI. Article II, Section
24 of the 1987 Constitution, recognizes the vital role of communication and information in nation
building. It is likewise a State policy to provide the environment for the emergence of
communications structures suitable to the balanced flow of information into, out of, and across the
country (Article XVI, Section 10, Ibid.). A modern and dependable communications network
rendering efficient and reasonably priced services is also indispensable for accelerated economic
recovery and development. To these public and national interests, public utility companies must bow
and yield.
Despite the fact that there is a virtual monopoly of the telephone system in the country at present.
service is sadly inadequate. Customer demands are hardly met, whether fixed or mobile. There is a
unanimous cry to hasten the development of a modern, efficient, satisfactory and continuous
telecommunications service not only in Metro Manila but throughout the archipelago. The need
therefor was dramatically emphasized by the destructive earthquake of 16 July 1990. It may be that
users of the cellular mobile telephone would initially be limited to a few and to highly commercialized
areas. However, it is a step in the right direction towards the enhancement of the
telecommunications infrastructure, the expansion of telecommunications services in, hopefully, all
areas of the country, with chances of complete disruption of communications minimized. It will thus
impact on, the total development of the country's telecommunications systems and redound to the
benefit of even those who may not be able to subscribe to ETCI.
Free competition in the industry may also provide the answer to a much-desired improvement in the
quality and delivery of this type of public utility, to improved technology, fast and handy mobile
service, and reduced user dissatisfaction. After all, neither PLDT nor any other public utility has a
constitutional right to a monopoly position in view of the Constitutional proscription that no franchise
certificate or authorization shall be exclusive in character or shall last longer than fifty (50) years
(ibid., Section 11; Article XIV Section 5, 1973 Constitution; Article XIV, Section 8, 1935 Constitution).
Additionally, the State is empowered to decide whether public interest demands that monopolies be
regulated or prohibited (1987 Constitution. Article XII, Section 19).
WHEREFORE, finding no grave abuse of discretion, tantamount to lack of or excess of jurisdiction,
on the part of the National Telecommunications Commission in issuing its challenged Orders of 12
December 1988 and 8 May 1989 in NTC Case No. 87-39, this Petition is DISMISSED for lack of
merit. The Temporary Restraining Order heretofore issued is LIFTED. The bond issued as a
condition for the issuance of said restraining Order is declared forfeited in favor of private
respondent Express Telecommunications Co., Inc. Costs against petitioner.

SO ORDERED.
Paras, Feliciano, Padilla, Sarmiento, Cortes, Grio-Aquino and Regalado, JJ., concur.

Separate Opinions

GUTIERREZ, JR., J., dissenting:

I share with the rest of the Court the desire to have a "modern, efficient, satisfactory, and continuous
telecommunications service" in the Philippines. I register this dissent, however, because I believe
that any frustrations over the present state of telephone services do not justify our affirming an illegal
and inequitable order of the National Telecommunications Commission (NTC). More so when it
appears that the questioned order is not really a solution to the problems bugging our telephone
industry.
My dissent is based on three primary considerations, namely:
(1) The Court has sustained nothing less than the desire of respondent ETCI to set-up a profitable
business catering to an affluent clientele through the use of billions of pesos worth of another
company's properties. No issues of public welfare, breaking up of monopolies, or other high
sounding principles are involved. The core question is purely and simply whether or not to grant
ETCI's desire for economic gains through riding on another firm's investments.
(2) The Court has permitted respondent ETCI to operate a telephone system without a valid
legislative franchise. It strains the imagination too much to interpret a legislative franchise
authorizing "radio stations" as including the provisional permit for a sophisticated telephone system
which has absolutely nothing to do with radio broadcasts and transmissions. The Court subverts the
legislative will when it validates a provisional permit on the basis of authority which never envisioned
much less intended its use for a regular telephone system catering to thousands of individual
receiver units. There is nothing in Rep. Act No. 2090 which remotely suggests a cellular mobile
telephone system.
(3) The authority given by Rep. Act No. 2090 has expired. ETCI is not only riding on another
company's investments and using legislative authority for a purpose never dreamed of by the
legislators but is also trying to extract life from and resurrect an unused and dead franchise.
My principal objection to the disputed NTC order arises from the fact that respondent Express
Telecommunications Co. Inc. (ETCI) cannot exist without using the facilities of Philippine Long
Distance Telephone Co. (PLDT). Practically all of its business will be conducted through another
company's property.

While pretending to set up a separate phone company, ETCI's cellular phones would be useless
most of the time, if not all the time, unless they use PLDT lines. It would be different if ETCI phone
owners would primarily communicate with one another and tap into PLDT lines only rarely or
occasionally.
To compare ETCI with the Government Telephone System (GTS) or with an independent phone
company serving a province or city is misleading. The defunct GTS was set up to connect
government offices and personnel with one another. It could exist independently and was not
primarily or wholly dependent on PLDT connections. A provincial or city system serves the residents
of a province or city. It primarily relies on its own investments and infrastructure. It asks for PLDT
services only when long distance calls to another country, city, or province have to be made.
I can, therefore, understand PLDT's reluctance Since it has its own franchise to operate exactly the
same services which ETCI is endeavoring to establish. PLDT would be using its own existing lines.
Under the Court's decision, it would be compelled to allow another company to use those same lines
in direct competition with the lines owner. The cellular system is actually only an adjunct to a regular
telephone system, not a separate and independent system. As an adjunct and component unit or as
a parasite (if a foreign body) it must be fed by the mother organism or unit if it is to survive.
Under the disputed order, ETCI will be completely dependent upon its use of the P16 billions worth
of infrastructure which PLDT has built over several decades. The vaunted payment of compensation
everytime an ETCI phone taps into a PLDT line is illusory. There can be no adequate payment for
the use of billions of pesos of investments built up over 60 years. Moreover, it is actually the phone
owner or consumer who pays the fee. The rate will be fixed by Government and will be based on the
consumer's best interests and capacity, ignoring or subordinating the petitioner's investments.
Payment will depend on how much the phone user should be charged for making a single phone call
and will disregard the millions of pesos that ETCI will earn through its use of billions of pesos worth
of another company's investments and properties.
The "hated monopoly" and "improved services" arguments are not only misleading but also illusory.
To sustain the questioned NTC order will not in any way improve telephone services nor would any
monopoly be dismantled. The answer to inadequate telephone facilities is better administrative
supervision. The NTC should pay attention to its work and compel PLDT to improve its services
instead of saddling with the burden of carrying another company's system.
For better services, what the country needs is to improve the existing system and provide enough
telephone lines for all who really need them. The proposed ETCI cellular phones will serve mostly
those who can afford to tide in expensive cars and who already have two or three telephones in their
offices and residences. Cellular phones should legally and fairly be provided by PLDT as just
another facet of its expansion program.
The mass of applicants for new telephones will not benefit from cellular phones. In fact, if PLDT is
required by NTC to open up new exchanges or interconnections for the rich ETCI consumers, this
will mean an equivalent number of low income or middle income applicants who will have to wait
longer for their own PLDT lines. The Court's resolution favors the conveniences of the rich at the
expense of the necessities of the poor. *

I agree with the petitioner that what NTC granted is not merely provisional authority but what is in
effect a regular certificate of public convenience and necessity or "CPCN".
Starting with seven cell sites for 3,000 subscribers in Metro Manila, the cellular mobile system will
establish 67 cell sites beginning October 1991. The initial expenses alone will amount to P130
million. At page 8 of its Comment, ETCI admits that that "the provisional authority to operate will
be useless to ETCI if it does not put up the system and interconnnect said system with the existing
PLDT network."(Emphasis supplied) The completion of interconnection arrangements, the setting up
of expensive installations, the requirements as to maintenance and operation, and other conditions
found in the NTC order are anything but provisional.
The authority given to ETCI is entirely different from the provisional authority given to MERALCO or
oil companies to increase the price of oil or electricity or to bus and jeepney operators to raise fares
a few centavos. In these cases the need for increases is not only urgent but is usually a foregone
conclusion dictated by pressing circumstances. Further hearings are needed only to fix the amount
which will be finally authorized. The NTC orders can also be easily revoked. Increased prices of oil
or rates of transportation services can be lowered or struck down if the preliminary determinations
are wrong. In the instant case, NTC has authorized a new company to start operations even if the
issues have not been thoroughly threshed out. There is no urgent need which warrants operations
before a final permit is granted. Once in operation, there can be no cancelling or revocation of the
authority to operate, no dismantling of thousands of cellular phones and throwing to waste of over
P100 million worth of investments in fixed facilities. Theoretically, it can be done but it is clear from
the records that what was granted is really a CPCN.
There is no dispute that a legislative franchise is necessary for the operation of a telephone system.
The NTC has no jurisdiction to grant the authority. The fact that ETCI has to rely on a 1958
legislative franchise shows that only Congress can give the franchise which will empower NTC to
issue the certificate or CPCN.
Rep. Act No. 2090 is a franchise for the construction and operation of radio stations. Felix Alberto
and Co. Inc. (FACI) was authorized in the operation of those radio stations to acquire and handle
transmitters, receivers, electrical machinery and other related devises. The use of radio telephone
was never intended or envisioned for a regular telephone company. "Radio telephony" is governed
and circumscribed by the basic purpose of operating radio stations. Telephony may be used only to
enable communications between the stations, to transmit a radio message to a station where it
would be transcribed into a form suitable for delivery to the intended recipient. FACI was authorized
to communicate to, between, and among its radio stations. There is no authority for thousands of
customers to be talking to PLDT subscribers directly. FACI was never given authority by Rep. Act
2090 to operate switching facilities, wire-line transmissions, and telecommunication stations of a
telephone company. The entire records can be scrutinized and they will show that ETCI has all but
ignored and kept silent about the purpose of its alleged franchise-which is for the real operation of
radio stations. There can be no equating of "radio stations" with a complete cellular mobile telephone
system. The two are poles apart.
The most liberal interpretation can not possibly read in a 1958 franchise for radio stations, the
authority for a mobile cellular system vintage 1990. No amount of liberal interpretation can supply
the missing requirement. And besides, we are not interpreting a Constitution which is intended to
cover changing situations and must be read liberally. Legislative franchises are always
construed strictly against the franchise.

The remedy is for ETCI to go to Congress. I regret that in dismissing this petition, we may be
withholding from Congress the courtesy we owe to it as a co-equal body and denigrating its power to
examine whether or not ETCI really deserves a legislative franchise.
My third point has to do with the sudden resurrection of a dead franchise and its coming to life in an
entirely different form-no longer a radio station but a modern telephone company.
I have searched the records in vain for any plan of ETCI to operate radio stations. It has not
operated and does not plan to operate radio stations. Its sole objective is to set up a telephone
company. For that purpose, it should go to Congress and get a franchise for a telephone company.
NTC cannot give it such a franchise.
Section 10 of Rep. Act No. 2090 prohibits the transfer of the franchise and the rights and privileges
under that franchise without the express approval of Congress. No amount of legal niceties can
cloak the fact that ETCI is not FACI, that the franchise was sold by FACI to ETCI, and that the permit
given by NTC to ETCI is based on a purchased franchise.
When the owners of FACI sold out their stocks, the 3,900 shares were on paper worth only 35
centavos each. The company had no assets and physical properties. All it had was the franchise, for
whatever it was worth. The buyers paid P4,618,185.00 for the company's stocks, almost all of the
amount intended for the franchise. It was, therefore, a sale or transfer of the franchise in violation of
the express terms of Rep. Act No. 2090 which call for approval by Congress.
ETCI tried to show a series of transactions involving the sales of almost all of its stocks. Not only are
the circumstances surrounding the transfers quite suspicious, but they were effected without the
approval and authorization of the Commission as required by law.
Sec. 4 of Rep. Act No. 2090 also provides that the franchise shall be void unless the construction of
radio stations is begun within two years or June 22, 1960 and completed within ten years or June 22,
1968.
As of April 14, 1987, ETCI formally admitted that it was still in the pre-operating stage. Almost 30
years later, it had not even started the business authorized by the franchise. It is only now that it
proposes to construct, not radio stations, but a telephone system.
During the oral arguments and in its memorandum, ETCI presented proof of several radio station
construction permits. A construction permit authorizes a construction but does not prove it. There is
no proof that the entire construction of all stations was completed within ten years. In fact, there is
not the slightest intimation that ETCI, today, is operating radio stations. What it wants is to set up a
telephone system.
In addition to the franchise being void under its own charter, P.D. 36 on November 2, 1972,
cancelled all unused or dormant legislative franchises. Rep. Act No. 2090, having been voided by its
own Section 4, suffered a second death if that is at all possible.
The violations of law-(1) the giving of life to an already dead franchise, (2) the transfer of ownership
against an express statutory provision, and (3) the use of a franchise for radio stations to justify the
setting up of a cellular mobile telephone system are too glaring for us to ignore on the basis of
"respect" for a questionable NTC order and other purely technical considerations. We should not

force PLDT to open its lines to enable a competitor to operate a system which cannot survive unless
it uses PLDT properties.
The NTC bases its order on alleged grounds of public need, public interest, and the common good.
There is no showing that these considerations will be satisfied, at least sufficient to warrant a
strained interpretation of legal provisions. Any slight improvement which the expensive ETCI project
will accomplish cannot offset its violation of law and fair dealing.
I, THEREFORE, VOTE to GRANT the petition.
Fernan, C.J., Narvasa, Gancayco, Bidin and Medialdea, JJ., concur.

CRUZ, J., concurring and dissenting:

As one of the many dissatisfied customers of PLDT, I should have no objection to the grant of the
provisional authority to ETCI. I have none. Its admission will improve communication facilities in the
country conformably to the constitutional objective. It will also keep PLDT on its toes and encourage
it to correct its deficient service in view of the competition.
I fully agree with all the rulings in the ponencia except the approval of the requirement for PLDT to
interconnect with ETCI. I think it violates due process. It reminds me of the story of the little red hen
who found some rice and asked who would help her plant it. None of the animals in the farm was
willing and neither did they help in watering, harvesting and finally cooking it. But when she asked,
"Who will help me eat the rice?" everyone wanted to join in. The little red hen is like PLDT.
If ETCI wants to operate its own telephone system, it should rely on its own resources instead of
riding piggy-back on PLDT. It seems to me rather unfair for the Government to require PLDT to share
with a newcomer and potential rival what it took PLDT tremendous effort and long years and billions
of pesos to build .
The case of Republic of the Philippines v. PLDT, 26 SCRA 620, is not applicable because it was the
Government itself that was there seeking interconnection of its own telephone system, with PLDT.
The Court recognized the obvious public purpose that justified the special exercise (by the
Government of the power of eminent domain. But in the case before us, the intended beneficiary is a
private enterprise primarily organized for profit and, indeed, to compete with PLDT. In effect, the
Government is forcing PLDT to surrender its competitive advantage and share its resources with
ETCI, which may not only supplement but, possibly, even ultimately supplant PLDT. I do not think
government authority extends that far.
The majority disposes of the question of due process by simply saying that PLDT will have frill
opportunity to be heard in the ascertainment of the just compensation ETCI will have to pay for the
interconnection. That is not the issue. What PLDT is objecting to is not the amount of the just
compensation but the interconnection itself that is being forced upon it.
I feel there is no due process where private property is taken by the Government from one private
person and given to another private person for the latter's direct benefit. The fact that compensation

is paid is immaterial; the flaw lies in the taking itself (Davidson v. New Orleans, 90 U.S. 97). The
circumstance that PLDT is a public utility is no warrant for taking undue liberties with its property,
which is protected by the Bill of Rights. "Public need" cannot be a blanket justification for favoring
one investor against another in contravention of the system of free enterprise. If PLDT has misused
its franchise, I should think the solution is to revoke its authority, not to force it to share its resources
with its private competitors.
The rule is that where it is the legislature itself that directly calls for the expropriation of private
property, its determination of the thing to be condemned and the purpose of the taking is conclusive
on the courts (City of Manila v. Chinese Community, 40 Phil. 349). But where the power of eminent
domain is exercised only by a delegate of the legislature, like ETCI, the courts may inquire into the
necessity or propriety of the expropriation and, when warranted, pronounce its invalidity (Republic of
the Philippines v. La Orden de PO Benedictinos de Filipinas, 1 SCRA 649). I think this is what the
Court should do in the case at bar.
A final point. It is argued that requiring ETCI to start from scratch (as PLDT did) and import its own
equipment would entail a tremendous outflow of foreign currency we can ill afford at this time.
Perhaps so. But we must remember that the Bill of Rights is not a marketable commodity, like a
piece of machinery. Due process is an indispensable requirement that cannot be assessed in dollar
and cents.
Fernan, C.J., and Narvasa, J., concur.

Separate Opinions
GUTIERREZ, JR., J., dissenting:
I share with the rest of the Court the desire to have a "modern, efficient, satisfactory, and continuous
telecommunications service" in the Philippines. I register this dissent, however, because I believe
that any frustrations over the present state of telephone services do not justify our affirming an illegal
and inequitable order of the National Telecommunications Commission (NTC). More so when it
appears that the questioned order is not really a solution to the problems bugging our telephone
industry.
My dissent is based on three primary considerations, namely:
(1) The Court has sustained nothing less than the desire of respondent ETCI to set-up a profitable
business catering to an affluent clientele through the use of billions of pesos worth of another
company's properties. No issues of public welfare, breaking up of monopolies, or other high
sounding principles are involved. The core question is purely and simply whether or not to grant
ETCI's desire for economic gains through riding on another firm's investments.
(2) The Court has permitted respondent ETCI to operate a telephone system without a valid
legislative franchise. It strains the imagination too much to interpret a legislative franchise

authorizing "radio stations" as including the provisional permit for a sophisticated telephone system
which has absolutely nothing to do with radio broadcasts and transmissions. The Court subverts the
legislative will when it validates a provisional permit on the basis of authority which never envisioned
much less intended its use for a regular telephone system catering to thousands of individual
receiver units. There is nothing in Rep. Act No. 2090 which remotely suggests a cellular mobile
telephone system.
(3) The authority given by Rep. Act No. 2090 has expired. ETCI is not only riding on another
company's investments and using legislative authority for a purpose never dreamed of by the
legislators but is also trying to extract life from and resurrect an unused and dead franchise.
My principal objection to the disputed NTC order arises from the fact that respondent Express
Telecommunications Co. Inc. (ETCI) cannot exist without using the facilities of Philippine Long
Distance Telephone Co. (PLDT). Practically all of its business will be conducted through another
company's property.
While pretending to set up a separate phone company, ETCI's cellular phones would be useless
most of the time, if not all the time, unless they use PLDT lines. It would be different if ETCI phone
owners would primarily communicate with one another and tap into PLDT lines only rarely or
occasionally.
To compare ETCI with the Government Telephone System (GTS) or with an independent phone
company serving a province or city is misleading. The defunct GTS was set up to connect
government offices and personnel with one another. It could exist independently and was not
primarily or wholly dependent on PLDT connections. A provincial or city system serves the residents
of a province or city. It primarily relies on its own investments and infrastructure. It asks for PLDT
services only when long distance calls to another country, city, or province have to be made.
I can, therefore, understand PLDT's reluctance Since it has its own franchise to operate exactly the
same services which ETCI is endeavoring to establish. PLDT would be using its own existing lines.
Under the Court's decision, it would be compelled to allow another company to use those same lines
in direct competition with the lines owner. The cellular system is actually only an adjunct to a regular
telephone system, not a separate and independent system. As an adjunct and component unit or as
a parasite (if a foreign body) it must be fed by the mother organism or unit if it is to survive.
Under the disputed order, ETCI will be completely dependent upon its use of the P16 billions worth
of infrastructure which PLDT has built over several decades. The vaunted payment of compensation
everytime an ETCI phone taps into a PLDT line is illusory. There can be no adequate payment for
the use of billions of pesos of investments built up over 60 years. Moreover, it is actually the phone
owner or consumer who pays the fee. The rate will be fixed by Government and will be based on the
consumer's best interests and capacity, ignoring or subordinating the petitioner's investments.
Payment will depend on how much the phone user should be charged for making a single phone call
and will disregard the millions of pesos that ETCI will earn through its use of billions of pesos worth
of another company's investments and properties.
The "hated monopoly" and "improved services" arguments are not only misleading but also illusory.
To sustain the questioned NTC order will not in any way improve telephone services nor would any
monopoly be dismantled. The answer to inadequate telephone facilities is better administrative

supervision. The NTC should pay attention to its work and compel PLDT to improve its services
instead of saddling with the burden of carrying another company's system.
For better services, what the country needs is to improve the existing system and provide enough
telephone lines for all who really need them. The proposed ETCI cellular phones will serve mostly
those who can afford to tide in expensive cars and who already have two or three telephones in their
offices and residences. Cellular phones should legally and fairly be provided by PLDT as just
another facet of its expansion program.
The mass of applicants for new telephones will not benefit from cellular phones. In fact, if PLDT is
required by NTC to open up new exchanges or interconnections for the rich ETCI consumers, this
will mean an equivalent number of low income or middle income applicants who will have to wait
longer for their own PLDT lines. The Court's resolution favors the conveniences of the rich at the
expense of the necessities of the poor. *
I agree with the petitioner that what NTC granted is not merely provisional authority but what is in
effect a regular certificate of public convenience and necessity or "CPCN".
Starting with seven cell sites for 3,000 subscribers in Metro Manila, the cellular mobile system will
establish 67 cell sites beginning October 1991. The initial expenses alone will amount to P130
million. At page 8 of its Comment, ETCI admits that that "the provisional authority to operate will
be useless to ETCI if it does not put up the system and interconnnect said system with the existing
PLDT network."(Emphasis supplied) The completion of interconnection arrangements, the setting up
of expensive installations, the requirements as to maintenance and operation, and other conditions
found in the NTC order are anything but provisional.
The authority given to ETCI is entirely different from the provisional authority given to MERALCO or
oil companies to increase the price of oil or electricity or to bus and jeepney operators to raise fares
a few centavos. In these cases the need for increases is not only urgent but is usually a foregone
conclusion dictated by pressing circumstances. Further hearings are needed only to fix the amount
which will be finally authorized. The NTC orders can also be easily revoked. Increased prices of oil
or rates of transportation services can be lowered or struck down if the preliminary determinations
are wrong. In the instant case, NTC has authorized a new company to start operations even if the
issues have not been thoroughly threshed out. There is no urgent need which warrants operations
before a final permit is granted. Once in operation, there can be no cancelling or revocation of the
authority to operate, no dismantling of thousands of cellular phones and throwing to waste of over
P100 million worth of investments in fixed facilities. Theoretically, it can be done but it is clear from
the records that what was granted is really a CPCN.
There is no dispute that a legislative franchise is necessary for the operation of a telephone system.
The NTC has no jurisdiction to grant the authority. The fact that ETCI has to rely on a 1958
legislative franchise shows that only Congress can give the franchise which will empower NTC to
issue the certificate or CPCN.
Rep. Act No. 2090 is a franchise for the construction and operation of radio stations. Felix Alberto
and Co. Inc. (FACI) was authorized in the operation of those radio stations to acquire and handle
transmitters, receivers, electrical machinery and other related devises. The use of radio telephone
was never intended or envisioned for a regular telephone company. "Radio telephony" is governed
and circumscribed by the basic purpose of operating radio stations. Telephony may be used only to

enable communications between the stations, to transmit a radio message to a station where it
would be transcribed into a form suitable for delivery to the intended recipient. FACI was authorized
to communicate to, between, and among its radio stations. There is no authority for thousands of
customers to be talking to PLDT subscribers directly. FACI was never given authority by Rep. Act
2090 to operate switching facilities, wire-line transmissions, and telecommunication stations of a
telephone company. The entire records can be scrutinized and they will show that ETCI has all but
ignored and kept silent about the purpose of its alleged franchise-which is for the real operation of
radio stations. There can be no equating of "radio stations" with a complete cellular mobile telephone
system. The two are poles apart.
The most liberal interpretation can not possibly read in a 1958 franchise for radio stations, the
authority for a mobile cellular system vintage 1990. No amount of liberal interpretation can supply
the missing requirement. And besides, we are not interpreting a Constitution which is intended to
cover changing situations and must be read liberally. Legislative franchises are always
construed strictly against the franchise.
The remedy is for ETCI to go to Congress. I regret that in dismissing this petition, we may be
withholding from Congress the courtesy we owe to it as a co-equal body and denigrating its power to
examine whether or not ETCI really deserves a legislative franchise.
My third point has to do with the sudden resurrection of a dead franchise and its coming to life in an
entirely different form-no longer a radio station but a modern telephone company.
I have searched the records in vain for any plan of ETCI to operate radio stations. It has not
operated and does not plan to operate radio stations. Its sole objective is to set up a telephone
company. For that purpose, it should go to Congress and get a franchise for a telephone company.
NTC cannot give it such a franchise.
Section 10 of Rep. Act No. 2090 prohibits the transfer of the franchise and the rights and privileges
under that franchise without the express approval of Congress. No amount of legal niceties can
cloak the fact that ETCI is not FACI, that the franchise was sold by FACI to ETCI, and that the permit
given by NTC to ETCI is based on a purchased franchise.
When the owners of FACI sold out their stocks, the 3,900 shares were on paper worth only 35
centavos each. The company had no assets and physical properties. All it had was the franchise, for
whatever it was worth. The buyers paid P4,618,185.00 for the company's stocks, almost all of the
amount intended for the franchise. It was, therefore, a sale or transfer of the franchise in violation of
the express terms of Rep. Act No. 2090 which call for approval by Congress.
ETCI tried to show a series of transactions involving the sales of almost all of its stocks. Not only are
the circumstances surrounding the transfers quite suspicious, but they were effected without the
approval and authorization of the Commission as required by law.
Sec. 4 of Rep. Act No. 2090 also provides that the franchise shall be void unless the construction of
radio stations is begun within two years or June 22, 1960 and completed within ten years or June 22,
1968.

As of April 14, 1987, ETCI formally admitted that it was still in the pre-operating stage. Almost 30
years later, it had not even started the business authorized by the franchise. It is only now that it
proposes to construct, not radio stations, but a telephone system.
During the oral arguments and in its memorandum, ETCI presented proof of several radio station
construction permits. A construction permit authorizes a construction but does not prove it. There is
no proof that the entire construction of all stations was completed within ten years. In fact, there is
not the slightest intimation that ETCI, today, is operating radio stations. What it wants is to set up a
telephone system.
In addition to the franchise being void under its own charter, P.D. 36 on November 2, 1972,
cancelled all unused or dormant legislative franchises. Rep. Act No. 2090, having been voided by its
own Section 4, suffered a second death if that is at all possible.
The violations of law-(1) the giving of life to an already dead franchise, (2) the transfer of ownership
against an express statutory provision, and (3) the use of a franchise for radio stations to justify the
setting up of a cellular mobile telephone system are too glaring for us to ignore on the basis of
"respect" for a questionable NTC order and other purely technical considerations. We should not
force PLDT to open its lines to enable a competitor to operate a system which cannot survive unless
it uses PLDT properties.
The NTC bases its order on alleged grounds of public need, public interest, and the common good.
There is no showing that these considerations will be satisfied, at least sufficient to warrant a
strained interpretation of legal provisions. Any slight improvement which the expensive ETCI project
will accomplish cannot offset its violation of law and fair dealing.
I, THEREFORE, VOTE to GRANT the petition.
Fernan, C.J., Narvasa, Gancayco, Bidin and Medialdea, JJ., concur.

CRUZ, J., concurring and dissenting:

As one of the many dissatisfied customers of PLDT, I should have no objection to the grant of the
provisional authority to ETCI. I have none. Its admission will improve communication facilities in the
country conformably to the constitutional objective. It will also keep PLDT on its toes and encourage
it to correct its deficient service in view of the competition.
I fully agree with all the rulings in the ponencia except the approval of the requirement for PLDT to
interconnect with ETCI. I think it violates due process. It reminds me of the story of the little red hen
who found some rice and asked who would help her plant it. None of the animals in the farm was
willing and neither did they help in watering, harvesting and finally cooking it. But when she asked,
"Who will help me eat the rice?" everyone wanted to join in. The little red hen is like PLDT.
If ETCI wants to operate its own telephone system, it should rely on its own resources instead of
riding piggy-back on PLDT. It seems to me rather unfair for the Government to require PLDT to share

with a newcomer and potential rival what it took PLDT tremendous effort and long years and billions
of pesos to build .
The case of Republic of the Philippines v. PLDT, 26 SCRA 620, is not applicable because it was the
Government itself that was there seeking interconnection of its own telephone system, with PLDT.
The Court recognized the obvious public purpose that justified the special exercise (by the
Government of the power of eminent domain. But in the case before us, the intended beneficiary is a
private enterprise primarily organized for profit and, indeed, to compete with PLDT. In effect, the
Government is forcing PLDT to surrender its competitive advantage and share its resources with
ETCI, which may not only supplement but, possibly, even ultimately supplant PLDT. I do not think
government authority extends that far.
The majority disposes of the question of due process by simply saying that PLDT will have frill
opportunity to be heard in the ascertainment of the just compensation ETCI will have to pay for the
interconnection. That is not the issue. What PLDT is objecting to is not the amount of the just
compensation but the interconnection itself that is being forced upon it.
I feel there is no due process where private property is taken by the Government from one private
person and given to another private person for the latter's direct benefit. The fact that compensation
is paid is immaterial; the flaw lies in the taking itself (Davidson v. New Orleans, 90 U.S. 97). The
circumstance that PLDT is a public utility is no warrant for taking undue liberties with its property,
which is protected by the Bill of Rights. "Public need" cannot be a blanket justification for favoring
one investor against another in contravention of the system of free enterprise. If PLDT has misused
its franchise, I should think the solution is to revoke its authority, not to force it to share its resources
with its private competitors.
The rule is that where it is the legislature itself that directly calls for the expropriation of private
property, its determination of the thing to be condemned and the purpose of the taking is conclusive
on the courts (City of Manila v. Chinese Community, 40 Phil. 349). But where the power of eminent
domain is exercised only by a delegate of the legislature, like ETCI, the courts may inquire into the
necessity or propriety of the expropriation and, when warranted, pronounce its invalidity (Republic of
the Philippines v. La Orden de PO Benedictinos de Filipinas, 1 SCRA 649). I think this is what the
Court should do in the case at bar.
A final point. It is argued that requiring ETCI to start from scratch (as PLDT did) and import its own
equipment would entail a tremendous outflow of foreign currency we can ill afford at this time.
Perhaps so. But we must remember that the Bill of Rights is not a marketable commodity, like a
piece of machinery. Due process is an indispensable requirement that cannot be assessed in dollar
and cents.
Fernan, C.J., and Narvasa, J., concur.
Footnotes
1 SEC. 4. This franchise shall continue for a period of fifty years from the date the
first of said stations shall be placed in operation, and is granted upon the express
condition that same shall be void unless the construction of said station be begun
within two years from the date of the approval of this Act and be completed within ten
years from said date.

2 SECTION 1. Action by Government against individuals. An action for the usurpation

of office or franchise may be brought in the name of the Republic of the Philippines
against:
(a) A person who usurps, intrudes into, or unlawfully holds or exercises a public
office, or a franchise, or an office in a corporation created by authority of law;
xxx xxx xxx
SECTION 2. Like actions against corporations. A like action may be brought
against a corporation:
(a) When it has offended against a provision of an Act for its creation or renewal;
(b) When it has forfeited its privileges and franchises by non-user;
(c) When it has committed or omitted an act which amounts to a surrender of its
corporate rights, privileges, or franchises;
(d) When it has misused a right, privilege, or franchise conferred upon it by law, or
when it has exercised a right, privilege, or franchise in contravention of law.
SECTION 3. When Solicitor General or fiscal must commence action.-The Solicitor
General or a fiscal, when directed by the President of the Philippines, or when upon
complaint or otherwise he has good reason to believe that any case specified in the
last two preceding sections can be established by proof, must commence such
action.
GUTIERREZ, JR., J.: Dissenting Opinion
* The subscriber pays P38,000.00 for a vehicle borne telephone for a portable
phone. and P57,000.00 for a Pocketphone, although NTC allow 15% discounts on
these amounts. There is a basic charge which includes P750.00 a month for free
answering services. If the subscriber uses his phone from 7:00 AM to 7:00 PM, he
pays P7.00 for the first minute and P5.50 for each additional minute. For a long
distance calls, the PLDT toll is added. Even for unsuccessful and unconnected
operator assisted calls there is a P4.00 charge per call.

G.R. No. 162015

March 6, 2006

THE CITY GOVERNMENT OF QUEZON CITY, AND THE CITY TREASURER OF QUEZON CITY,
DR. VICTOR B. ENRIGA, Petitioners,
vs.
BAYAN TELECOMMUNICATIONS, INC., Respondent.
DECISION
GARCIA,J.:
Before the Court, on pure questions of law, is this petition for review on certiorari under Rule 45 of
the Rules of Court to nullify and set aside the following issuances of the Regional Trial Court (RTC)
of Quezon City, Branch 227, in its Civil Case No. Q-02-47292, to wit:
1) Decision1 dated June 6, 2003, declaring respondent Bayan Telecommunications, Inc. exempt from
real estate taxation on its real properties located in Quezon City; and
2) Order2 dated December 30, 2003, denying petitioners motion for reconsideration.
The facts:
Respondent Bayan Telecommunications, Inc.3 (Bayantel) is a legislative franchise holder under
Republic Act (Rep. Act) No. 32594 to establish and operate radio stations for domestic
telecommunications, radiophone, broadcasting and telecasting.
Of relevance to this controversy is the tax provision of Rep. Act No. 3259, embodied in Section 14
thereof, which reads:
SECTION 14. (a) The grantee shall be liable to pay the same taxes on its real estate, buildings and
personal property, exclusive of the franchise, as other persons or corporations are now or hereafter
may be required by law to pay. (b) The grantee shall further pay to the Treasurer of the Philippines
each year, within ten days after the audit and approval of the accounts as prescribed in this Act, one
and one-half per centum of all gross receipts from the business transacted under this franchise by
the said grantee (Emphasis supplied).
On January 1, 1992, Rep. Act No. 7160, otherwise known as the "Local Government Code of 1991"
(LGC), took effect. Section 232 of the Code grants local government units within the Metro Manila
Area the power to levy tax on real properties, thus:
SEC. 232. Power to Levy Real Property Tax. A province or city or a municipality within the
Metropolitan Manila Area may levy an annual ad valorem tax on real property such as land, building,
machinery and other improvements not hereinafter specifically exempted.
Complementing the aforequoted provision is the second paragraph of Section 234 of the same Code
which withdrew any exemption from realty tax heretofore granted to or enjoyed by all persons,
natural or juridical, to wit:

SEC. 234 - Exemptions from Real Property Tax. The following are exempted from payment of the
real property tax:
xxx xxx xxx
Except as provided herein, any exemption from payment of real property tax previously granted to,
or enjoyed by, all persons, whether natural or juridical, including government-owned-or-controlled
corporations is hereby withdrawn upon effectivity of this Code (Emphasis supplied).
On July 20, 1992, barely few months after the LGC took effect, Congress enacted Rep. Act No.
7633, amending Bayantels original franchise. The amendatory law (Rep. Act No. 7633) contained
the following tax provision:
SEC. 11. The grantee, its successors or assigns shall be liable to pay the same taxes on their real
estate, buildings and personal property, exclusive of this franchise, as other persons or corporations
are now or hereafter may be required by law to pay. In addition thereto, the grantee, its successors
or assigns shall pay a franchise tax equivalent to three percent (3%) of all gross receipts of the
telephone or other telecommunications businesses transacted under this franchise by the grantee,
its successors or assigns and the said percentage shall be in lieu of all taxes on this franchise or
earnings thereof. Provided, That the grantee, its successors or assigns shall continue to be liable for
income taxes payable under Title II of the National Internal Revenue Code . xxx. [Emphasis
supplied]
It is undisputed that within the territorial boundary of Quezon City, Bayantel owned several real
properties on which it maintained various telecommunications facilities. These real properties, as
hereunder described, are covered by the following tax declarations:
(a) Tax Declaration Nos. D-096-04071, D-096-04074, D-096-04072 and D-096-04073
pertaining to Bayantels Head Office and Operations Center in Roosevelt St., San Francisco
del Monte, Quezon City allegedly the nerve center of petitioners telecommunications
franchise operations, said Operation Center housing mainly petitioners Network Operations
Group and switching, transmission and related equipment;
(b) Tax Declaration Nos. D-124-01013, D-124-00939, D-124-00920 and D-124-00941
covering Bayantels land, building and equipment in Maginhawa St., Barangay East
Teachers Village, Quezon City which houses telecommunications facilities; and
(c) Tax Declaration Nos. D-011-10809, D-011-10810, D-011-10811, and D-011-11540
referring to Bayantels Exchange Center located in Proj. 8, Brgy. Bahay Toro, Tandang Sora,
Quezon City which houses the Network Operations Group and cover switching, transmission
and other related equipment.
In 1993, the government of Quezon City, pursuant to the taxing power vested on local government
units by Section 5, Article X of the 1987 Constitution, infra, in relation to Section 232 of the LGC,
supra, enacted City Ordinance No. SP-91, S-93, otherwise known as the Quezon City Revenue
Code (QCRC),5 imposing, under Section 5 thereof, a real property tax on all real properties in
Quezon City, and, reiterating in its Section 6, the withdrawal of exemption from real property tax
under Section 234 of the LGC, supra. Furthermore, much like the LGC, the QCRC, under its Section
230, withdrew tax exemption privileges in general, as follows:

SEC. 230. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in this Code, tax
exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical,
including government owned or controlled corporations, except local water districts, cooperatives
duly registered under RA 6938, non-stock and non-profit hospitals and educational institutions,
business enterprises certified by the Board of Investments (BOI) as pioneer or non-pioneer for a
period of six (6) and four (4) years, respectively, are hereby withdrawn effective upon approval of
this Code (Emphasis supplied).
Conformably with the Citys Revenue Code, new tax declarations for Bayantels real properties in
Quezon City were issued by the City Assessor and were received by Bayantel on August 13, 1998,
except one (Tax Declaration No. 124-01013) which was received on July 14, 1999.
Meanwhile, on March 16, 1995, Rep. Act No. 7925,6 otherwise known as the "Public
Telecommunications Policy Act of the Philippines," envisaged to level the playing field among
telecommunications companies, took effect. Section 23 of the Act provides:
SEC. 23. Equality of Treatment in the Telecommunications Industry. Any advantage, favor,
privilege, exemption, or immunity granted under existing franchises, or may hereafter be granted,
shall ipso facto become part of previously granted telecommunications franchises and shall be
accorded immediately and unconditionally to the grantees of such franchises: Provided, however,
That the foregoing shall neither apply to nor affect provisions of telecommunications franchises
concerning territory covered by the franchise, the life span of the franchise, or the type of service
authorized by the franchise.
On January 7, 1999, Bayantel wrote the office of the City Assessor seeking the exclusion of its real
properties in the city from the roll of taxable real properties. With its request having been denied,
Bayantel interposed an appeal with the Local Board of Assessment Appeals (LBAA). And, evidently
on its firm belief of its exempt status, Bayantel did not pay the real property taxes assessed against it
by the Quezon City government.
On account thereof, the Quezon City Treasurer sent out notices of delinquency for the total amount
ofP43,878,208.18, followed by the issuance of several warrants of levy against Bayantels properties
preparatory to their sale at a public auction set on July 30, 2002.
Threatened with the imminent loss of its properties, Bayantel immediately withdrew its appeal with
the LBAA and instead filed with the RTC of Quezon City a petition for prohibition with an urgent
application for a temporary restraining order (TRO) and/or writ of preliminary injunction, thereat
docketed as Civil Case No. Q-02-47292, which was raffled to Branch 227 of the court.
On July 29, 2002, or in the eve of the public auction scheduled the following day, the lower court
issued a TRO, followed, after due hearing, by a writ of preliminary injunction via its order of August
20, 2002.
And, having heard the parties on the merits, the same court came out with its challenged Decision of
June 6, 2003, the dispositive portion of which reads:
WHEREFORE, premises considered, pursuant to the enabling franchise under Section 11 of
Republic Act No. 7633, the real estate properties and buildings of petitioner [now, respondent

Bayantel] which have been admitted to be used in the operation of petitioners franchise described in
the following tax declarations are hereby DECLARED exempt from real estate taxation:
(1) Tax Declaration No. D-096-04071
(2) Tax Declaration No. D-096-04074
(3) Tax Declaration No. D-124-01013
(4) Tax Declaration No. D-011-10810
(5) Tax Declaration No. D-011-10811
(6) Tax Declaration No. D-011-10809
(7) Tax Declaration No. D-124-00941
(8) Tax Declaration No. D-124-00940
(9) Tax Declaration No. D-124-00939
(10) Tax Declaration No. D-096-04072
(11) Tax Declaration No. D-096-04073
(12) Tax Declaration No. D-011-11540
The preliminary prohibitory injunction issued in the August 20, 2002 Order of this Court is hereby
made permanent. Since this is a resolution of a purely legal issue, there is no pronouncement as to
costs.
SO ORDERED.
Their motion for reconsideration having been denied by the court in its Order dated December 30,
2003, petitioners elevated the case directly to this Court on pure questions of law, ascribing to the
lower court the following errors:
I. [I]n declaring the real properties of respondent exempt from real property taxes notwithstanding
the fact that the tax exemption granted to Bayantel in its original franchise had been withdrawn by
the [LGC] and that the said exemption was not restored by the enactment of RA 7633.
II. [In] declaring the real properties of respondent exempt from real property taxes notwithstanding
the enactment of the [QCRC] which withdrew the tax exemption which may have been granted by
RA 7633.
III. [In] declaring the real properties of respondent exempt from real property taxes notwithstanding
the vague and ambiguous grant of tax exemption provided under Section 11 of RA 7633.

IV. [In] declaring the real properties of respondent exempt from real property taxes notwithstanding
the fact that [it] had failed to exhaust administrative remedies in its claim for real property tax
exemption. (Words in bracket added.)
As we see it, the errors assigned may ultimately be reduced to two (2) basic issues, namely:
1. Whether or not Bayantels real properties in Quezon City are exempt from real property
taxes under its legislative franchise; and
2. Whether or not Bayantel is required to exhaust administrative remedies before seeking
judicial relief with the trial court.
We shall first address the second issue, the same being procedural in nature.
Petitioners argue that Bayantel had failed to avail itself of the administrative remedies provided for
under the LGC, adding that the trial court erred in giving due course to Bayantels petition for
prohibition. To petitioners, the appeal mechanics under the LGC constitute Bayantels plain and
speedy remedy in this case.
The Court does not agree.
Petitions for prohibition are governed by the following provision of Rule 65 of the Rules of Court:
SEC. 2. Petition for prohibition. When the proceedings of any tribunal, are without or in excess
of its or his jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction,
and there is no appeal or any other plain, speedy, and adequate remedy in the ordinary course of
law, a person aggrieved thereby may file a verified petition in the proper court, alleging the facts with
certainty and praying that judgment be rendered commanding the respondent to desist from further
proceedings in the action or matter specified therein, or otherwise, granting such incidental reliefs as
law and justice may require.
With the reality that Bayantels real properties were already levied upon on account of its
nonpayment of real estate taxes thereon, the Court agrees with Bayantel that an appeal to the LBAA
is not a speedy and adequate remedy within the context of the aforequoted Section 2 of Rule 65.
This is not to mention of the auction sale of said properties already scheduled on July 30, 2002.
Moreover, one of the recognized exceptions to the exhaustion- of-administrative remedies rule is
when, as here, only legal issues are to be resolved. In fact, the Court, cognizant of the nature of the
questions presently involved, gave due course to the instant petition. As the Court has said in Ty vs.
Trampe:7
xxx. Although as a rule, administrative remedies must first be exhausted before resort to judicial
action can prosper, there is a well-settled exception in cases where the controversy does not involve
questions of fact but only of law. xxx.
Lest it be overlooked, an appeal to the LBAA, to be properly considered, required prior payment
under protest of the amount of P43,878,208.18, a figure which, in the light of the then prevailing
Asian financial crisis, may have been difficult to raise up. Given this reality, an appeal to the LBAA

may not be considered as a plain, speedy and adequate remedy. It is thus understandable why
Bayantel opted to withdraw its earlier appeal with the LBAA and, instead, filed its petition for
prohibition with urgent application for injunctive relief in Civil Case No. Q-02-47292. The remedy
availed of by Bayantel under Section 2, Rule 65 of the Rules of Court must be upheld.
This brings the Court to the more weighty question of whether or not Bayantels real properties in
Quezon City are, under its franchise, exempt from real property tax.
The lower court resolved the issue in the affirmative, basically owing to the phrase "exclusive of this
franchise" found in Section 11 of Bayantels amended franchise, Rep. Act No. 7633. To petitioners,
however, the language of Section 11 of Rep. Act No. 7633 is neither clear nor unequivocal. The
elaborate and extensive discussion devoted by the trial court on the meaning and import of said
phrase, they add, suggests as much. It is petitioners thesis that Bayantel was in no time given any
express exemption from the payment of real property tax under its amendatory franchise.
There seems to be no issue as to Bayantels exemption from real estate taxes by virtue of the term
"exclusive of the franchise" qualifying the phrase "same taxes on its real estate, buildings and
personal property," found in Section 14, supra, of its franchise, Rep. Act No. 3259, as originally
granted.
The legislative intent expressed in the phrase "exclusive of this franchise" cannot be construed other
than distinguishing between two (2) sets of properties, be they real or personal, owned by the
franchisee, namely, (a) those actually, directly and exclusively used in its radio or
telecommunications business, and (b) those properties which are not so used. It is worthy to note
that the properties subject of the present controversy are only those which are admittedly falling
under the first category.
To the mind of the Court, Section 14 of Rep. Act No. 3259 effectively works to grant or delegate to
local governments of Congress inherent power to tax the franchisees properties belonging to the
second group of properties indicated above, that is, all properties which, "exclusive of this franchise,"
are not actually and directly used in the pursuit of its franchise. As may be recalled, the taxing power
of local governments under both the 1935 and the 1973 Constitutions solely depended upon an
enabling law. Absent such enabling law, local government units were without authority to impose and
collect taxes on real properties within their respective territorial jurisdictions. While Section 14 of
Rep. Act No. 3259 may be validly viewed as an implied delegation of power to tax, the delegation
under that provision, as couched, is limited to impositions over properties of the franchisee which are
not actually, directly and exclusively used in the pursuit of its franchise. Necessarily, other properties
of Bayantel directly used in the pursuit of its business are beyond the pale of the delegated taxing
power of local governments. In a very real sense, therefore, real properties of Bayantel, save those
exclusive of its franchise, are subject to realty taxes. Ultimately, therefore, the inevitable result was
that all realties which are actually, directly and exclusively used in the operation of its franchise are
"exempted" from any property tax.
Bayantels franchise being national in character, the "exemption" thus granted under Section 14 of
Rep. Act No. 3259 applies to all its real or personal properties found anywhere within the Philippine
archipelago.
However, with the LGCs taking effect on January 1, 1992, Bayantels "exemption" from real estate
taxes for properties of whatever kind located within the Metro Manila area was, by force of Section

234 of the Code, supra, expressly withdrawn. But, not long thereafter, however, or on July 20, 1992,
Congress passed Rep. Act No. 7633 amending Bayantels original franchise. Worthy of note is that
Section 11 of Rep. Act No. 7633 is a virtual reenacment of the tax provision, i.e., Section 14, supra,
of Bayantels original franchise under Rep. Act No. 3259. Stated otherwise, Section 14 of Rep. Act
No. 3259 which was deemed impliedly repealed by Section 234 of the LGC was expressly revived
under Section 14 of Rep. Act No. 7633. In concrete terms, the realty tax exemption heretofore
enjoyed by Bayantel under its original franchise, but subsequently withdrawn by force of Section 234
of the LGC, has been restored by Section 14 of Rep. Act No. 7633.
The Court has taken stock of the fact that by virtue of Section 5, Article X of the 1987
Constitution,8 local governments are empowered to levy taxes. And pursuant to this constitutional
empowerment, juxtaposed with Section 2329 of the LGC, the Quezon City government enacted in
1993 its local Revenue Code, imposing real property tax on all real properties found within its
territorial jurisdiction. And as earlier stated, the Citys Revenue Code, just like the LGC, expressly
withdrew, under Section 230 thereof, supra, all tax exemption privileges in general.
This thus raises the question of whether or not the Citys Revenue Code pursuant to which the city
treasurer of Quezon City levied real property taxes against Bayantels real properties located within
the City effectively withdrew the tax exemption enjoyed by Bayantel under its franchise, as
amended.
Bayantel answers the poser in the negative arguing that once again it is only "liable to pay the same
taxes, as any other persons or corporations on all its real or personal properties, exclusive of its
franchise."
Bayantels posture is well-taken. While the system of local government taxation has changed with
the onset of the 1987 Constitution, the power of local government units to tax is still limited. As we
explained in Mactan Cebu International Airport Authority:10
The power to tax is primarily vested in the Congress; however, in our jurisdiction, it may be exercised
by local legislative bodies, no longer merely be virtue of a valid delegation as before, but pursuant to
direct authority conferred by Section 5, Article X of the Constitution. Under the latter, the exercise of
the power may be subject to such guidelines and limitations as the Congress may provide which,
however, must be consistent with the basic policy of local autonomy. (at p. 680; Emphasis supplied.)
Clearly then, while a new slant on the subject of local taxation now prevails in the sense that the
former doctrine of local government units delegated power to tax had been effectively modified with
Article X, Section 5 of the 1987 Constitution now in place, .the basic doctrine on local taxation
remains essentially the same. For as the Court stressed in Mactan, "the power to tax is [still]
primarily vested in the Congress."
This new perspective is best articulated by Fr. Joaquin G. Bernas, S.J., himself a Commissioner of
the 1986 Constitutional Commission which crafted the 1987 Constitution, thus:
What is the effect of Section 5 on the fiscal position of municipal corporations? Section 5 does not
change the doctrine that municipal corporations do not possess inherent powers of taxation. What it
does is to confer municipal corporations a general power to levy taxes and otherwise create sources
of revenue. They no longer have to wait for a statutory grant of these powers. The power of the
legislative authority relative to the fiscal powers of local governments has been reduced to the

authority to impose limitations on municipal powers. Moreover, these limitations must be "consistent
with the basic policy of local autonomy." The important legal effect of Section 5 is thus to reverse the
principle that doubts are resolved against municipal corporations. Henceforth, in interpreting
statutory provisions on municipal fiscal powers, doubts will be resolved in favor of municipal
corporations. It is understood, however, that taxes imposed by local government must be for a public
purpose, uniform within a locality, must not be confiscatory, and must be within the jurisdiction of the
local unit to pass.11 (Emphasis supplied).
In net effect, the controversy presently before the Court involves, at bottom, a clash between the
inherent taxing power of the legislature, which necessarily includes the power to exempt, and the
local governments delegated power to tax under the aegis of the 1987 Constitution.
Now to go back to the Quezon City Revenue Code which imposed real estate taxes on all real
properties within the citys territory and removed exemptions theretofore "previously granted to, or
presently enjoyed by all persons, whether natural or juridical .," 12 there can really be no dispute
that the power of the Quezon City Government to tax is limited by Section 232 of the LGC which
expressly provides that "a province or city or municipality within the Metropolitan Manila Area may
levy an annual ad valorem tax on real property such as land, building, machinery, and other
improvement not hereinafter specifically exempted." Under this law, the Legislature highlighted its
power to thereafter exempt certain realties from the taxing power of local government units. An
interpretation denying Congress such power to exempt would reduce the phrase "not hereinafter
specifically exempted" as a pure jargon, without meaning whatsoever. Needless to state, such
absurd situation is unacceptable.
For sure, in Philippine Long Distance Telephone Company, Inc. (PLDT) vs. City of Davao, 13 this
Court has upheld the power of Congress to grant exemptions over the power of local government
units to impose taxes. There, the Court wrote:
Indeed, the grant of taxing powers to local government units under the Constitution and the LGC
does not affect the power of Congress to grant exemptions to certain persons, pursuant to a
declared national policy. The legal effect of the constitutional grant to local governments simply
means that in interpreting statutory provisions on municipal taxing powers, doubts must be resolved
in favor of municipal corporations. (Emphasis supplied.)
As we see it, then, the issue in this case no longer dwells on whether Congress has the power to
exempt Bayantels properties from realty taxes by its enactment of Rep. Act No. 7633 which
amended Bayantels original franchise. The more decisive question turns on whether Congress
actually did exempt Bayantels properties at all by virtue of Section 11 of Rep. Act No. 7633.
Admittedly, Rep. Act No. 7633 was enacted subsequent to the LGC. Perfectly aware that the LGC
has already withdrawn Bayantels former exemption from realty taxes, Congress opted to pass Rep.
Act No. 7633 using, under Section 11 thereof, exactly the same defining phrase "exclusive of this
franchise" which was the basis for Bayantels exemption from realty taxes prior to the LGC. In plain
language, Section 11 of Rep. Act No. 7633 states that "the grantee, its successors or assigns shall
be liable to pay the same taxes on their real estate, buildings and personal property, exclusive of this
franchise, as other persons or corporations are now or hereafter may be required by law to pay." The
Court views this subsequent piece of legislation as an express and real intention on the part of
Congress to once again remove from the LGCs delegated taxing power, all of the franchisees
(Bayantels) properties that are actually, directly and exclusively used in the pursuit of its franchise.

WHEREFORE, the petition is DENIED.

No pronouncement as to costs.
SO ORDERED.
CANCIO C. GARCIA
Associate Justice