Prior Operator Rule

Prior Operator Rule means that before permitting a new operator to invade the territory of another
already established with a certificate of public convenience, the prior operator must first be given the
opportunity to extend its service in order to meet public needs in the matter of transportation
(Mandaluyong Bus vs. Francisco, 32 SDCRA 405; Javier vs. Orlanes, 53 Phhil. 368).

It means that a public utility operator should be shielded from ruinous competition by affording him an
opportunity to improve his equipment and service before allowing a new operator to serve in the same
territory he covers (Mandbusco, Inc. vs. Francisco, 32 SCRA 405).

Thus, where two operators are more than enough to serve the public, there is no reason to permit a
third operator to engage in competition with them (Yangco vs. Esteban, 58 Phil. 346).

Ruinous Competition

In order to prove ruinous competition, the mere possibility of reduction in the income of an existing
operator holding a public service permit does not, of itself, establish that issuing a permit to another to
operate within the same territory will result in ruinous competition.

To prove the latter, it should be shown that the oppositor will not obtain sufficient profits to pay a
dividend or reasonable interest upon invested capital (Halili vs. Ice and Cold Storage Industries, Inc., 77
Phil. 823).

A claim, therefore, by older operators that ruinous competition would result from extending or making
permanent the certificates of more recent taxi cab operators in the Manila area could not be seriously
considered in the absence of clear cut evidence of resultant loss (Manila Yellow Taxicab vs. P.S.C., L-
2875, Oct. 31, 1951).

Instances where the Rule is inapplicable

1. Where public interest would be better served by the new operator (Guico vs. Estate of F.P.
Buan, L-9769, Aug. 30 1979), as when the operator has failed, despite ample time and
opportunity given to it by the Commission, to render adequate, sufficient and satisfactory
service and had violated the important conditions of its certificate. The protection given to prior
operators refer only to operators of good standing (Rizal Light & Ice Co., Inc. vs. Mun. of
Morong, Rizal 25 SCRA 286). The Prior Operator Rule cannot take precedence over the
convenience of the public if the resulting competition will benefit the public through the
improvement in the service and reduction in retail prices (Intestate Estate of Teofilo M. Tiongson
vs. Public Service Commission, 36 SCRA 241; Marites Ereno Co. vs. P.S.C. 67 SCRA 192).

2. Where the old operator has failed to make an offer to meet the increase in traffic (Manila
Yellow Taxicab Co., Inc. vs. Castelo, L-13910, May 30, 1960).
3. Where the certificate of public convenience granted to the new operator is a maiden certificate,
which does not overlap with the entire route of the old operator but only a short portion
thereof as a convergence point (Mandbusco, Inc. vs. Francisco, 32 SCRA 405).

4. If the application of the rule will be conducive to monopoly of the service, and contrary to the
principle that promotes healthy competition (Villa Rey Transit, Inc. vs. Pangasinan Trans. Co.,
Inc., 5 SCRA 234; Raymundo Transportation Co., vs. Cervo L-3899, May 21, 1952).

5. The prior operator rule applies only when the old operator has made an offer to meet the
increase in traffic and not when another operator, even a new one, has made the offer to
service the new line or increase the service of said line (Manila Yello Taxicab Co., Onc. Vs.
Castelo L-13910, May 30, 1960). The rule protects only those who are vigilant in meeting the
needs of the travelling public (Raymundo Transportation Co., Inc. vs. Cerda, L-7880, May 18,
1956).