G.R. No.
112702 September 26, 1997
NATIONAL POWER CORPORATION, petitioner,
vs.
COURT OF APPEALS and CAGAYAN ELECTRIC POWER AND LIGHT CO., INC.
(CEPALCO), respondents.
G.R. No. 113613 September 26, 1997
PHIVIDEC INDUSTRIAL AUTHORITY, petitioner,
vs.
COURT OF APPEALS and CAGAYAN ELECTRIC POWER AND LIGHT CO., INC.
(CEPALCO), respondents.
ROMERO, J.:
Offered for resolution in these consolidated petitions for review on certiorari is the issue
of whether or not the National Power Corporation (NPC) has jurisdiction to determine
whether it may supply electric power directly to the facilities of an industrial corporation
in areas where there is an existing and operating electric power franchisee.
On June 17, 1961, the Cagayan Electric and power Light Company (CEPALCO) was
enfranchised by Republic Act No. 3247 "to construct, maintain and operate an electric
light, heat and power system for the purpose of generating and/or distributing electric
light, heat and/or power for sale within the City of Cagayan de Oro and its suburbs" for
fifty (50) years. Republic Act No. 3570, approved on June 21, 1963, expanded the area
of coverage of the franchise to include the municipalities of Tagoloan and Opol, both in
the Province of Misamis Oriental. On August 4, 1969, Republic Act No. 6020 further
amended the same franchise to include in the areas of CEPALCO's authority of
"generating and distributing electric light and power for sale," the municipalities of
Villanueva and Jasaan, also of the said province.
Presidential Decree No. 243, issued on July 12, 1973, created a "body corporate and
politic" to be known as the Philippine Veterans Investment Development Corporation
(PHIVIDEC) vested with authority to engage in "commercial, industrial, mining,
agricultural and other enterprises" among other powers1 and "to allow the full and
continued employment of the productive capabilities of and investment of the veterans
and retirees of the Armed Forces of the Philippines." On August 13, 1974, Presidential
Decree No. 538 was promulgated to create the PHIVIDEC Industrial Authority (PIA), a
subsidiary of PHIVIDEC, to carry out the government policy "to encourage, promote
and sustain the economic and social growth of the country and that the establishment
of professionalized management of well-planned industrial areas shall further this
objective."2 Under Sec. 3 of P.D. No. 538, the first area for development shall be
located in the municipalities of Tagoloan and Villanueva.3 This area forms part of the
PHIVIDEC Industrial Estate Misamis Oriental (PIE-MO).
As manager of PIE-MO, PIA granted the Ferrochrome Philippines, Inc. (FPI) and Metal
Alloys Corporation (MAC) authority to operate in its area of development. On July 6,
1979, PIA granted CEPALCO a temporary authority to retail electric power to the
industries operating within the PIE-MO.4 The Agreement executed by PIA and
CEPALCO authorized CEPALCO "to operate, administer, construct and distribute
electric power within the PHIVIDEC Industrial Estate, Misamis Oriental, such authority
to be co-extensive with the territorial jurisdiction of PHIVIDEC Industrial Estate, as
defined in Sec. 3 of P.D. No. 538 and shall be for a period of five (5) years, renewable
for another five (5) years at the option of CEPALCO." The parties provided further that:
9. At the end of the fifth year, or at the end of the 10th year, should this
Agreement be thus renewed, PIA has the option to take over the operation of
the electric service and acquire by purchase CEPALCO's assets within PIE-
MO. This option shall be communicated to CEPALCO in writing at least 24
months before the date of acquisition of assets and takeover of operation by
PIA. Should PIA exercise its option to purchase the assets of CEPALCO in
PIE-MO, PIA shall respect the right of ownership of and maintenance by
CEPALCO of those assets inside PIE-MO not covered by such purchase. . . .
According to PIA,5 CEPALCO proved no match to the power demands of the industries
in PIE-MO that most of these companies operating therein closed shop.6 Impelled by
a "desire to provide cheap power costs to power-intensive industries operating within
the Estate," PIA applied with the National Power Corporation (NPC) for direct power
connection which the latter in due course approved.7 One of the companies which
entered into an agreement with the NPC for a direct sale and supply of power was the
Ferrochrome Phils., Inc. (FPI).
Contending that the said agreement violated its right as the authorized operator of an
electric light and power system in the area and the national electrification policy,
CEPALCO filed Civil Case No. Q-35945, a petition for prohibition, mandamus and
injunction before the Regional Trial Court of Quezon City against the NPC.
Notwithstanding NPC's claim that it was authorized by its Charter to sell electric power
"in bulk" to industrial enterprises, the lower court rendered a decision on May 2, 1984,
restraining the NPC from supplying power directly to FPI upon the ground that such
direct sale, supply and delivery of electric power by the NPC to FPI was violative of the
rights of CEPALCO under its legislative franchise. Hence, the lower court ordered the
NPC to "permanently desist" from effecting direct supply of power to the FPI and "from
entering into and/or implementing any agreement or arrangement for such direct power
connection, unless coursed through the power line" of CEPALCO.
Eventually, the case reached this Court through G.R. No. 72085.8 On December 28,
1989, the Court denied the appeal interposed by NPC on the ground that the statutory
authority given to the NPC as regards direct supply of power to BOI-registered
enterprises "should always be subordinate to the 'total-electrification-of-the-entire-
country-on-an-area-coverage basis policy' enunciated in P. D. No. 40,"9 We held
further that:
Nor should we lose sight of the factual findings of the court a quo that
petitioner-appellee CEPALCO had not only been authorized by the Phividec
Industrial Authority to provide electrical power to the Phividec Industrial Estate
within which the FPI plant is located, but that petitioner-appellee CEPALCO
had in fact, supplied the latter's power requirements for the construction of its
plant, upon FPI's application therefor as early as October 17, 1980.
It bears emphasis then that "it is only after a hearing (or an opportunity for
such a hearing) where it is established that the affected private franchise
holder is incapable or unwilling to match the reliability and rates of NPC that
direct connection with NPC may be granted." Here, petitioner-appellee's
reliability as a power supplier and ability to match the NPC rates were never
put in issue.
It is immaterial that petitioner-appellee's franchise was not exclusive. A
privilege to sell within specified territory, even if not exclusive, is a valuable
property right entitled to protection against unauthorized competition.10
Notwithstanding said decision, in September 1990, FPI filed a new application for the
direct supply of electric power from NPC. The Hearing Committee of the NPC had
started hearing the application but CEPALCO filed with the Regional Trial Court of
Quezon City a petition for contempt against NPC officials led by Ernesto Aboitiz. On
August 10, 1992, the trial court found the respondents in direct contempt of court and
accordingly imposed upon them a fine of P500.00 each.
The respondent NPC officials challenged before this Court the judgment holding them
in contempt of court through G.R. No. 107809, (Aboitiz v. Regino).11 In the Decision of
July 5, 1993, the Court upheld the contempt ruling and, after quoting the lower court's
decision of May 2, 1984 which the Court upheld in G.R. No. 72085, said:
These directives show that the lower court (and this Court) intended the
arrangement between FPI and CEPALCO to be permanent and free from
NAPOCOR's influence or intervention. Any attempt on the part of NAPOCOR
or its officers and/or employees to strike a deal with FPI would be a clear and
direct disobedience to a lawful order and therefore contemptuous.
The petitioners call the attention of the Court to the statement of CEPALCO
that "NAPOCOR has already implemented in full" the May 2, 1984 decision of
the lower court as affirmed by this Court. They suggest that in view of this, the
decision no longer has any binding effect upon the parties, or to put it another
way, has become functus officio. Consequently, when they entertained the re-
application of FPI for direct power connection to NAPOCOR, they were not
disobeying the May 2, 1984 order of the trial court and so should not be held
in contempt.
This argument must be rejected in view of our finding of the permanence and
comprehensiveness of the challenged order of the trial court. "Permanent" is
not a difficult word to understand. It means "lasting or intended to last
indefinitely without change." As for the scope of the order, NAPOCOR was
directed to "desist from effecting, causing, and continuing the direct supply,
sale and delivery of electricity from its power line to the plant of Ferrochrome
Philippines, Inc., and from entering into and/or implementing any agreement
or arrangement for such direct power connection, unless coursed through the
power line of petitioner." (Emphasis supplied.)
Meanwhile, the NPC Hearing Committee12 proceeded with its hearings. CEPALCO
was duly notified thereof but it opted to question the committee's jurisdiction. It did not
submit any evidence. Consequently, in its Report and Recommendation dated
September 27, 1991, the committee gave weight to the evidence presented by FPI that
CEPALCO charged higher rates than what the NPC would if allowed to supply power
directly to FPI. Although the committee considered as unfounded FPI's claim of
CEPALCO's unreliability as a power supplier,13 it nonetheless held that:
Form (sic) the foregoing and on the basis of the decision of the Supreme Court
in the case of National Power Corporation and Fine Chemicals (Phils.) Inc. v.
The Court of Appeals and the Manila Electric Company, G.R. No. 84695, May
8, 1990, FPI is entitled to a direct connection to NPC as applied for considering
that CEPALCO is unwilling to match the rates of NPC for directly serving FPI
and that FPI is a duly registered BOI registered enterprises (sic). The
Supreme Court in the aforestated case has ruled as follows:
As consistently ruled by the Court pursuant to P.D. No. 380
as amended by P.D. No. 395, NPC is statutorily empowered
to directly service all the requirements of a BOI registered
enterprise provided that, first, any affected private franchise
holder is afforded an opportunity to be heard on the
application therefor and second, from such a hearing, it is
established that said private franchise holder is incapable
or unwilling to match the reliability and rates of NPC for
directly serving the latter (National Power Corporation v.
Jacinto, 134 SCRA 435 [1985]. National Power Corporation
v. Court of Appeals, 161 SCRA 103 [1988]).14
However, considering the "better and priority right" of PIA, the committee
recommended that instead of a direct power connection by the NPC to FPI, the
connection should be made to PIA "as a utility user for its industrial Estate at Tagoloan,
Misamis Oriental."15
For its part, on November 3, 1989, CEPALCO filed with the Energy Regulatory Board
(ERB) a petition praying that the ERB "order the discontinuance of all existing direct
supply of power by the NPC within petitioner's franchise area" (ERB Case No. 89-430).
On July 17, 1992, the ERB ruled that CEPALCO "is relatively efficient and reliable as
manifested by its very low system losses (far from the 14% standard) and very high
power factors" and therefore CEPALCO is technically capable "to distribute power to
its consumers within its franchise area, particularly the industrial customers." It
disposed of the petition as follows:
WHEREFORE, in view of the foregoing premises, when the petitioner has
been proven to be capable of distributing power to its industrial consumers
and having passed the secondary considerations with a passing mark of 85%,
judgment is hereby rendered granting the relief prayed for. Accordingly, it is
hereby declared that all direct connection of industries to NPC within the
franchise area of CEPALCO is no longer necessary. Therefore, all existing
NPC direct supply of power to industrial consumers within the franchise area
of CEPALCO is hereby ordered discontinued. . . . .16
However, during the pendency of the Aboitiz case in this Court or on August 3, 1992,
PIA contracted the NPC for the construction of a 138 kilovolt (KV) transmission line
from Namutulan substation to the receiving and/or substation of PIA.17
As expected, on February 17, 1993, CEPALCO filed in the Regional Trial Court of Pasig
(Branch 68), a petition for certiorari, prohibition, mandamus and injunction against the
NPC and some officials of both the NPC and PIA.18 Docketed as SCA No. 290, the
petition specifically sought the issuance of a temporary restraining order. However,
after hearing, the prayer for the temporary restraining order was denied by the court in
its order of March 12, 1993.19 CEPALCO filed a motion for the reconsideration of said
order while NPC and PIA moved for the dismissal of the petition.20
On June 23, 1993, noting the cases filed by CEPALCO all seeking exclusivity in the
distribution of electric power to areas covered by its franchise, the court21 ruled that
"the right of petitioner to supply electric power in the aforesaid area to the exclusion of
other entities had been settled once and for all by the Regional Trial Court of Quezon
City wherein petitioner obtained a favorable judgment." Hence, the petition was
dismissed on the ground of res judicata.22
Forthwith, CEPALCO elevated the case to this Court through a petition for certiorari,
prohibition and injunction with prayer for the issuance of a preliminary injunction or a
temporary restraining order. The petition was docketed as G.R. No. 110686 but on
August 18, 1993, the Court referred it to the Court of Appeals pursuant to Sec. 9,
paragraph 1 of B.P. Blg. 129 conferring upon the appellate court original jurisdiction to
issue writs of prohibition and certiorari and auxiliary writs.23 In the Court of Appeals,
the petition was docketed as CA-G.R. No. 31935-SP.
On September 10, 1993, the Fifteenth Division of the Court of Appeals issued a
resolution24 denying the prayer for the issuance of a temporary restraining order on
the strength of Sec. 1 of P.D. No. 1818. It ruled that since the NPC is a public utility, it
"enjoys the protective mantle" of said decree prohibiting courts from issuing restraining
orders or preliminary injunctions in cases involving infrastructure and natural resource
development projects of, and operated by, the government.25
However, on September 17, 1993, upon a motion for reconsideration filed by
CEPALCO and a re-evaluation of the provisions of P.D. No. 1818, the Court of Appeals
set aside its resolution of September 10, 1993 and held that:
. . . the project intended by respondent NPC, which is the construction,
completion and operation of the 138-kv line, is not in consonance with the
 intendment of said Decree which is to protect public utilities and their projects
and activities intended for public convenience and necessity. The project of
respondent NPC is intended to serve exclusively the needs of private entities,
Metal Alloys Corporation and Ferrochrome Philippine in Tagoloan, Misamis
Oriental.
Accordingly, the Court of Appeals issued a temporary restraining order directing the
private respondents therein "to immediately cease and desist from proceeding with the
construction, completion and operation of the 138-kv line subject of the petition." The
NPC, PIA and the officers of both were directed to explain why the preliminary injunction
prayed for should not issue.26
In due course, the Court of Appeals rendered the decision27 of November 15, 1993
assailed herein. After ruling that the lower court gravely abused its discretion in
dismissing the petition below on the grounds of res judicata and litis pendentia, the
Court of Appeals confronted squarely the issue of whether or not "the NPC itself has
the power to determine the propriety of direct power connection from its lines to any
entity located within the franchise area of another public utility."28
Elucidating that the ruling of this Court in both G.R. No. 78609 (NPC v. Court of
Appeals) 29 and G.R. No. 87697 (Del Monte [Philippines], Inc. v. Hon. Felix M. de
Guzman, etc., etc., et al.)30 categorically held that before a direct connection to the
NPC maybe granted, a proper administrative body must conduct a hearing "to
determine which entity, the franchise holder or the NPC, has the right to supply electric
power to the entity applying for direct connection," the Court of Appeals declared:
We have no doubt that the ERB, and not the NPC, is the administrative body
referred to by the Supreme Court where the hearing is to be conducted to
determine the propriety of direct connection. The charter of the ERB (PD 1206
in relation to EO 172) is clear on this:
The Board shall, after due notice and hearing, exercise the
following powers and functions, among others:
xxx xxx xxx
e. Issue Certificate of Public Convenience for the operation
of electric power utilities and services, . . . including the
establishment and regulation of areas of operation of
particular operators of public power utilities and services,
the fixing of standards and specifications in all cases related
to the issued Certificate of Public Convenience . . .
Moreover, NPC is not an administrative body as jurisprudentially defined, and
that the NPC cannot usurp a power it has never been conferred by its charter
or by other law the power to determine the validity of direct connection
agreement it enters into in violation of a power distributor's franchise.
Thus, considering that PIA professes to be and intends to engage in the
business of a public power utility, it must first apply for a public convenience
and necessity (conferment of operating authority) with the ERB. This may
have been the opportune time for ERB to determine whether to allow PIA to
directly connect with NPC, with notice and opportunity for CEPALCO
considering that, as the latter alleges, this new line which NPC is installing
duplicates that existing Cepalco 138 kv line which NPC itself turned over to
Cepalco and for which it was paid in full.
Consequently, the Court of Appeals affirmed the dismissal of the petition, annulled and
set aside the decision of the Hearing Committee of the NPC on direct connection with
PIA, and ordered the NPC "to desist from continuing the construction of that NPC-
Natumulan-Phividec 138 kv transmission line."31
Without filing a motion for the reconsideration of said Decision, NPC filed in this Court
on December 9, 1993, a motion for an extension of time within which to file "the proper
petition." The motion which was docketed as G.R. No. 112702, was granted on
December 20, 1993 with warning that no further extension would be granted.
Thereafter, NPC filed a motion praying that it be excused from filing the petition on
account of the filing by PIA in the Court of Appeals of a motion for the reconsideration
of the Decision of November 15, 1993. In the Resolution of February 2, 1994, the Court
noted and granted petitioner' s motion and considered the case "closed and
terminated."32 This resolution was withdrawn in the Resolution of February 8, 199533
in view of the "inadvertent clerical error" terminating the case, after the NPC had mailed
its petition for review on certiorari on February 21, 1994.34
In the meantime, PIA filed a motion for reconsideration of the appellate court's Decision
of November 15, 1993 arguing in the main that, not being a party to previous cases
between CEPALCO and NPC, it was not bound by decisions of this Court. The Court
of Appeals denied the motion on January 28, 1994 on the basis of stare decisis where
once the court has laid down a principle of law as applicable to a certain state of facts,
it will adhere to and apply the principle to all future cases where the facts are
substantially the
same.35 Hence, PIA filed a petition for review on certiorari which was docketed as G.R.
No. 113613.
G.R. Nos. 112702 and 113613 were consolidated on June 15, 1994.36
In G.R. No. 112702, petitioner NPC contends that private respondent CEPALCO is not
entitled to relief because it has been forum-shopping. Private respondent had filed Civil
Case No. Q-93-14597 in the Regional Trial Court of Quezon City which had been
forwarded to it by the Regional Trial Court of Pasig. Said case and the instant case
(SCA No. 290) deal with the same issue of restoring CEPALCO' s right to supply power
to FPI and MAC. Petitioner thus contends that because the principle of litis pendentia
applies, although other parties are involved in the case before the Quezon City court,
there is no basis for granting relief to private respondent CEPALCO "(s)ince the
dismissal for lack of jurisdiction was affirmed by the respondent court."37 Corollarily,
petitioner asserts that because the main case herein was dismissed "without trial," the
respondent appellate court should not have accorded private respondent affirmative
relief.38
Petitioner NPC's contention is based on the fact that on October 6, 1992, private
respondent CEPALCO filed against the NPC in the Regional Trial Court of Pasig, Civil
Case No. 62490, an action for specific performance and damages with prayer for
preliminary mandatory injunction directing the NPC to immediately restore to
CEPALCO the distribution of power pertaining to MAC's consumption.39 However, no
summons was served and the ex-parte writ prayed for was not issued. Nevertheless,
the case was forwarded to the Regional Trial Court of Quezon City where it was
docketed as Civil Case No. 93-14597. That case was pending when SCA No. 290 was
filed before the Regional Trial Court of Pasig.
The Court of Appeals affirmed the lower court's dismissal of the case neither on the
grounds of res judicata nor ligis pendentia but on the "only one unresolved issue, which
is whether the NPC itself has the power to determine the propriety of direct power
connection from its lines to any entity located within the franchise area of another public
utility."40 The Court of Appeals opined that the effects of litis pendentia could not have
resulted in the dismissal of SCA No. 290 because Civil Case No. Q-35945 which
became G.R. No. 72085 was based on facts totally different from that of SCA No. 290.
In invoking litis pendentia, however, petitioner NPC refers to this case, SCA No. 290,
and Civil Case No. 93-14597. SCA No. 290 and Civil Case No. 93-14597 may both
have the same objective, the restoration of CEPALCO's right to distribute power to PIE-
MO areas under its franchise aside from the fact that the cases involve practically the
same parties. However, litis pendentia may not be successfully invoked to cause the
dismissal of SCA No. 290.
In order to constitute a ground for the abatement or dismissal of an action, litis
pendentia must exhibit the concurrence of the following requisites: (a) identity of
parties, or at least such as representing the same interest in both actions; (b) identity
of rights asserted and relief prayed for, the relief being founded on the same facts, and
(c) identity in the two (2) cases should be such that the judgment that may be rendered
in the pending case would, regardless of which party is successful, amount to res
judicata in the other.41 As a rule, the second case filed should be abated under the
maxim qui prior est tempore, potior est jure. However, this rule is not a hard and fast
one. The "priority-in-time rule" may give way to the criterion of "more appropriate
action." More recently, the criterion used was the "interest of justice rule."42
We hold that the last criterion should be the basis for resolving this case, although it
was filed later than Civil Case No. 62490 which, upon its transfer, became Civil Case
No. 93-14795. In so doing, we shall avoid multiplicity of suits which is the matrix upon
which litis pendentia is anchored and eventually bring about the final settlement of the
recurring issue of whether or not the NPC may supply power directly to the industries
within PIE-MO, notwithstanding the operation of franchisee CEPALCO in the same
area.
It should be noted that there is yet pending another case, namely, Civil Case No. 91-
383, instituted by PIA against CEPALCO in the Regional Trial Court of Misamis Oriental
which apparently deals with a related issue PIA' s franchise or authority to provide
power to enterprises within the PIE-MO.43 Hence, the principle of litis pendentia which
ordinarily demands the dismissal of an action filed later than another, should be
considered under the primordial concept of "interest of justice," in order that a recurrent
issue common to all cases may be definitively resolved.
The principal and common question raised in these consolidated cases is: whether or
not the NPC may supply power directly to PIA in the PIE-MO area where CEPALCO
has a directly franchise. Petitioner PIA in G.R. No. 113613 asserts that it may receive
power directly from the NPC because it is a public utility. It avers that P.D. No. 538, as
amended, empowers PIA "as and to be a public utility to operate and serve the power
needs within PIE-MO, i.e., a specific area constituting a small portion of petitioner's
franchise coverage," without, however, specifying the particular provision which so
empower PIA.44
A "public utility" is a business or service engaged in regularly supplying the public with
some commodity or service of public consequence such as electricity, gas, water,
transportation, telephone or telegraph service.45 The term implies public use and
service.46
Petitioner PIA is a subsidiary of the PHIVIDEC with "governmental and proprietary
functions."47 Sec. 4 of P.D. No. 538 specifically confers upon it the following powers:
a. To operate, administer and manage the PHIVIDEC Industrial Areas and
other areas which shall hereafter be proclaimed, designated and specified in
subsequent Presidential Proclamation; to construct acquire, own, lease,
operate and maintain infrastructure facilities, factory buildings, warehouses,
dams, reservoirs, water distribution, electric light and power systems,
telecommunications and transportation networks, or such other facilities and
services necessary or useful in the conduct of industry and commerce or in
the attainment of the purposes and objectives of this Decree; (Emphasis
supplied.)
Clearly then, the PIA is authorized to render indirect service to the public by its
administration of the PHIVIDEC industrial areas like the PIE-MO and may, therefore,
be considered a public utility. As it is expressly authorized by law to perform the
functions of a public utility, a certificate of public convenience, as suggested by the
Court of Appeals, is not necessary for it to avail of a direct power connection from the
NPC. However, such authority to be a public utility may not be exercised in such a
manner as to prejudice the rights of existing franchisees. In fact, by its actions, PIA
recognized the rights of the franchisees in the area.
Accordingly, in pursuit of its powers "to grant such franchise for and to operate and
maintain within the Areas electric light, heat or power systems," etc. under Sec. 4 (i) of
P.D. No. 538 and its rule-making power under Sec. 4 (1) of the same law, on July 20,
1979, the PIA Board of Directors promulgated the "Rules and Regulations To
Implement the Intent and Provisions of Presidential Decree No. 538."48 Rule XI thereof
on "Utilities and Services" provides as follows:
Sec. 1. Utilities It is the responsibility of the Authority to provide all required
utilities and services inside the Estate:
xxx xxx xxx
a) Contracts for the purchase of public utilities and/or services shall
be subject to the prior approval of the Authority; Provided, however,
that similar contract(s) existing prior to the effectivity of this Rules
and Regulations shall continue to be in full force and effect.
xxx xxx xxx
(Emphasis supplied.)
It should be noted that the Rules and Regulations took effect thirty (30) days after its
publication in the Official Gazette on September 24, 1979 or more than three (3) months
after the July 6, 1979 contract between PIA and CEPALCO was entered into. As such,
the Rules and Regulations itself allowed the continuance of the supply of electric power
to PIE-MO by CEPALCO.
That the contract of July 6, 1979 was not renewed by the parties after the expiration of
the five-year period stipulated therein did not change the fact that within that five-year
period, in violation of both the contract and its Rules and Regulations, PIA applied with
the NPC for direct power connection. The
matter was aggravated by NPC's favorable action on the application, totally unmindful
of the extent of its powers under the law which, in National Power Corporation v. Court
of Appeals,49 the Court delimits as follows:
. . . . It is immaterial whether the direct connection is merely an improvement
or an increase in existing voltage, as alleged by petitioner, or a totally new and
separate electric service as claimed by private respondent. The law on the
matter is clear. PD 40 promulgated on 7 November 1972 expressly provides
that the generation of electric power shall be undertaken solely by the NPC.
However Section 3 of the same decree also provides that the distribution of
electric power shall be undertaken by cooperatives, private utilities (such as
the CEPALCO), local governments and other entities duly authorized, subject
to state regulation. ( Emphasis supplied.)
The same case ruled that "(i)t is only after a hearing (or an opportunity for such a
hearing) where it is established that the affected private franchise holder is incapable
or unwilling to match the reliability and rates of NPC that a direct connection with NPC
may be granted."50 As earlier stated, the Court arrived at the same ruling in the later
cases of G.R. Nos. 72085, 84695 and 87697.
Petitioner NPC attempted to abide by these rulings when it conducted a hearing to
determine whether it may supply power directly to PIA. While it notified CEPALCO of
the hearing, the NPC is not the proper authority referred to by this Court in the
aforementioned earlier decisions, not only because the subject of the hearing is a
matter involving the NPC itself, but also because the law has created the proper
administrative body vested with authority to conduct a hearing.
CEPALCO shares the view of the Court of Appeals that the Energy Regulatory Board
(ERB) is the proper administrative body for such hearings. However, a recent legislative
development has overtaken said view.
The ERB, which used to be the Board of Energy, is tasked with the following powers
and functions by Executive Order No. 172 which took effect immediately after its
issuance on May 8, 1987:
Sec. 3. Jurisdiction, Powers and Functions of the Board. When warranted
and only when public necessity requires, the Board may regulate the business
of importing, exporting, re-exporting, shipping, transporting, processing,
refining, marketing and importing, distributing energy resources. . . .
The Board shall, upon prior notice and hearing, exercise the following, among
other powers and functions:
(a) Fix and regulate the prices of petroleum products;
(b) Fix and regulate the rate schedule or prices of piped gas to be
charged by duly franchised gas companies which distribute gas by
means of underground pipe system;
(c) Fix and regulate the rates of pipeline concessionaires under the
provisions of Republic Act No. 387, as amended, otherwise known
as the "Petroleum Act of 1949," as amended by Presidential Decree
No. 1700;
(d) Regulate the capacities of new refineries or additional capacities
of existing refineries and license refineries that may be organized
after the issuance of this Executive Order, under such terms and
conditions as are consistent with the national interest;
(e) Whenever the Board has determined that there is a shortage or
any petroleum product, or when public interest so requires, it may
take such steps as it may consider necessary, including the
temporary adjustment of the levels of prices of petroleum products
and the payment to the Oil Price Stabilization Fund created under
Presidential Decree No. 1956 by persons or entities engaged in the
petroleum industry of such amounts as may be determined by the
Board, which will enable the importer to recover its cost of
importation.
As may be gleaned from said provisions, the ERB is basically a price or rate-fixing
agency. Apparently recognizing this basic function, Republic Act No. 7638 (An Act
Creating the Department of Energy, Rationalizing the Organization and Functions of
Government Agencies Related to Energy, and for Other Purposes),51 which was
approved on December 9, 1992 and which took effect fifteen days after its complete
publication in at least two (2) national newspapers of general circulation, specifically
provides as follows:
Sec. 18. Rationalization or Transfer of Functions of Attached or Related
Agencies. The non-price regulatory jurisdiction, powers, and functions of
the Energy Regulatory Board as provided for in Section 3 of Executive Order
No. 172 are hereby transferred to the Department.
The foregoing transfer of powers and functions shall include all applicable
funds and appropriations, records, equipment, property, and such personnel
as may be necessary. Provided, That only such amount of funds and
appropriations of the Board as well as only the personnel thereof which are
completely or primarily involved in the exercise by said Board of its non-price
regulatory powers and functions shall be affected by such transfer.
The power of the NPC to determine, fix, and prescribe the rates being charged
to its customers under Section 4 of Republic Act No. 6395, as amended, as
well as the power of electric cooperatives to fix rates under Section 16 (o),
Chapter II of Presidential Decree No. 269, as amended, are hereby
transferred to the Energy Regulatory Board. The Board shall exercise its new
powers only after due notice and hearing and under the same procedure
provided for in Executive Order No. 172.
Upon the effectivity of Republic Act No. 7638, then Acting Chairman of the Energy
Coordinating Council Delfin Lazaro transmitted to the Department of Justice the query
of whether or not the "non-power rate powers and functions" of the ERB are included
in the "jurisdiction, powers and functions transferred to the Department of Energy."
Answering the query in the affirmative, the Department of Justice rendered Opinion No.
22 dated February 12, 1993 the pertinent portion of which states:
. . . we believe that since the provision of Section 18 on the transfer of certain
powers and functions from ERB to DOE is clear and unequivocal, and devoid
of any ambiguity, in the sense that it categorically refers to "non-price
jurisdiction, powers and functions" of ERB under Section 3 of E.O. No. 172,
there is no room for interpretation, but only for application, of the law. This is
a cardinal rule of statutory construction.
Clearly, the parameters of the transfer of functions from ERB to DOE pursuant
to Section 18, are circumscribed by the provision of Section 3 of E.O. No. 172
alone so that, if there are other "related" functions of ERB under other
provisions of E.O. No. 172 or other energy laws, these "related" functions,
which may conceivably refer to what you call "non-power rate powers and
functions" of ERB, are clearly not contemplated by Section 18 and are,
therefore, not to be deemed included in the transfer of functions from ERB to
DOE under the said provision.
It may be argued that Section 26 of R.A. No. 7638 contains a repealing clause
which provides that:
All laws, presidential decrees, executive orders, rules and
regulations or parts thereof, inconsistent with the provisions
of this Act, are hereby repealed or modified accordingly. . .
.
and, therefore, all provisions of E.O. No. 172 and related laws which are
inconsistent with the policy, purpose and intent of R.A. No. 7638 are deemed
repealed. It has been said, however, that a general repealing clause of such
nature does not operate as an express repeal because it fails to identify or
designate the act or acts that are intended to be repealed. Rather, it is a clause
which predicates the intended repeal upon the condition that a substantial
conflict must be found on existing and prior acts of the same subject matter.
Such being the case, the presumption against implied repeals and the rule on
strict construction regarding implied repeals shall apply ex propio vigore. For
the legislature is presumed to know the existing laws so that, if repeal of
particular or specific laws is intended, the proper step is to so express it. The
failure to add a specific repealing clause particularly mentioning the statute to
be repealed indicates that the intent was not to repeal any existing law on the
matter, unless an irreconcilable inconsistency and repugnancy exists in the
terms of the new and the old laws (Iloilo Palay and Corn Planters Association,
Inc. vs. Feliciano, 13 SCRA 377; City of Naga vs. Agna, 71 SCRA 176, cited
in Agpalo, Statutory Construction, 1990 Edition, pp. 191-192).
In view of the foregoing, it is our opinion that only the non-price regulatory
functions of ERB under Section 3 of E.O. 172 are transferred to the DOE. All
 other powers of ERB which are not within the purview of its "non-price
regulatory jurisdiction, powers and functions" as defined in Section 3 are not
so transferred to DOE and accordingly remain vested in ERB.
The determination of which of two public utilities has the right to supply electric power
to an area which is within the coverage of both is certainly not a rate-fixing function
which should remain with the ERB. It deals with the regulation of the distribution of
energy resources which, under Executive Order No. 172, was expressly a function of
ERB. However, with the enactment of Republic Act No. 7638, the Department of Energy
took over such function. Hence, it is this Department which shall then determine
whether CEPALCO or PIA should supply power to PIE-MO.
Clearly, petitioner NPC's assertion that its "authority to entertain and hear direct
connection applications is a necessary incident of its express authority to sell electric
power in bulk" is now baseless.52 Even without the new legislation affecting its power
to conduct hearings, it is certainly irregular, if not downright anomalous for the NPC
itself to determine whether it should supply power directly to the PIA or the industries
within the PIE-MO. It simply cannot arrogate unto itself the authority to exercise non-
rate fixing powers which now devolves upon the Department of Energy and to hear and
eventually grant itself the right to supply power in bulk.53
On the other hand, ventilating the issue in a public hearing would not unduly prejudice
CEPALCO although it was enfranchised by law earlier than the PIA. Exclusivity of any
public franchise has not been favored by this Court such that in most, if not all, grants
by the government to private corporations, the interpretation of rights, privileges or
franchises is taken against the grantee. Thus in Alger Electric, Inc. v. Court of
Appeals,54 the Court said.
. . . Exclusivity is given by law with the understanding that the company
enjoying it is self-sufficient and capable of supplying the needed service or
product at moderate or reasonable prices. It would be against public interest
where the firm granted a monopoly is merely an unnecessary conduit of
electric power, jacking up prices as a superfluous middleman or an inefficient
producer which cannot supply cheap electricity to power intensive industries.
It is in the public interest when industries dependent on heavy use of electricity
are given reliable and direct power at the lower costs thus enabling the sale
of nationally marketed products at prices within the reach of the masses. . . .
WHEREFORE, both petitions in G.R. No. 112702 and 113613 are hereby DENIED.
The Department of Energy is directed to conduct a hearing with utmost dispatch to
determine whether it is the Cagayan Electric Power and Light Co., Inc. or the National
Power Corporation, through the PHIVIDEC Industrial Authority, which should supply
electric power to the industries in the PHIVIDEC Industrial Estate-Misamis Oriental.
This Decision is immediately executory.
SO ORDERED.
Narvasa, C.J., Melo and Francisco, JJ., concur.
Panganiban, J., took no part.
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.1
Telephone companies have historically been regulated as common carriers,2 and
indeed, the 1936 Public Service Act has classified wire or wireless communications
systems as a "public service," along with other common carriers.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 law's 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 government's intervention
towards ensuring service standards and protection of customers.5 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."6 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."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")8 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.
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.10 Review is
available to reverse the findings of the specialized administrative agency if the record
before the Court clearly precludes the agency's 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.11 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.12
Antecedent Facts
Globe and private respondent Smart Communications, Inc. ("Smart") are both grantees
of valid and subsisting legislative franchises,13 authorizing them, among others, to
operate a Cellular Mobile Telephone System ("CMTS"), utilizing the Global System for
Mobile Communication ("GSM") technology.14 Among the inherent services supported
by the GSM network is the Short Message Services (SMS),15 also known colloquially
as "texting," which has attained immense popularity in the Philippines as a mode of
electronic communication.
On 4 June 1999, Smart filed a Complaint16 with public respondent NTC, praying that
NTC order the immediate interconnection of Smart's and Globe's 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 Smart's request for the
interconnection of SMS.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 Smart's 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, Smart's failure to comply with the conditions precedent
required in Section 6 of NTC Memorandum Circular 9-7-93,19 and its omission of the
mandatory Certification of Non-Forum Shopping.20 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.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,"22 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. 59.23
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 Prohibition25 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.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.27
Globe alleged that its departure from its ruling in the Islacom case constitutes a denial
of equal protection of the law.
On 22 November 1999, a Decision28 was promulgated by the Former Special Fifth
Division of the Court of Appeals29 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.30
Yet, on 21 December 1999, Globe filed a Motion for Partial Reconsideration,31 seeking
to reconsider only the portion of the Decision that upheld NTC's 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.32 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.
After the Court of Appeals denied the Motion for Partial Reconsideration,33 Globe
elevated the controversy to this Court.
Globe contends that the Court of Appeals erred in holding that the NTC has the power
under Section 17 of the Public Service Law34 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.
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 and Order, 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 Globe's 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. 14-11-97;
and (3) whether NTC acted with due process in levying the fine against Globe.36
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.
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.37 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.38 The appellate
court in the questioned Decision cited the purported procedural defect,39 yet chose
anyway to rule on the merits as well.
Globe's 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.40 Indeed, the
circumstances adverted to are among the recognized exceptions to the general rule.41
Besides, the issues presented are of relative importance and novelty42 so much so
that it is judicious for the Court to resolve them on the merits instead of hiding behind
procedural fineries.
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.43 The implementation must likewise be fair and evenhanded.
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. 14-11-97.44 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 NTC's 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.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 NTC's 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.47 Each "telecommunication
category"48 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.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."51 Section 11 recognizes that VAS providers need not
secure a franchise, provided that they do not put up their own network.52 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:
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 "value-
added," prescribing instead a general standard, set forth as a matter of principle and
fundamental policy by the legislature.54 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.55 The power to enforce the provisions of the PTA, including the
implementation of the standards set therein, is clearly reposed with the NTC.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,57 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,"58 for the purpose of
ensuring availability of reliable and affordable telecommunications service in both urban
and rural areas of the country.59 Under E.O. No. 109, local exchange services are to
be cross-subsidized by other telecommunications services within the same company
until universal access is achieved.60 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.
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.61 Due regard must be accorded to this
attitude, which is in consonance with the general philosophy of deregulation expressed
in the PTA.
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."62 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.
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,"63 and its implications of analogy, presumes that a whole myriad of technologies
can eventually be subsumed under the definition of "enhanced services." The NTC
should not be necessarily faulted for such indistinct formulation since it could not have
known in 199564 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.
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. 14-11-97.65 In
response, the NTC acknowledged receipt of the letter "informing" it of Islacom's
"offering the special feature" of SMS for its CMTS, and instructed Islacom to "adhere
to the provisions of MC No. 14-11-97."66 The clear implication of the letter is that NTC
considers the Circular as applicable to SMS.
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.
14-11-97 is to add to the haze beclouding the NTC's 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.67 NTC's 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.
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.68 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.69 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
NTC's 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
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. NTC's 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.71 NTC issued a Show
Cause Order requiring Globe to answer Smart's charges. Hearings were conducted,
and a decision made on the merits, signed by the three Commissioners of the NTC,
sitting as a collegial body.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 NTC's determination and corresponding penalty were rendered in the exercise
of quasi-judicial 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.73 They are synthesized in a subsequent case, as
follows:
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, NTC's 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, Globe's SMS involves the transmission
of data over its CMTS which is Globe's basic service. SMS is not ordinarily
provided by a CMTS operator like Globe, and since
SMS enhances Globe's 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.76 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."77 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.
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 Smart's respective legislative franchises.78 Smart is authorized
under its legislative franchise to establish and operate integrated
telecommunications/computer/ electronic services for public domestic and international
communications,79 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.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.81 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.
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.82 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.83 Such explanation is warranted in order
to sufficiently establish a decision as having rational basis.84 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.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 NTC's disposal of
Islacom's initiative and to believe that prior approval was not necessary.
Neither was the matter ever raised during the hearings conducted by NTC on Smart's
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 Globe's
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 Globe's authority to provide SMS was put in
issue. The Court similarly ordered the NTC to produce such transcripts.86 NTC failed
to produce any.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.88 The requirement that
agencies hold hearings in which parties affected by the agency's action can be
represented by counsel may be viewed as an effort to regularize this struggle for
advantage within a legislative adversary framework.89 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.
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 Globe's alleged lack of operational authority
without need of hearing, simply by citing the provision of the Public Service Act90 which
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.91 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.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 Smart's complaint for interconnection, "it may
very well look into the issue of whether the parties had the requisite authority to operate
such services."93 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.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.97 While
a complaint was indeed filed against Globe by Smart, the lack of Globe's authority to
operate SMS was not raised in the Complaint, solely predicated as it was on Globe's
refusal to interconnect with Smart.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."99 The Show Cause Order served on Globe in this case gave notice of
Smart's charge that Globe, acting in bad faith and contrary to law, refused to allow
the interconnection of their respective SMS systems.100 Again, the lack of authority to
operate SMS was not adverted to in NTC's Show Cause Order.
The records also indicate that the issue of Globe's authority was never raised in the
subsequent hearings on Smart's complaint. Quite noticeably, the respondents
themselves have never asserted that the matter of Globe's 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 Globe's 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.101 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.
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.102 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.103 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.
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 Smart's 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 NTC's role will become more crucial than at any time
before. If NTC's 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.
USTA vs FCC
USTA v. FCC is the 2016 court case in which the Court of Appeals for the D.C. Circuit
upheld the Federal Communication Commission's reclassification of broadband
services as telecommunications services subject to common carrier regulation under
Title II of the Communications Act of 1934. This decision was a major victory for net
neutrality, the principle of non-discrimination by Internet Service Providers (ISPs) with
regards to data that they carry.
The court upheld a set of Open Internet rules adopted by the FCC: bans on blocking,
throttling, and paid prioritization of Internet traffic, a "General Conduct Rule prohibiting
broadband providers from unreasonably interfer[ing] with or unreasonably
disadvantag[ing] (i) end users ability to select, access, and use broadband Internet
access service or the lawful Internet content, applications, services, or devices of their
choice, or (ii) edge providers ability to make lawful content, applications, services, or
devices available to end users," and an enhanced set of transparency requirements.[1]
United States Telecom Ass'n v. FCC (2016)
USTA v. FCC is the 2016 court case in which the Court of Appeals for the D.C. Circuit
upheld the Federal Communication Commission's reclassification of broadband
services as telecommunications services subject to common carrier regulation under
Title II of the Communications Act of 1934. This decision was a major victory for net
neutrality, the principle of non-discrimination by Internet Service Providers (ISPs) with
regards to data that they carry.
The court upheld a set of Open Internet rules adopted by the FCC: bans on blocking,
throttling, and paid prioritization of Internet traffic, a "General Conduct Rule prohibiting
broadband providers from unreasonably interfer[ing] with or unreasonably
disadvantag[ing] (i) end users ability to select, access, and use broadband Internet
access service or the lawful Internet content, applications, services, or devices of their
choice, or (ii) edge providers ability to make lawful content, applications, services, or
devices available to end users," and an enhanced set of transparency requirements.[1]
History
The 2014 D.C. Circuit court decision Verizon v. FCC vacated portions of the FCC Open
Internet Order 2010 because it was determined that they could only apply to common
carriers. At the time, broadband services had historically been classified as "information
services," a decision made by the FCC in the early 2000's and unsuccessfully
challenged in court.[2]
The FCC followed the advice of the Verizon court and sought to reclassify broadband
services as "telecommunications services," giving broadband status as a "common
carrier" under Title II of the Communications Act of 1934. Application of certain sections
of Title II, particularly 201 and 202, prohibiting "unjust or unreasonable discrimination"
by common carriers, allowed the erection of the FCC's regulatory schemes.
Ruling
The court ruled 2-1 in favor of the FCC's reclassification of broadband as a
"telecommunications service," with Judges Tatel and Srinivasan in the majority and
Judge Williams dissenting in part.
In its review of the appropriateness of reclassification, the court applied Chevrons two-
step test to determine (1) whether the Communications Act is ambiguous with respect
to the classification of broadband, and, if so, (2) whether the FCCs decision to
reclassify was reasonable.
In Judge Williams' dissent, he called the FCC's reasoning "self-contradictory" and said
the justification for reclassification "fails for want of reasoned decisionmaking."
Impact
The decision was a major victory for net neutrality, which had the support of FCC
Chairman Tom Wheeler and the Obama administration.
The case could potentially be appealed further or granted review with the Supreme
Court.
United States Telecom Association v. FCC
Case Summary and Outcome
The District of Columbia Circuit Court upheld new net neutrality rules issued by the
Federal Communications Commission (FCC). The FCC had classified broadband
services as telecommunications services and thus common carriers under Federal
legislation. Internet service providers are classified as indiscriminate conduits for
speech and not as speakers who are afforded First Amendment protection. The case
came about as a challenge against an order issued by the FCC, the Open Internet
Order, which attempted to force broadband service providers to abide by rules
enforcing net neutrality, the principle that broadband providers must treat all internet
traffic the same regardless of source.
Facts
This case concerns rules made by the FCC to maintain net neutrality. The Internet is a
distributed global communication network that allows users and providers to transmit
and receive information in many different forms. It has four major participants: end
users, broadband providers, backbone networks, and edge providers (at 9.):
End users are individual consumers and businesses using the internet;
Broadband providers use technologies like cable modems, DSL, and fiber
optics to deliver high-speed internet service to users;
Backbone networks interconnect broadband providers; and
Edge providers provide content, services, and applications over the internet.
(slip op. at 9, quoting Verizon v. FCC) Examples of edge providers include
ESPN, Netflix, Google, and Amazon.
End users, edge providers and internet freedom advocates worried that absent rules
prohibiting such behavior, broadband providers would interfere with end users
unfettered internet access to increase revenues, particularly when making use of
specific edge providers like Netflix.
Title II of the Communications Act of 1934 (Title II) gives the FCC the power to
regulate common carriers, public utilities like telephone service. Title II requires that
common carriers furnish communication service upon reasonable request, and
without unjust or unreasonable discrimination in charges practices, classifications,
regulations, facilities, or services, while charging just and reasonable rates. (U.S.,
Communications Act of 1934, 201(a), 202(a), 201(b)) In the nascent days of the
internet, the Telecommunications Act of 1996 subjected telecommunications service
to common carrier treatment under Title II, distinguishing such service from information
services. (U.S., Telecomm. Act of 1996) A telecommunications service was defined
as the offering of telecommunications for a fee directly to the public, or to such classes
of users as to be effectively available directly to the public, regardless of the facilities
used. (U.S., 47 U.S.C. Sec. 153(51)) An information service was defined as offering
of a capability for generating, acquiring, storing, transforming, processing, retrieving,
utilizing, or making available information via telecommunications. (U.S., 47 U.S.C.
Sec. 153(24))
In 1998, as broadband internet service began to spread, the FCC classified some DSL
services as a telecommunications service, thus subjecting it to common carrier
treatment (in Advanced Serv. Order). In 2002, the FCC classified cable modem service
(a type of broadband service) as solely an information service exempt from common
carrier treatment, a decision upheld by the Supreme Court in 2005s Brand X case.
After Brand X, the FCC classified other broadband services such as DSL and mobile
broadband as information services, freeing all broadband providers from the obligations
imposed on common carrier utilities (in Wireline Broadband Order). At the same time,
the FCC classified wireless broadband service as a private mobile service free from
common carrier regulation, as opposed to a commercial mobile service subject to
common carrier treatment.
However, the FCC made it clear that it would seek to maintain net neutrality and would
redress its regulations if broadband providers violated open internet principles.
Comcast apparently interfered with users internet access in 2007, giving the FCC
reason to intervene to preserve net neutrality. The FCC ordered Comcast to make a
set of disclosures about its practices, an order the Court vacated in 2010 for failure to
identify any proper statutory authority (in Comcast Corp. v. FCC). Then, after a period
for public comment, the FCC released its 2010 Open Internet Order promoting rules to
enforce net neutrality, but did not reclassify broadband as a telecommunications
service. In Verizon, the Court found statutory authority for the FCC to issue open
internet rules under section 706 of the Telecommunications Act. The Court nonetheless
struck down the open internet rules from the 2010 order because they treated
broadband providers as if they were common carriers. The FCC could not lawfully
institute open internet rules as long as broadband providers remained classified as
information services, which are exempt from requirements imposed on common
carriers that they transmit information without discrimination (e.g., rules enforcing net
neutrality). However, Verizon did uphold a transparency rule from the 2010 Open
Internet Order.
Months after the Courts Verizon decision in 2014, the FCC issued a Notice of Proposed
Rulemaking (NPRM) seeking to find the best approach to protecting and promoting
Internet openness. The FCC received millions of comments in response to the NPRM
and subsequently issued the 2015 Open Internet Order, which:
1. reclassified all broadband services (such as DSL, cable, and mobile) as
telecommunications services;
2. forbore from applying certain common carrier provisions to broadband as
consistent with the public interest; and
3. instituted five open internet rules.
The five open internet rules were an anti-blocking rule, an anti-throttling rule, a ban
on paid prioritization, a General Conduct Rule to broadly promote net neutrality using
a non-exhaustive list of factors, and an enhanced transparency rule improving upon
the transparency rule from the 2010 Open Internet Order.
Several parties challenged the FCCs order (collectively challengers) including the
U.S. Telecom Association by petitioning the United States Court of Appeals for The
District of Columbia Circuit to review the 2015 Open Internet Order. The challengers
argued that reclassification of broadband service as a telecommunication service
subject to common carrier treatment was improper and unreasonable; that the FCC
lacked statutory authority to reclassify broadband and issue the rules; that the NPRM
did not provide adequate notice of reclassification or the content of the rules, mobile
broadband does not qualify as a commercial mobile service subject to common carrier
treatment; that the FCC could not ignore some Title II provisions when regulating
broadband providers; and that some of the rules violated broadband providers First
Amendment rights to freedom of speech. Think tanks, investors, entrepreneurs, edge
providers, users, activists, and advocate organizations intervened on both sides of the
dispute.
DECISION OVERVIEW
Justices Tatel and Srinivasan delivered the majority opinion of the Court. The main
relevant issues were: 1. whether the FCC properly classified broadband service as a
telecommunications service, which would subject it to the common carrier treatment
necessary to institute net neutrality rules; and 2. whether the open internet rules were
proper or whether they violated broadband providers free speech rights under the First
Amendment.
The challengers relied on several administrative, procedural, and reasonableness
arguments, all of which the Court denied. Many of these decisions were guided by the
Courts two fundamental principles as a reviewing court: 1. that its role in reviewing
agency regulations is a limited one; (at 22, quoting U.S., Assn of Am. Railroads v.
Interstate Commerce Commn, 978 F.2d 737 (D.C. Cir. 1992)) and that the Court does
answer whether a policy is wise, but it only resolves legal questions.
The first primary issue was whether the FCC properly classified broadband service as
a telecommunication service. The FCC had properly focused on consumer perception
of what broadband service providers offer the product they sell to consumers. The
Court concluded that broadband services provide the unadulterated transmission of
messages via computer processing, in that they connect users to third party content.
Content from edge providers like Netflix, YouTube, and MLB.tv have transformed
nearly every aspect of our lives, from profound actions like choosing a leader, building
a career, and falling in love to more quotidian ones like hailing a cab and watching a
movie. (p. 26) As such, a broadband service provider makes a stand-alone offering
of telecommunications, and are within the definition of a telecommunications service
as determined by the FCC, and properly classified as such. Broadband providers
reliance on information services such as the DNS and caching were not enough to
disturb the FCCs finding, as they were merely telecommunications system
management exceptions.
The challengers procedural arguments regarding the sufficiency of notice in the NPRM
reclassification also failed, as did their argument that the FCC lacked statutory authority
to reclassify broadband. Additionally, the Court held that the FCCs reclassification of
mobile broadband service as a commercial mobile service was reasonable, given
mobile broadband services increased ubiquity since its initial classification in 2007 and
its versatility to communicate with all Internet and phone users. This move also avoided
a contradictory result under which mobile broadband would have been a common
carrier under one definition, and exempt from common carrier treatment under another.
Furthermore, the FCCs decision to forbear from applying certain Title II regulations
upon broadband providers was reasonable given the FCCs understanding of the
market implications and the possibility of implicating the Fifth Amendments Takings
Clause.
As for the open internet rules themselves, the Court held that the ban on paid-
prioritization was within the FCCs statutory authority under Title II and the
Telecommunications Act of 1996. The FCCs justification for the open internet rules
was sufficient, as the Court had already decided in Verizon that open internet rules will
preserve and facilitate the virtuous circle of innovation that has driven the explosive
growth of the Internet. (at 95) The General Conduct Rule was not unconstitutionally
vague under the Due Process Clause, as it was designed to be flexible so as to
address unforeseen practices and prevent circumvention of the bright-line rules such
as the anti-blocking and anti-throttling rules. (at 98)
The second main issue was whether the open internet rules violated broadband
providers free speech rights under the First Amendment. The parties first had to
demonstrate standing to challenge the open internet rules, an issue of particular
importance to the First Amendment. The only prong of standing in dispute was whether
there was injury in fact that was fairly traceable to the FCCs actions which could The case may cause some internet service providers to editorialize or provide a
have been redressed by a favorable decision. Under First Amendment rules, pre-
enforcement review is usually permitted as long as the challenging party has expressed
intent to violate the law, as the courts willingness to permit pre- enforcement review is
at its peak when claims are rooted in the First Amendment (quoting from N.Y.
Republican State Comm. v. SEC). As the challengers expressed intent to violate the
FCCs regulations, the parties had standing to challenge the open internet rules under
the First Amendment.
As to the substance of the First Amendment claims, the key was the hallmark attributes
universal to common carriers under U.S. law. Common carriers have long been subject
to nondiscrimination and equal access obligations akin to those imposed by the rules
without raising any First Amendment question. Those obligations affect a common
carriers neutral transmission of others speech, not a carriers communication of its
own message. (at 108-09) This has been true with the postal service, railroad, and
telephone companies without violating those carriers First Amendment rights. For
internet access itself (as opposed to original content or a curated internet experience),
the FCC properly found that broadband providers are mere conduits for the messages
of others, not as agents exercising editorial discretion, and thus do not receive First
Amendment protection. (at 111, quoting the 2015 Open Internet Order) Broadband
providers historically exercise no editorial control like publishers, and a broadband
provider does not and is not understood by users to speak. Broadband providers
merely offer access to internet content as a utility, do not receive protection under the
First Amendment, and are therefore properly subject to the open internet rules that
maintain they remain indiscriminate, neutral providers.
For these reasons, the Court denied the challengers petitions for review, upholding the
FCCs 2015 Open Internet Order, its findings, and its rules for net neutrality imposed
upon broadband service providers.
Senior Circuit Court Justice Williams concurred in part and dissented in part. The
dissent agreed with some of the majority opinion, but argued that the FCCs 2015 Open
Internet Order should be vacated for three reasons: 1. the FCC acted unreasonably in
its reclassification of broadband service from an information service to a
telecommunications service by failure to account for broadband providers reliance, and
weak reasoning regarding changed factual circumstances and policy perceptions; 2.
Sections 201 of the Communications Act and Section 706 of the Telecommunications
Act of 1996 do not justify the open internet rules in the order; and 3. the FCCs decision
to decline enforcement of some Title II provisions is contradictory with regard to market
power it should either be unable to reclassify broadband, or apply all of Title IIs
provisions.
DECISION DIRECTION
Decision Direction indicates whether the decision expands or contracts expression
based on an analysis of the case.
Expands Expression
This is the first major case victory for net neutrality and open internet in the United
States. The case expands expression by preventing internet service providers from
blocking or throttling (slowing) internet traffic, creating paid prioritization schemes, or
otherwise interfering with lawful content from users and edge providers. The FCC
decided to classify broadband service as a common carrier and treat it like a public
utility such as telephone service. The FCCs rules in the 2015 Open Internet Order
require broadband service providers to act as an indiscriminate conduit for speech,
meaning they may not interfere with the speech or content of users or edge providers,
preserving maximum expression.
curated internet experience to evade common carrier treatment. Also, the landscape
could change if the FCC changes its stance on net neutrality in the future, now that it
has taken an assertive regulatory position. The case is expected to be appealed by the
challengers of the FCCs order.
Case Significance
Case significance refers to how influential the case is and how its significance changes
over time.
The decision establishes a binding or persuasive precedent within its jurisdiction.
The United States Court of Appeals for the District of Columbia Circuit has jurisdiction
to rule on challenges of the FCCs regulations, and is binding. The D.C. Circuit also has
strong national persuasive value, and even international persuasive value in certain
cases.