Cases Telecoms

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

GLOBE TELECOM, INC., petitioner, vs. THE NATIONAL TELECOMMUNICATIONSCOMMISSION, COMMISSIONER JOSEPH A. SANTIAGO, DEPUTYCOMMISSIONERS AURELIO M. UMALI and NESTOR DACANAY, and SMARTCOMMUNICATIONS, INC. respondents.

D E C I S I O N

TINGA,J.:

Telecommunications services are affected by a high degree of public interest. Telephonecompanies have historically been regulated as common carriers, and indeed, the 1936 PublicService Act has classified wire or wireless communications systems as a public service, alongwith other common carriers.

Yet with the advent of rapid technological changes affecting the telecommunicationsindustry, there has been a marked reevaluation of the traditional paradigm governing stateregulation over telecommunications. For example, the United States Federal CommunicationsCommission has chosen not to impose strict common regulations on incumbent cellularproviders, choosing instead to let go of the reins and rely on market forces to govern pricingand service terms.

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

The present petition dramatizes to a degree the clash of philosophies between traditionalnotions of regulation and theau corant trend to deregulation. Appropriately, it involves themost ubiquitous feature of the mobile phone, Short Messaging Service (SMS)or textmessaging, which has been transformed from a mere technological fad into a vital means ofcommunication. And propitiously, the case allows the Court to evaluate the role of theNational Telecommunications Commission (NTC) in this day and age.

The NTC is at the forefront of the government response to the avalanche of inventionsand innovations in the dynamic telecommunications field. Every regulatory action itundertakes is of keen interest not only to industry analysts and paslayers but to the public atlarge. The intensive scrutiny is understandable given the high financial stakes involved andthe inexorable impact on consumers. And its rulings are traditionally accorded respect evenby the courts, owing traditional deference to administrative agencies equipped with specialknowledge, experience and capability to hear and determine promptly disputes on technicalmatters.[9]

At the same time, judicial review of actions of administrative agencies is essential, as acheck on the unique powers vested unto these instrumentalities.[10] Review is available toreverse the findings of the specialized administrative agency if the record before the Courtclearly precludes the agencys decision from being justified by a fair estimate of the worth ofthe testimony of witnesses or its informed judgment on matters within its specialcompetence, or both.[11] Review may also be warranted to ensure that the NTC or similarlyempowered agencies act within the confines of their legal mandate and conform to thedemands of due process and equal protection.[12]

Antecedent Facts

Globe and private respondent Smart Communications, Inc. (Smart) are both grantees ofvalid and subsisting legislative franchises,[13] authorizing them, among others, to operatea Cellular Mobile Telephone System (CMTS), utilizing the Global System for MobileCommunication (GSM) technology.[14] Among the inherent services supported by the GSMnetwork is the Short Message Services (SMS),[15] also known colloquially as texting, whichhas attained immense popularity in the Philippines as a mode of electronic communication.

On 4 June 1999, Smart filed a Complaint[16] with public respondent NTC, praying thatNTC order the immediate interconnection of Smarts and Globes GSM networks, particularlytheir respective SMS or texting services. The Complaint arose from the inability of the twoleading CMTS providers to effect interconnection. Smart alleged that Globe, with evident badfaith and malice, refused to grant Smarts request for the interconnection of SMS.[17]

On 7 June 1999, NTC issued a Show Cause Order, informing Globe ofthe Complaint, specifically the allegations therein that, among othersdespite formal requestmade by Smart to Globe for the interconnection of their respective SMS or text messagingservices, Globe, with evident bad faith, malice and to the prejudice of Smart and Globe andthe public in general, refused to grant Smarts request for the interconnection of theirrespective 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 thatthe Complaint was premature, Smarts failure to comply with the conditions precedentrequired in Section 6 of NTC Memorandum Circular 9-7-93,[19] and its omission of themandatory Certification of Non-Forum Shopping.[20] Smart responded that it had alreadysubmitted the voluminous documents asked by Globe in connection with otherinterconnection agreements between the two carriers, and that with those voluminousdocuments the interconnection of the SMS systems could be expedited by merely amendingthe 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 cooperationin the submission of the documentation required for interconnection and for having undulymaneuvered the situation into the present impasse,[22] NTC held that since SMS fallssquarely 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 SMSinterconnection is mandatory pursuant to Executive Order (E.O.) No. 59.[23]

The NTC also declared that both Smart and Globe have been providing SMS withoutauthority from it, in violation of Section 420 (f) of MC No. 8-9-95 which requires PTEs intendingto provide value-added services (VAS) to secure prior approval from NTC through anadministrative process. Yet, in view of what it noted as the peculiar circumstances of thecase, 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 thedate of violation and for every day during which such violation continues.[24]

Globe filed with the Court of Appeals a Petition for Certiorari and Prohibition[25] to nullifyand set aside the Order and to prohibit NTC from taking any further action in the case. Itreiterated its previous arguments that the complaint should have been dismissed for failure tocomply with conditions precedent and the non-forum shopping rule. It also claimed that NTCacted without jurisdiction in declaring that it had no authority to render SMS, pointing out thatthe matter was not raised as an issue before it at all. Finally, Globe alleged that the Order is apatent nullity as it imposed an administrative penalty for an offense for which neither it norSmart 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 earlierdecision of NTC pertaining to the application of Isla Communications Co., Inc. (Islacom) toprovide SMS, allegedly holding that SMS is a deregulated special feature of the telephonenetwork and therefore does not require the prior approval of NTC.[27] Globe alleged that itsdeparture from its ruling in the Islacom case constitutes a denial of equal protection of thelaw.

On 22 November 1999, a Decision[28] was promulgated by the Former Special FifthDivision of the Court of Appeals[29] affirming in toto the NTC Order. Interestingly, on the sameday Globe and Smart voluntarily agreed to interconnect their respective SMS systems, andthe interconnection was effected at midnight of that day.[30]

Yet, on 21 December 1999, Globe filed a Motion for Partial Reconsideration,[31] seekingto reconsider only the portion of the Decision that upheld NTCs finding that Globe lacked theauthority to provide SMS and its imposition of a fine. Both Smart and NTC filed theirrespective comments, stressing therein that Globe indeed lacked the authority to provideSMS.[32] In reply, Globe asserted that the more salient issue was whether NTC complied withits own Rules of Practice and Procedure before making the finding of want of authority andimposing the fine. Globe also reiterated that it has been legally operating its SMS systemsince 1994 and that SMS being a deregulated special feature of the telephone network it mayoperate SMS without prior approval of NTC.

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

Globe contends that the Court of Appeals erred in holding that the NTC has the powerunder Section 17 of the Public Service Law[34] to subject Globe to an administrative sanctionand a fine without prior notice and hearing in violation of the due process requirements; thatspecifically due process was denied Globe because the hearings actually conducted dwelt ondifferent issues; and, the appellate court erred in holding that any possible violation of dueprocess committed by NTC was cured by the fact that NTC refrained from issuing a ShowCause Order with a Cease and Desist Order, directing instead the parties to secure therequisite authority within thirty days. Globe also contends that in treating it differently fromother 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 hasdeviated from its original position. It no longer prays that the Court affirm theassailed 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 isnot VAS and that NTC may not legally require either Smart or Globe to secure prior approvalbefore providing SMS. Smart has also chosen not to make any submission on Globes claim ofdue process violations.[35]

As presented during the oral arguments, the central issues are: (1) whether NTC maylegally require Globe to secure NTC approval before it continues providing SMS; (2) whetherSMS is a VAS under the PTA, or special feature under NTC MC No. 14-11-97; and (3) whetherNTC acted with due process in levying the fine against Globe.[36] Another issue is also raisedwhether Globe should have first filed a motion for reconsideration before the NTC, but thisrelatively 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 elevatingthe matter to the Court of Appeals via a petition for certiorari. Generally, a motion forreconsideration is a prerequisite for the filing of a petition for certiorari.[37] In opting not tofile the motion for reconsideration, Globe asserted before the Court of Appeals that the casefell within the exceptions to the general rule.[38] The appellate court in thequestioned Decision cited the purported procedural defect,[39] yet chose anyway to rule onthe merits as well.

Globes election to elevate the case directly to the Court of Appeals, skipping the standardmotion for reconsideration, is not a mortal mistake. According to Globe, the Order is a patentnullity, it being violative of due process; the motion for reconsideration was a useless or idleceremony; and, the issue raised purely one of law.[40] Indeed, the circumstances adverted toare among the recognized exceptions to the general rule.[41] Besides, the issues presentedare of relative importance and novelty[42] so much so that it is judicious for the Court toresolve them on the merits instead of hiding behind procedural fineries.

The MeritsNow, on to the merits of the petition.

Deregulation is the mantra in this age of globalization. Globe invokes it in support of itsclaim that it need not secure prior authority from NTC in order to operate SMS. The claim hasto be evaluated carefully. After all, deregulation is not a magic incantation that wards off thespectre 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 inthe law and regulations that institute or implement the deregulation regime.[43] Theimplementation must likewise be fair and evenhanded.

Globe hinges its claim of exemption from obtaining prior approval from the NTC on NTCMemorandum Circular No. 14-11-97 (MC No. 14-11-97). Globe notes that in a 7 October 1998ruling on the application of Islacom for the operation of SMS, NTC declared that the applicablecircular for SMS is MC No. 14-11-97.[44] Under this ruling, it is alleged, NTC effectivelydenominated SMS as a special feature which under MC No. 14-11-97 is a deregulated servicethat needs no prior authorization from NTC. Globe further contends that NTCs requiring it tosecure prior authorization violates the due process and equal protection clauses, since earlierit had exempted the similarly situated Islacom from securing NTC approval prior to itsoperation of SMS.[45]

On the other hand, the assailed NTC Decision invokes the NTC Implementing Rules of thePTA (MC No. 8-9-95) to justify its claim that Globe and Smart need to secure prior authority

from the NTC before offering SMS.

The statutory basis for the NTCs determination must be thoroughly examined. Our firstlevel of inquiry should be into the PTA. It is the authority behind MC No. 8-9-95. It is also thelaw 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 thetelecommunications industry. In fact, the law imposes strictures that restrain within reasonhow PTEs conduct their business. For example, it requires that any access charge/revenuesharing arrangements between all interconnecting carriers that are entered into have to besubmitted for approval to NTC.[47] Each telecommunication category[48] established in thePTA is governed by detailed regulations. Also, international carriers and operators of mobileradio services are required to provide local exchange service in unserved or underservedareas.[49]

At the same time, the general thrust of the PTA is towards modernizing the legalframework for the telecommunications services sector. The transmutation has becomenecessary due to the rapid changes as well within the telecommunications industry. As notedby Senator Osmea in his sponsorship speech:[D]ramatic developments during the last 15 years in the field of semiconductors havedrastically changed the telecommunications sector worldwide as well as in the Philippines.New technologies have fundamentally altered the structure, the economics and the nature ofcompetition in the telecommunications business. Voice telephony is perhaps the mostpopular face of telecommunications, but it is no longer the only one. There are other facessuch as data communications, electronic mail, voice mail, facsimile transmission, videoconferencing, mobile radio services like trunked radio, cellular radio, and personalcommunications services, radio paging, and so on. Because of the mind-bogglingdevelopments 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 lawdefines as an entity which relying on the transmission, switching and local distributionfacilities of the local exchange and inter-exchange operators, and overseas carriers, offersenhanced services beyond those ordinarily provided for by such carriers.[51] Section 11recognizes that VAS providers need not secure a franchise, provided that they do not put uptheir own network.[52] However, a different rule is laid down for telecommunications entitiessuch as Globe and PLDT. The section unequivocally requires NTC approval for the operation ofa 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 suchVAS offerings are not cross-subsidized from the proceeds of theirutility operations;b)other providers of VAS are not discriminated against in rates nor deniedequitable access to their facilities; andc)separate books of accounts are maintained for the VAS. (Emphasissupplied)[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 assailedregulatory action. This failure is but a mere indicia of the pattern of ignorance orincompetence 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 fundamentalpolicy by the legislature.[54] The validity of this standard set by Section 11 is not put intoquestion by the present petition, and there is no need to inquire into its propriety.[55] Thepower to enforce the provisions of the PTA, including the implementation of the standards settherein, is clearly reposed with the NTC.[56]

It can also be gleaned from Section 11 that the requirement that PTEs secure priorapproval before offering VAS is tied to a definite purpose, i.e., to ensure that such VASofferings are not cross-subsidized from the proceeds of their utility operations. Thereason is related to the fact that PTEs are considered as public services,[57] and mandated toperform 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 localexchange service,[58] for the purpose of ensuring availability of reliable and affordabletelecommunications 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 serviceswithin the same company until universal access is achieved.[60] Section 10 of the PTAspecifically affirms the requirements set by E.O. No. 109. The relevance to VAS is clear: publicpolicy maintains that the offer of VAS by PTEs cannot interfere with the fundamental provisionby PTEs of their other public service requirements.

More pertinently to the case at bar, the qualification highlights the fact that the legalrationale for regulation of VAS is severely limited. There is an implicit recognition that VAS isnot strictly a public service offering in the way that voice-to-voice lines are, for example, butmerely supplementary to the basic service. Ultimately, the regulatory attitude of the Statetowards VAS offerings by PTEs is to treat its provisioning as a business decisionsubject to the discretion of the offeror, so long as such services do not interfere withmandatory 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 beforeoffering VAS, as they are not burdened by the public service requirementsprescribed on PTEs.[61] Due regard must be accorded to this attitude, which is inconsonance with the general philosophy of deregulation expressed in the PTA.

The Pertinent NTC Memorandum CircularsNext, 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 operateSMS. 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 fromCongress.(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 providingenhanced or augmented telecommunications services. It shall not put up its ownnetwork. It shall use the transmission network, toll or local distribution, of theauthorized 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 CMTSservice.(d) Entities intending to provide value added services only shall submit to thecommission application for registration for approval. The application form shallinclude documents showing, among others, system configuration, mode ofoperation, method of charging rates, lease agreement with the PTE, etc.(e) The application for registration shall be acted upon by the Commissionthrough an administrative process within thirty (30) days from date of application.(f) PTEs intending to provide value added services are required tosecure prior approval by the Commission through an administrativeprocess.(g) VAS providers shall comply strictly with the service performance and otherstandards prescribed commission. (Emphasis supplied.)

Instead of expressly defining what VAS is, the Implementing Rules defines what enhancedservices are, namely: a service which adds a feature or value not ordinarily provided by apublic telecommunications entity such as format, media conversion, encryption, enhancedsecurity features, computer processing, and the like.[62] Given that the PTA defines VAS asenhanced services, the definition provided in the Implementing Rules may likewise be appliedto VAS. Still, the language of the Implementing Rules is unnecessarily confusing. Much troublewould 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 thanthat under the PTA, is still too sweeping. Rather than enumerating what possible featurescould be classified as VAS or enhanced services, the Implementing Rules instead focuses onthe characteristics of these features. The use of the phrase the like,[63] and its implications ofanalogy, presumes that a whole myriad of technologies can eventually be subsumed underthe definition of enhanced services. The NTC should not be necessarily faulted for suchindistinct formulation since it could not have known in 1995[64] what possible VAS would beavailable in the future. The definition laid down in the Implementing Rules may validly serveas 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 ornot a specific feature newly available in the market is a VAS. Such expectation is especiallydemanded if the NTC is to penalize PTEs who fail to obtain prior approval in accordance withSection 11 of the PTA. To our knowledge, the NTC has yet to come out with an administrativerule or regulation listing which of the offerings in the market today fall under VAS or enhancedservices.

Still, there is MC No. 14-11-97, entitled Deregulating the Provision of Special Features inthe Telephone Network. Globe invokes this circular as it had been previously cited by the NTCas applicable to SMS.

On 2 October 1998, Islacom wrote a letter to the NTC, informing the agency that it willbe offering the special feature of SMS for its CMTS, and citing therein that the notice wasbeing given pursuant to NTC Memorandum Circular No. 14-11-97.[65] In response, the NTCacknowledged receipt of the letterinforming it of Islacoms offering the special feature of SMSfor its CMTS, and instructed Islacom to adhere to the provisions of MC No. 14-11-97.[66] Theclear 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 THETELEPHONE NETWORK.For the purpose of exempting specific telecommunications service from rate or tariffregulations if the service has sufficient competition to ensure fair and reasonable rates ortariffs, the Commission hereby deregulates the provision of special featuresinherent to the Telephone Network.Section 1. For the purpose of this Circular, Special Feature shall refer to a featureinherent to the telephone network which may not be ordinarily provided by aTelephone Service Provider such as call waiting, call forwarding, conference calling, speeddialing, caller ID, malicious call ID, call transfer, charging information, call pick-up, callbarring, recorded announcement, no double connect, warm line, wake-up call, hotline,voicemail, and special features offered to customers with PABXs such as direct inward dialingand number hunting, and the like; provided that in the provision of the feature, no law, rule,regulation or international convention on telecommunications is circumvented orviolated. The Commission shall periodically update the list of special features in theTelephone Network which, including the charging of rates therefor, shall bederegulated.Section 2. A duly authorized Telephone Service Provider shall inform the Commission inwriting of the special features it can offer and the corresponding rates thirty (30) days priorto launch date.

xxxSection 4. Authorized Telephone Service Providers shall continue to charge their dulyapproved rates for special services for 3 months from the effectivity of this circular, afterwhich they may set their own rates.xxx (Emphasis supplied)

Just like VAS as defined under the PTA, special features are also not ordinarily provided bythe telephone company. Considering that MC No. 14-11-97 was promulgated after thepassage of the PTA, it can be assumed that the authors of the Circular were well aware of theregulatory scheme formed under the PTA. Moreover, MC No. 14-11-97 repeatedly invokes theword deregulation, and it cannot be denied that the liberalization ethos was introduced by thePTA. Yet, the net effect of MC No. 14-11-97 is to add to the haze beclouding the NTCs rationalefor regulation. The introduction of a new concept, special feature, which is not provided for inthe PTA just adds to the confusion, especially in light of the similarities between specialfeatures and VAS. Moreover, there is no requirement that a PTE seeking to offer specialfeatures 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 Islacomletter up to the day the Orderwas issued. Only the thinking of NTC did.

More significantly, NTC never required ISLACOM to apply for prior approval in order toprovide SMS, even after the Order to that effect was promulgated against Globe and Smart.This fact was admitted by NTC during oral arguments.[67] NTCs treatment of Islacom, apartfrom being obviously discriminatory, puts into question whether or not NTC truly believes thatSMS is VAS. NTC is unable to point out any subsequent rule or regulation, enacted after itpromulgated the adverse order against Globe and Smart, affirming the newly-arriveddetermination that SMS is VAS.

In fact, as Smart admitted during the oral arguments, while it did comply with theNTC Order requiring it to secure prior approval, it was never informed by the NTC of anyaction on its request.[68] While NTC counters that it did issue a Certificate of Registration toSmart, authorizing the latter as a provider of SMS, such Certificate of Registration was issuedonly on 13 March 2003, or nearly four (4) years after Smart had made its request.[69] Thisinaction indicates a lack of seriousness on the part of the NTC to implement its own rulings.Also, it tends to indicate the lack of belief or confusion on NTCs part as to how SMS should betreated. Given the abstract set of rules the NTC has chosen to implement, this should come asno surprise. Yet no matter how content the NTC may be with its attitude of sloth towardsregulation, the effect may prove ruinous to the sector it regulates.

Every party subject to administrative regulation deserves an opportunity toknow, through reasonable regulations promulgated by the agency, of the objectivestandards that have to be met. Such rule is integral to due process, as it protectssubstantive rights. Such rule also promotes harmony within the service or industry subject toregulation. It provides indubitable opportunities to weed out the most frivolous conflicts withminimum hassle, and certain footing in deciding more substantive claims. If this results in atenfold in administrative rules and regulations, such price is worth paying if it also results inclarity and consistency in the operative rules of the game. The administrative process willbest 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 dulyestablished. The fault falls squarely on NTC. With the dual classification of SMS as a specialfeature and a VAS and the varying rules pertinent to each classification, NTC hasunnecessarily complicated the regulatory framework to the detriment of the industry and theconsumers. But does that translate to a finding that the NTC Order subjecting Globe to priorapproval is void? There is a fine line between professional mediocrity and illegality. NTCsbyzantine approach to SMS regulation is certainly inefficient. Unfortunately for NTC, its actionshave also transgressed due process in many ways, as shown in the ensuing elucidation.Penalized Via a Quasi-Judicial Process,Globe and Smart are Entitled toCorresponding Protections

It is essential to understand that the assailed Order was promulgated by NTC in theexercise of its quasi-judicial functions. The case arose when Smart had filed the initialcomplaint against Globe before NTC for interconnection of SMS.[71] NTC issued a Show CauseOrder requiring Globe to answer Smarts charges. Hearings were conducted, and a decisionmade 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 nowassailed before us was premised on the same exercise of jurisdiction. Thus, it is not relevantto this case that the process for obtaining prior approval under the PTA and its ImplementingRules is administrative in nature. While this may be so, the assailed NTCs determination andcorresponding penalty were rendered in the exercise of quasi-judicial functions. Therefore, allthe requirements of due process attendant to the exercise of quasi-judicial power apply to thepresent case. Among them are the seven cardinal primary rights in justiciable cases beforeadministrative tribunals, as enumerated in Ang Tibay v. CIR.[73] They are synthesized in asubsequent case, as follows:There are cardinal primary rights which must be respected even in proceedings of thischaracter. The first of these rights is the right to a hearing, which includes the right of theparty 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 evidencepresented. While the duty to deliberate does not impose the obligation to decide right, it doesimply a necessity which cannot be disregarded, namely, that of having something to supportits decision. Not only must there be some evidence to support a finding or conclusion, but theevidence must be substantial. The decision must be rendered on the evidence presented atthe 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 theassailed Order.

First. The NTC Order is not supported by substantial evidence. Neither does it sufficientlyexplain 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 asthe legal milieu governing SMS already is, NTCs attempt to apply its confusing standards inthe case of Globe and Smart is even more disconcerting. The very rationale adopted by theNTC in its Order holding that SMS is VAS is short and shoddy. Astoundingly, the Court ofAppeals affirmed the rationale bereft of intelligent inquiry, much less comment. Stated in full,the relevant portion of the NTC Order reads:xxx Getting down [to] the nitty-gritty, Globes SMS involves the transmission of data over itsCMTS which is Globes basic service. SMS is not ordinarily provided by a CMTS operator likeGlobe, and since SMS enhances Globes CMTS, SMS fits in to a nicety [sic] with thedefinition 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 administrativeagencies in the fields of their expertise, even if they are infelicitously worded. However, theabove-quoted finding is nothing more than bare assertions, unsupported by substantialevidence.[76] The Order reveals that no deep inquiry was made as to the nature of SMS orwhat its provisioning entails. In fact, the Court is unable to find how exactly does SMS fits intoa 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, aphraseology that evinces no causal relation to the definition in M.C. No. 8-9-95. Neither didthe 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 determinativecharacteristic of SMS, it would seem that this is already sufficiently covered by Globe andSmarts respective legislative franchises.[78] Smart is authorized under its legislativefranchise to establish and operate integrated telecommunications/computer/ electronicservices for public domestic and international communications,[79] while Globe is empoweredto establish and operate domestic telecommunications, and stations for transmission andreception of messages by means of electricity, electromagnetic waves or any kind of energy,force, variations or impulses, whether conveyed by wires, radiated through space ortransmitted through other media and for the handling of any and all types oftelecommunications services.[80]

The question of the proper legal classification of VAS is uniquely technical, tied as at is tothe scientific and technological application of the service or feature. Owing to the dearth ofsubstantive technical findings and data from the NTC on which a judicial review mayreasonably be premised, it is not opportunely proper for the Court to make its own technicalevaluation 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 asagainst the substantiated and specialized determination of administrative agencies. [81] Withgreater reason should this be the standard for the exercise of judicial review when theadministrative agency concerned has not in the first place come out with a technical findingbased on evidence, as in this case.

Yet at the same time, this absence of substantial evidence in support of the finding thatSMS is VAS already renders reversible that portion of the NTCOrder.

Moreover, the Order does not explain why the NTC was according the VAS offerings ofGlobe 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 onerousregulatory requirement, nor have they compelled Islacom to suffer the same burdens asGlobe and Smart.

While stability in the law, particularly in the business field, is desirable, there is nodemand that the NTC slavishly follow precedent.[82] However, we think it essential, forthe sake of clarity and intellectual honesty, that if an administrative agencydecides inconsistently with previous action, that it explain thoroughly why adifferent result is warranted, or if need be, why the previous standards should nolonger apply or should be overturned.[83] Such explanation is warranted in order tosufficiently establish a decision as having rational basis.[84] Any inconsistentdecision lacking thorough, ratiocination in support may be struck down as beingarbitrary. 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 issuesrelating to the nature of VAS and the prior approval.

Another disturbing circumstance attending this petition is that until the promulgation ofthe assailed Order Globe and Smart were never informed of the fact that their operation ofSMS without prior authority was at all an issue for consideration. As a result, neither Globe orSmart 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 respectiveCertificates of Public Convenience and Necessity and franchises, the parties were sufficientlynotified 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 beforeNTC could penalize Globe and Smart for unauthorized provision of SMS, it must first establishthat SMS is VAS. Since there was no express rule or regulation on that question, Globe andSmart would be well within reason if they submitted evidence to establish that SMS was notVAS. Unfortunately, no such opportunity arose and no such arguments were raised simplybecause Globe and Smart were not aware that the question of their authority to provide SMSwas an issue at all. Neither could it be said that the requisite of prior authority wasindubitable under the existing rules and regulations. Considering the prior treatment towardsIslacom, Globe (and Smart, had it chosen to do so) had every right to rely on NTCs disposal ofIslacoms initiative and to believe that prior approval was not necessary.

Neither was the matter ever raised during the hearings conducted by NTC on Smartspetition. This claim has been repeatedly invoked by Globe. It is borne out by the records orthe absence thereof. NTC could have easily rebuffed this claim by pointing to a definitiverecord. Yet strikingly, NTC has not asserted that the matter of Globes authority was raised inany pleading or proceeding. In fact, Globe in its Consolidated Reply before this Courtchallenged NTC to produce the transcripts of the hearings it conducted to prove that the issueof Globes 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, asdecisions must be rendered on the evidence presented, either in the hearing, or at leastcontained in the record and disclosed to the parties affected.[88] The requirement thatagencies hold hearings in which parties affected by the agencys action can be represented bycounsel may be viewed as an effort to regularize this struggle for advantage within alegislative adversary framework.[89] It necessarily follows that if no evidence is procuredpertinent to a particular issue, any eventual resolution of that issue on substantive groundsdespite the absence of evidence is flawed. Moreover, if the parties did have evidence tocounter the ruling but were wrongfully denied the opportunity to offer the evidence, the resultwould be embarrassing on the adjudicator.

Thus, the comical, though expected, result of a definitive order which is totallyunsupported 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 isnecessarily related to due process considerations. Since this question would also call to forethe 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 asan issue in the Complaint filed against it by Smart. Nor did NTC ever require Globe to justifyits 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 fineand to make a pronouncement on Globes alleged lack of operational authority without need ofhearing, simply by citing the provision of the Public Service Act[90] which enumerates theinstances when NTC may actmotu proprio. That is Section 17, paragraph (a), which readsthus:Sec. 17. Proceedings of [the National Telecommunications Commission] without previoushearing. The Commission shall have power, without previous hearing, subject to establishedlimitations and exceptions and saving provisions to the contrary:(a) To investigate, upon its own initiative, or upon complaint in writing, any matterconcerning any public service as regards matters under its jurisdiction; to require any publicservice to furnish safe, adequate, and proper service as the public interest may require andwarrant; to enforce compliance with any standard, rule, regulation, order or other requirementof this Act or of the Commission, and to prohibit or prevent any public service as hereindefined from operating without having first secured a certificate of public convenience orpublic necessity and convenience, as the case may be, and require existing public services topay the fees provided for in this Act for the issuance of the proper certificate of publicconvenience or certificate of public necessity and convenience, as the case may be, under thepenalty, in the discretion of the Commission, of the revocation and cancellation of anyacquired rights.

On the other hand, NTC itself, in the Order, cites Section 21 as the basis for its impositionof fine on Globe. The provision states:Sec. 21. Every public service violating or failing to comply with the terms and conditions ofany certificate or any orders, decisions or regulations of the Commission shall be subject to afine of not exceeding two hundred pesos per day for every day during which such default orviolation 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. UnderSection 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 byNTC, as well as require compliance if necessary. By the explicit language of the provision, NTCmay exercise the power without need of prior hearing. However, Section 17 does not includethe power to impose fine in its enumeration. It is Section 21 which adverts to the power toimpose fine and in the same breath requires that the power may be exercised only afternotice and hearing.

Section 21 requires notice and hearing because fine is a sanction, regulatory and evenpunitive in character. Indeed, the requirement is the essence of due process. Notice andhearing are the bulwark of administrative due process, the right to which is among theprimary rights that must be respected even in administrative proceedings.[91] The right isguaranteed by the Constitution itself and does not need legislative enactment. The statutoryaffirmation of the requirement serves merely to enhance the fundamental precept. The rightto 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 ofprior notice and hearing. Yet the agency contends that the sanction was justified by arguingthat when it took cognizance of Smarts complaint for interconnection, it may very well lookinto 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 couldlook into in the course of the proceedings. The parties subsequently attended at least fivehearings presided by NTC.[94]

That particular argument of the NTC has been previously disposed of. But it is essential toemphasize the need for a hearing before a fine may be imposed, as it is clearly a punitivemeasure undertaken by an administrative agency in the exercise of its quasi-judicialfunctions. Inherently, notice and hearing are indispensable for the valid exercise by anadministrative agency of its quasi-judicial functions. As the Court held in Central Bank of thePhil. v. Hon. Cloribel:[95][T]he necessity of notice and hearing in an administrative proceeding depends on thecharacter of the proceeding and the circumstances involved. In so far as generalization ispossible in view of the great variety of administrative proceedings, it may be stated as ageneral rule that notice and hearing are not essential to the validity of administrative actionwhere the administrative body acts in the exercise of executive, administrative, or legislativefunctions; 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 personwhose 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 itselfdemands 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 theassailed 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 beundertaken 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 whichis to subject a holder of a certificate of public convenience or authorization, or any personoperating 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, wheneverpracticable, the provisions of law or regulation violated, and the acts or omissions complainedof as constituting the offense.[97] While a complaint was indeed filed against Globe by Smart,the lack of Globes authority to operate SMS was not raised in the Complaint, solely predicatedas it was on Globes refusal to interconnect with Smart.[98]

Under the NTC Rules of Procedure, NTC is to serve a Show Cause Order on the respondentto the complaint, containing therein a statement of the particulars and matters concerningwhich the Commission is inquiring and the reasons for such actions.[99] The Show CauseOrder served on Globe in this case gave notice of Smarts charge that Globe, acting in badfaith and contrary to law, refused to allow the interconnection of their respective SMSsystems.[100] Again, the lack of authority to operate SMS was not adverted to in NTCs ShowCause Order.

The records also indicate that the issue of Globes authority was never raised in thesubsequent hearings on Smarts complaint. Quite noticeably, the respondents themselveshave never asserted that the matter of Globes authority was raised in any pleading orproceeding. In fact, Globe in its Consolidated Reply before this Court challenged NTC toproduce the transcripts of the hearings it conducted to prove that the issue of Globesauthority 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 forthe constitutional rights of party litigants.[101] In this case, NTC blindsided Globe with apunitive measure for a reason Globe was not made aware of, and in a manner thatcontravened express provisions of law. Consequently, the fine imposed by NTC on Globe isalso invalid. Otherwise put, since the very basis for the fine was invalidly laid, the fine isnecessarily void.

Conclusion

In summary: (i) there is no legal basis under the PTA or the memorandum circularspromulgated by the NTC to denominate SMS as VAS, and any subsequent determination bythe NTC on whether SMS is VAS should be made with proper regard for due process and inconformity with the PTA; (ii) the assailed Order violates due process for failure to sufficientlyexplain 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 absenceof due notice and hearing which would have afforded Globe the right to present evidence onits behalf.

Thus, the Order effectively discriminatory and arbitrary as it is, was issued with graveabuse of discretion and it must be set aside. NTC may not legally require Globe to secure itsapproval for Globe to continue providing SMS. This does not imply though that NTC lacksauthority to regulate SMS or to classify it as VAS. However, the move should be implementedproperly, 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 industrywithin a cumbersome regulatory regime.[102] The policy as pre-ordained by legislative fiatrenders the traditionally regimented business in an elementary free state to make businessdecisions, avowing that it is under this atmosphere that the industry would prosper.[103] It isdisappointing at least if the deregulation thrust of the law is skirted deliberately. But it isignominious if the spirit is defeated through a crazy quilt of vague, overlapping rules that areimplemented 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 approvalrequirement as imposed on Globe and Smart. The NTC will continue to exercise, by way of itsbroad grant, jurisdiction over Globe and Smarts SMS offerings, including questions of ratesand customer complaints. Yet caution must be had. Much complication could have beenavoided had the NTC adopted a proactive position, promulgating the necessary rules andregulations to cope up with the advent of the technologies it superintends. With thepersistent advent of new offerings in the telecommunications industry, the NTCs role willbecome more crucial than at any time before. If NTCs behavior in the present case is butindicative of a malaise pervading this crucial regulatory arm of the State, the Court fears theresultant confusion within the industry and the consuming public. The credibility of anadministrative 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 22November 1999, as well as its Resolution dated 29 July 2000, and the assailed Order of theNTC dated 19 July 1999 are hereby SET ASIDE. No cost.

SO ORDERED.

Republic of the PhilippinesSUPREME COURT

ManilaEN BANC

G.R. No. 88404 October 18, 1990PHILIPPINE LONG DISTANCE TELEPHONE CO. [PLDT], petitioner, vs.THE NATIONAL TELECOMMUNICATIONS COMMISSION AND CELLCOM, INC., (EXPRESSTELECOMMUNICATIONS CO., INC. [ETCI]), respondents.Alampan & Manhit Law Offices for petitioner.

Gozon, Fernandez, Defensor & Parel for private respondent.

MELENCIO-HERRERA, J.:Petitioner Philippine Long Distance Telephone Company (PLDT) assails, by way of certiorariand Prohibition under Rule 65, two (2) Orders of public respondent NationalTelecommunications Commission (NTC), namely, the Order of 12 December 1988 grantingprivate respondent Express Telecommunications Co., Inc. (ETCI) provisional authority toinstall, operate and maintain a Cellular Mobile Telephone System in Metro-Manila (Phase A) inaccordance with specified conditions, and the Order, dated 8 May 1988, denyingreconsideration.On 22 June 1958, Rep. Act No. 2090, was enacted, otherwise known as "An Act Granting FelixAlberto and Company, Incorporated, a Franchise to Establish Radio Stations for Domestic andTransoceanic Telecommunications." Felix Alberto & Co., Inc. (FACI) was the original corporatename, which was changed to ETCI with the amendment of the Articles of Incorporation in1964. Much later, "CELLCOM, Inc." was the name sought to be adopted before the Securitiesand Exchange Commission, but this was withdrawn and abandoned.On 13 May 1987, alleging urgent public need, ETCI filed an application with public respondentNTC (docketed as NTC Case No. 87-89) for the issuance of a Certificate of Public Convenienceand Necessity (CPCN) to construct, install, establish, operate and maintain a Cellular Mobile

Telephone System and an Alpha Numeric Paging System in Metro Manila and in the SouthernLuzon regions, with a prayer for provisional authority to operate Phase A of its proposal withinMetro Manila.PLDT filed an Opposition with a Motion to Dismiss, based primarily on the following grounds:(1) ETCI is not capacitated or qualified under its legislative franchise to operate a systemwidetelephone or network of telephone service such as the one proposed in its application; (2)ETCI lacks the facilities needed and indispensable to the successful operation of the proposedcellular mobile telephone system; (3) PLDT has itself a pending application with NTC, Case No.86-86, to install and operate a Cellular Mobile Telephone System for domestic andinternational service not only in Manila but also in the provinces and that under the "prioroperator" or "protection of investment" doctrine, PLDT has the priority or preference in theoperation of such service; and (4) the provisional authority, if granted, will result in needless,uneconomical and harmful duplication, among others.In an Order, dated 12 November 1987, NTC overruled PLDT's Opposition and declared thatRep. Act No. 2090 (1958) should be liberally construed as to include among the servicesunder said franchise the operation of a cellular mobile telephone service.In the same Order, ETCI was required to submit the certificate of registration of its Articles ofIncorporation with the Securities and Exchange Commission, the present capital andownership structure of the company and such other evidence, oral or documentary, as maybe necessary to prove its legal, financial and technical capabilities as well as the economicjustifications to warrant the setting up of cellular mobile telephone and paging systems. Thecontinuance of the hearings was also directed.After evaluating the reconsideration sought by PLDT, the NTC, in October 1988, maintained itsruling that liberally construed, applicant's franchise carries with it the privilege to operate andmaintain a cellular mobile telephone service.On 12 December 1988, NTC issued the first challenged Order. Opining that "public interest,convenience and necessity further demand a second cellular mobile telephone serviceprovider and finds PRIMA FACIE evidence showing applicant's legal, financial and technicalcapabilities to provide a cellular mobile service using the AMPS system," NTC granted ETCIprovisional authority to install, operate and maintain a cellular mobile telephone systeminitially in Metro Manila, Phase A only, subject to the terms and conditions set forth in thesame Order. One of the conditions prescribed (Condition No. 5) was that, within ninety (90)days from date of the acceptance by ETCI of the terms and conditions of the provisionalauthority, ETCI and PLDT "shall enter into an interconnection agreement for the provision ofadequate interconnection facilities between applicant's cellular mobile telephone switch andthe public switched telephone network and shall jointly submit such interconnectionagreement to the Commission for approval."In a "Motion to Set Aside the Order" granting provisional authority, PLDT alleged essentiallythat the interconnection ordered was in violation of due process and that the grant ofprovisional authority was jurisdictionally and procedurally infirm. On 8 May 1989, NTC deniedreconsideration and set the date for continuation of the hearings on the main proceedings.This is the second questioned Order.PLDT urges us now to annul the NTC Orders of 12 December 1988 and 8 May 1989 and toorder ETCI to desist from, suspend, and/or discontinue any and all acts intended for itsimplementation.On 15 June 1989, we resolved to dismiss the petition for its failure to comply fully with therequirements of Circular No. 1-88. Upon satisfactory showing, however, that there was, infact, such compliance, we reconsidered the order, reinstated the Petition, and required therespondents NTC and ETCI to submit their respective Comments.On 27 February 1990, we issued a Temporary Restraining Order enjoining NTC to "Cease and

Desist from all or any of its on-going proceedings and ETCI from continuing any and all actsintended or related to or which will amount to the implementation/execution of its provisionalauthority." This was upon PLDT's urgent manifestation that it had been served an NTC Order,dated 14 February 1990, directing immediate compliance with its Order of 12 December1988, "otherwise the Commission shall be constrained to take the necessary measures andbring to bear upon PLDT the full sanctions provided by law."We required PLDT to post a bond of P 5M. It has complied, with the statement that it was"post(ing) the same on its agreement and/or consent to have the same forfeited in favor ofPrivate Respondent ETCI/CELLCOM should the instant Petition be dismissed for lack of merit."ETCI took exception to the sufficiency of the bond considering its initial investment ofapproximately P 225M, but accepted the forfeiture proferred.ETCI moved to have the TRO lifted, which we denied on 6 March 1990. We stated, however,that the inaugural ceremony ETCI had scheduled for that day could proceed, as the same wasnot covered by the TRO.PLDT relies on the following grounds for the issuance of the Writs prayed for:

1. Respondent NTC's subject order effectively licensed and/or authorized acorporate entity without any franchise to operate a public utility, legislative orotherwise, to establish and operate a telecommunications system.2. The same order validated stock transactions of a public service enterprisecontrary to and/or in direct violation of Section 20(h) of the Public Service Act.3. Respondent NTC adjudicated in the same order a controverted matter thatwas not heard at all in the proceedings under which it was promulgated.

As correctly pointed out by respondents, this being a special civil action for certiorari andProhibition, we only need determine if NTC acted without jurisdiction or with grave abuse ofdiscretion amounting to lack or excess of jurisdiction in granting provisional authority to ETCIunder the NTC questioned Orders of 12 December 1988 and 8 May 1989.The case was set for oral argument on 21 August 1990 with the parties directed to address,but not limited to, the following issues: (1) the status and coverage of Rep. Act No. 2090 as afranchise; (2) the transfer of shares of stock of a corporation holding a CPCN; and (3) theprinciple and procedure of interconnection. The parties were thereafter required to submittheir respective Memoranda, with which they have complied.We find no grave abuse of discretion on the part of NTC, upon the following considerations:1. NTC JurisdictionThere can be no question that the NTC is the regulatory agency of the national governmentwith jurisdiction over all telecommunications entities. It is legally clothed with authority andgiven ample discretion to grant a provisional permit or authority. In fact, NTC may, on its owninitiative, grant such relief even in the absence of a motion from an applicant.

Sec. 3. Provisional Relief. Upon the filing of an application, complaint orpetition or at any stage thereafter, the Board may grant on motion of thepleaders or on its own initiative, the relief prayed for, based on the pleading,together with the affidavits and supporting documents attached thereto, withoutprejudice to a final decision after completion of the hearing which shall be calledwithin thirty (30) days from grant of authority asked for. (Rule 15, Rules ofPractice and Procedure Before the Board of Communications (now NTC).

What the NTC granted was such a provisional authority, with a definite expiry period ofeighteen (18) months unless sooner renewed, and which may be revoked, amended orrevised by the NTC. It is also limited to Metro Manila only. What is more, the main proceedings

are clearly to continue as stated in the NTC Order of 8 May 1989.The provisional authority was issued after due hearing, reception of evidence and evaluationthereof, with the hearings attended by various oppositors, including PLDT. It was granted onlyafter a prima facie showing that ETCI has the necessary legal, financial and technicalcapabilities and that public interest, convenience and necessity so demanded.PLDT argues, however, that a provisional authority is nothing short of a Certificate of PublicConvenience and Necessity (CPCN) and that it is merely a "distinction without a difference."That is not so. Basic differences do exist, which need not be elaborated on. What should beborne in mind is that provisional authority would be meaningless if the grantee were notallowed to operate. Moreover, it is clear from the very Order of 12 December 1988 itself thatits scope is limited only to the first phase, out of four, of the proposed nationwide telephonesystem. The installation and operation of an alpha numeric paging system was notauthorized. The provisional authority is not exclusive. Its lifetime is limited and may berevoked by the NTC at any time in accordance with law. The initial expenditure of P130M moreor less, is rendered necessary even under a provisional authority to enable ETCI to prove itscapability. And as pointed out by the Solicitor General, on behalf of the NTC, if what had beengranted were a CPCN, it would constitute a final order or award reviewable only by ordinaryappeal to the Court of Appeals pursuant to Section 9(3) of BP Blg. 129, and not by certioraribefore this Court.The final outcome of the application rests within the exclusive prerogative of the NTC.Whether or not a CPCN would eventually issue would depend on the evidence to be presentedduring the hearings still to be conducted, and only after a full evaluation of the proof thuspresented.2. The Coverage of ETCI's FranchiseRep. Act No. 2090 grants ETCI (formerly FACI) "the right and privilege of constructing,installing, establishing and operating in the entire Philippines radio stations for reception andtransmission of messages on radio stations in the foreign and domestic public fixed point-to-point and public base, aeronautical and land mobile stations, ... with the corresponding relaystationsfor the reception and transmission of wireless messages on radiotelegraphy and/orradiotelephony ...." PLDT maintains that the scope of the franchise is limited to "radiostations" and excludes telephone services such as the establishment of the proposed CellularMobile Telephone System (CMTS). However, in its Order of 12 November 1987, the NTCconstrued the technical term "radiotelephony" liberally as to include the operation of acellular mobile telephone system. It said:

In resolving the said issue, the Commission takes into consideration the differentdefinitions of the term "radiotelephony." As defined by the New InternationalWebster Dictionary the term "radiotelephony" is defined as a telephone carriedon by aid of radiowaves without connecting wires. The InternationalTelecommunications Union (ITU) defines a "radiotelephone call" as a "telephonecall, originating in or intended on all or part of its route over the radiocommunications channels of the mobile service or of the mobile satelliteservice." From the above definitions, while under Republic Act 2090 a system-wide telephone or network of telephone service by means of connecting wiresmay not have been contemplated, it can be construed liberally that theoperation of a cellular mobile telephone service which carries messages, eithervoice or record, with the aid of radiowaves or a part of its route carried overradio communication channels, is one included among the services under saidfranchise for which a certificate of public convenience and necessity may beapplied for.

The foregoing is the construction given by an administrative agency possessed of thenecessary special knowledge, expertise and experience and deserves great weight and

respect (Asturias Sugar Central, Inc. v. Commissioner of Customs, et al., L-19337, September30, 1969, 29 SCRA 617). It can only be set aside on proof of gross abuse of discretion, fraud,or error of law (Tupas Local Chapter No. 979 v. NLRC, et al., L-60532-33, November 5, 1985,139 SCRA 478). We discern none of those considerations sufficient to warrant judicialintervention.3. The Status of ETCI FranchisePLDT alleges that the ETCI franchise had lapsed into nonexistence for failure of the franchiseholder to begin and complete construction of the radio system authorized under the franchiseas explicitly required in Section 4 of its franchise, Rep. Act No. 2090. 1 PLDT also invokes Pres.Decree No. 36, enacted on 2 November 1972, which legislates the mandatory cancellation orinvalidation of all franchises for the operation of communications services, which have notbeen availed of or used by the party or parties in whose name they were issued.However, whether or not ETCI, and before it FACI, in contravention of its franchise, started thefirst of its radio telecommunication stations within (2) years from the grant of its franchiseand completed the construction within ten (10) years from said date; and whether or not itsfranchise had remained unused from the time of its issuance, are questions of fact beyond theprovince of this Court, besides the well-settled procedural consideration that factual issuesare not subjects of a special civil action for certiorari (Central Bank of the Philippines vs. Courtof Appeals, G.R. No. 41859, 8 March 1989, 171 SCRA 49; Ygay vs. Escareal, G.R. No. 44189, 8February 1985, 135 SCRA 78; Filipino Merchant's Insurance Co., Inc. vs. IntermediateAppellate Court, G.R. No. 71640, 27 June 1988, 162 SCRA 669). Moreover, neither Section 4,Rep. Act No. 2090 nor Pres. Decree No. 36 should be construed as self-executing in working aforfeiture. Franchise holders should be given an opportunity to be heard, particularly so,where, as in this case, ETCI does not admit any breach, in consonance with the rudiments offair play. Thus, the factual situation of this case differs from that in Angeles Ry Co. vs. City ofLos Angeles (92 Pacific Reporter 490) cited by PLDT, where the grantee therein admitted itsfailure to complete the conditions of its franchise and yet insisted on a decree of forfeiture.More importantly, PLDT's allegation partakes of a Collateral attack on a franchise Rep. Act No.2090), which is not allowed. A franchise is a property right and cannot be revoked or forfeitedwithout due process of law. The determination of the right to the exercise of a franchise, orwhether the right to enjoy such privilege has been forfeited by non-user, is more properly thesubject of the prerogative writ of quo warranto, the right to assert which, as a rule, belongs tothe State "upon complaint or otherwise" (Sections 1, 2 and 3, Rule 66, Rules of Court), 2 thereason being that the abuse of a franchise is a public wrong and not a private injury. Aforfeiture of a franchise will have to be declared in a direct proceeding for the purposebrought by the State because a franchise is granted by law and its unlawful exercise isprimarily a concern of Government.

A ... franchise is ... granted by law, and its ... unlawful exercise is the concernprimarily of the Government. Hence, the latter as a rule is the party called uponto bring the action for such ... unlawful exercise of franchise. (IV-B V. FRANCISCO,298 [1963 ed.], citing Cruz vs. Ramos, 84 Phil. 226).

4. ETCI's Stock TransactionsETCI admits that in 1964, the Albertos, as original owners of more than 40% of theoutstanding capital stock sold their holdings to the Orbes. In 1968, the Albertos re-acquiredthe shares they had sold to the Orbes. In 1987, the Albertos sold more than 40% of theirshares to Horacio Yalung. Thereafter, the present stockholders acquired their ETCI shares.Moreover, in 1964, ETCI had increased its capital stock from P40,000.00 to P360,000.00; andin 1987, from P360,000.00 to P40M.

PLDT contends that the transfers in 1987 of the shares of stock to the newstockholders amount to a transfer of ETCI's franchise, which needs

Congressional approval pursuant to Rep. Act No. 2090, and since such approvalhad not been obtained, ETCI's franchise had been invalidated. The provisionrelied on reads, in part, as follows:SECTION 10. The grantee shall not lease, transfer, grant the usufruct of, sell orassign this franchise nor the rights and privileges acquired thereunder to anyperson, firm, company, corporation or other commercial or legal entity normerge with any other person, company or corporation organized for the samepurpose, without the approval of the Congress of the Philippines first had. ...

It should be noted, however, that the foregoing provision is, directed to the "grantee" of thefranchise, which is the corporation itself and refers to a sale, lease, or assignment of thatfranchise. It does not include the transfer or sale of shares of stock of a corporation by thelatter's stockholders.The sale of shares of stock of a public utility is governed by another law, i.e., Section 20(h) ofthe Public Service Act (Commonwealth Act No. 146). Pursuant thereto, the Public ServiceCommission (now the NTC) is the government agency vested with the authority to approvethe transfer of more than 40% of the subscribed capital stock of a telecommunicationscompany to a single transferee, thus:

SEC. 20. Acts requiring the approval of the Commission. Subject to establishedstations and exceptions and saving provisions to the contrary, it shall beunlawful for any public service or for the owner, lessee or operator thereof,without the approval and authorization of the Commission previously hadxxx xxx xxx(h) To sell or register in its books the transfer or sale of shares of its capitalstock, if the result of that sale in itself or in connection with another previoussale, shall be to vest in the transferee more than forty per centum of thesubscribed capital of said public service. Any transfer made in violation of thisprovision shall be void and of no effect and shall not be registered in the booksof the public service corporation. Nothing herein contained shall be construed toprevent the holding of shares lawfully acquired. (As amended by Com. Act No.454).

In other words, transfers of shares of a public utility corporation need only NTC approval, notCongressional authorization. What transpired in ETCI were a series of transfers of sharesstarting in 1964 until 1987. The approval of the NTC may be deemed to have been met whenit authorized the issuance of the provisional authority to ETCI. There was full disclosure beforethe NTC of the transfers. In fact, the NTC Order of 12 November 1987 required ETCI to submitits "present capital and ownership structure." Further, ETCI even filed a Motion before theNTC, dated 8 December 1987, or more than a year prior to the grant of provisional authority,seeking approval of the increase in its capital stock from P360,000.00 to P40M, and the stocktransfers made by its stockholders.A distinction should be made between shares of stock, which are owned by stockholders, thesale of which requires only NTC approval, and the franchise itself which is owned by thecorporation as the grantee thereof, the sale or transfer of which requires Congressionalsanction. Since stockholders own the shares of stock, they may dispose of the same as theysee fit. They may not, however, transfer or assign the property of a corporation, like itsfranchise. In other words, even if the original stockholders had transferred their shares toanother group of shareholders, the franchise granted to the corporation subsists as long asthe corporation, as an entity, continues to exist The franchise is not thereby invalidated bythe transfer of the shares. A corporation has a personality separate and distinct from that ofeach stockholder. It has the right of continuity or perpetual succession (Corporation Code,Sec. 2).

To all appearances, the stock transfers were not just for the purpose of acquiring the ETCIfranchise, considering that, as heretofore stated, a series of transfers was involved from 1964to 1987. And, contrary to PLDT's assertion, the franchise was not the only property of ETCI ofmeaningful value. The "zero" book value of ETCI assets, as reflected in its balance sheet, wasplausibly explained as due to the accumulated depreciation over the years entered foraccounting purposes and was not reflective of the actual value that those assets wouldcommand in the market.But again, whether ETCI has offended against a provision of its franchise, or has subjected itto misuse or abuse, may more properly be inquired into in quo warranto proceedingsinstituted by the State. It is the condition of every franchise that it is subject to amendment,alteration, or repeal when the common good so requires (1987 Constitution, Article XII,Section 11).5. The NTC Interconnection OrderIn the provisional authority granted by NTC to ETCI, one of the conditions imposed was thatthe latter and PLDT were to enter into an interconnection agreement to be jointly submittedto NTC for approval.PLDT vehemently opposes interconnection with its own public switched telephone network. Itcontends: that while PLDT welcomes interconnections in the furtherance of public interest,only parties who can establish that they have valid and subsisting legislative franchises areentitled to apply for a CPCN or provisional authority, absent which, NTC has no jurisdiction togrant them the CPCN or interconnection with PLDT; that the 73 telephone systems operatingall over the Philippines have a viability and feasibility independent of any interconnection withPLDT; that "the NTC is not empowered to compel such a private raid on PLDT's legitimateincome arising out of its gigantic investment;" that "it is not public interest, but purely aprivate and selfish interest which will be served by an interconnection under ETCI's terms;"and that "to compel PLDT to interconnect merely to give viability to a prospective competitor,which cannot stand on its own feet, cannot be justified in the name of a non-existent publicneed" (PLDT Memorandum, pp. 48 and 50).PLDT cannot justifiably refuse to interconnect.Rep. Act No. 6849, or the Municipal Telephone Act of 1989, approved on 8 February 1990,mandates interconnection providing as it does that "all domestic telecommunications carriersor utilities ... shall be interconnected to the public switch telephone network." Such regulationof the use and ownership of telecommunications systems is in the exercise of the plenarypolice power of the State for the promotion of the general welfare. The 1987 Constitutionrecognizes the existence of that power when it provides.

SEC. 6. The use of property bears a social function, and all economic agentsshall contribute to the common good. Individuals and private groups, includingcorporations, cooperatives, and similar collective organizations, shall have theright to own, establish, and operate economic enterprises, subject to the duty ofthe State to promote distributive justice and to intervene when the commongood so demands (Article XII).

The interconnection which has been required of PLDT is a form of "intervention" with propertyrights dictated by "the objective of government to promote the rapid expansion oftelecommunications services in all areas of the Philippines, ... to maximize the use oftelecommunications facilities available, ... in recognition of the vital role of communications innation building ... and to ensure that all users of the public telecommunications service haveaccess to all other users of the service wherever they may be within the Philippines at anacceptable standard of service and at reasonable cost" (DOTC Circular No. 90-248).Undoubtedly, the encompassing objective is the common good. The NTC, as the regulatoryagency of the State, merely exercised its delegated authority to regulate the use of

telecommunications networks when it decreed interconnection.The importance and emphasis given to interconnection dates back to Ministry Circular No. 82-81, dated 6 December 1982, providing:

Sec. 1. That the government encourages the provision and operation of publicmobile telephone service within local sub-base stations, particularly, in thehighly commercialized areas;Sec. 5. That, in the event the authority to operate said service be granted toother applicants, other than the franchise holder, the franchise operator shall beunder obligation to enter into an agreement with the domestic telephonenetwork, under an interconnection agreement;

Department of Transportation and Communication (DOTC) Circular No. 87-188, issued in 1987,also decrees:

12. All public communications carriers shall interconnect their facilities pursuantto comparatively efficient interconnection (CEI) as defined by the NTC in theinterest of economic efficiency.

The sharing of revenue was an additional feature considered in DOTC Circular No. 90-248,dated 14 June 1990, laying down the "Policy on Interconnection and Revenue Sharing byPublic Communications Carriers," thus:

WHEREAS, it is the objective of government to promote the rapid expansion oftelecommunications services in all areas of the Philippines;WHEREAS, there is a need to maximize the use of telecommunications facilitiesavailable and encourage investment in telecommunications infrastructure bysuitably qualified service providers;WHEREAS, in recognition of the vital role of communications in nation building,there is a need to ensure that all users of the public telecommunications servicehave access to all other users of the service wherever they may be within thePhilippines at an acceptable standard of service and at reasonable cost.WHEREFORE, ... the following Department policies on interconnection andrevenue sharing are hereby promulgated:

1. All facilities offering public telecommunication services shall beinterconnected into the nationwide telecommunications network/s.

xxx xxx xxx4. The interconnection of networks shall be effected in a fair andnon-discriminatory manner and within the shortest time-framepracticable.5. The precise points of interface between service operators shallbe as defined by the NTC; and the apportionment of costs anddivision of revenues resulting from interconnection oftelecommunications networks shall be as approved and/orprescribed by the NTC.

xxx xxx xxxSince then, the NTC, on 12 July 1990, issued Memorandum Circular No. 7-13-90 prescribingthe "Rules and Regulations Governing the Interconnection of Local Telephone Exchanges andPublic Calling Offices with the Nationwide Telecommunications Network/s, the Sharing ofRevenue Derived Therefrom, and for Other Purposes."

The NTC order to interconnect allows the parties themselves to discuss and agree upon thespecific terms and conditions of the interconnection agreement instead of the NTC itselflaying down the standards of interconnection which it can very well impose. Thus it is thatPLDT cannot justifiably claim denial of clue process. It has been heard. It will continue to beheard in the main proceedings. It will surely heard in the negotiations concerning theinterconnection agreement.As disclosed during the hearing, the interconnection sought by ETCI is by no means a"parasitic dependence" on PLDT. The ETCI system can operate on its own even withoutinterconnection, but it will be limited to its own subscribers. What interconnection seeks toaccomplish is to enable the system to reach out to the greatest number of people possible inline with governmental policies laid down. Cellular phones can access PLDT units and viceversa in as wide an area as attainable. With the broader reach, public interest andconvenience will be better served. To be sure, ETCI could provide no mean competition(although PLDT maintains that it has nothing to fear from the "innocuous interconnection"),and eat into PLDT's own toll revenue cream PLDT revenue," in its own words), but all for theeventual benefit of all that the system can reach.6. Ultimate ConsiderationsThe decisive consideration are public need, public interest, and the common good. Thosewere the overriding factors which motivated NTC in granting provisional authority to ETCI.Article II, Section 24 of the 1987 Constitution, recognizes the vital role of communication andinformation in nation building. It is likewise a State policy to provide the environment for theemergence of communications structures suitable to the balanced flow of information into,out of, and across the country (Article XVI, Section 10, Ibid.). A modern and dependablecommunications network rendering efficient and reasonably priced services is alsoindispensable for accelerated economic recovery and development. To these public andnational interests, public utility companies must bow and yield.Despite the fact that there is a virtual monopoly of the telephone system in the country atpresent. service is sadly inadequate. Customer demands are hardly met, whether fixed ormobile. There is a unanimous cry to hasten the development of a modern, efficient,satisfactory and continuous telecommunications service not only in Metro Manila butthroughout the archipelago. The need therefor was dramatically emphasized by thedestructive earthquake of 16 July 1990. It may be that users of the cellular mobile telephonewould initially be limited to a few and to highly commercialized areas. However, it is a step inthe right direction towards the enhancement of the telecommunications infrastructure, theexpansion of telecommunications services in, hopefully, all areas of the country, with chancesof complete disruption of communications minimized. It will thus impact on, the totaldevelopment of the country's telecommunications systems and redound to the benefit ofeven those who may not be able to subscribe to ETCI.Free competition in the industry may also provide the answer to a much-desired improvementin the quality and delivery of this type of public utility, to improved technology, fast andhandy mobile service, and reduced user dissatisfaction. After all, neither PLDT nor any otherpublic utility has a constitutional right to a monopoly position in view of the Constitutionalproscription that no franchise certificate or authorization shall be exclusive in character orshall last longer than fifty (50) years (ibid., Section 11; Article XIV Section 5, 1973Constitution; Article XIV, Section 8, 1935 Constitution). Additionally, the State is empoweredto decide whether public interest demands that monopolies be regulated or prohibited (1987Constitution. Article XII, Section 19).WHEREFORE, finding no grave abuse of discretion, tantamount to lack of or excess ofjurisdiction, on the part of the National Telecommunications Commission in issuing itschallenged Orders of 12 December 1988 and 8 May 1989 in NTC Case No. 87-39, this Petitionis DISMISSED for lack of merit. The Temporary Restraining Order heretofore issued is LIFTED.

The bond issued as a condition for the issuance of said restraining Order is declared forfeitedin favor of private respondent Express Telecommunications Co., Inc. Costs against pe