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SECOND DIVISION

THE
CITY
GOVERNMENT
OFQUEZON CITY, AND THE
CITY TREASURER OF QUEZON
CITY, DR. VICTOR B. ENRIGA,
Petitioners,

- versus -

G.R. No. 162015

Present:

PUNO, J., Chairperson,


SANDOVAL-GUTIERREZ,
CORONA,
AZCUNA, and
GARCIA, JJ.
Promulgated:

BAYAN
March 6, 2006
TELECOMMUNICATIONS,
INC.,
Respondent.
x-----------------------------------------------------------------------------------x

DECISION
GARCIA, J.:
Before the Court, on pure questions of law, is this petition for
review on certiorari under Rule 45 of the Rules of Court to nullify
and set aside the following issuances of the Regional Trial Court
(RTC) of Quezon City, Branch 227, in its Civil Case No. Q-02-47292,
to wit:
1)

Decision[1] dated June 6, 2003, declaring respondent Bayan


Telecommunications, Inc. exempt from real estate taxation on its real
properties located in Quezon City; and

2) Order[2] dated December


reconsideration.

The facts:

30,

2003,

denying

petitioners

motion

for

Respondent Bayan Telecommunications, Inc. [3] (Bayantel) is a


legislative franchise holder under Republic Act (Rep. Act) No.
3259[4] to establish and operate radio stations for domestic
telecommunications, radiophone, broadcasting and telecasting.
Of relevance to this controversy is the tax provision of Rep.
Act No. 3259, embodied in Section 14 thereof, which reads:
SECTION 14. (a) The grantee shall be liable to pay the same taxes on its
real estate, buildings and personal property, exclusive of the franchise, as other
persons or corporations are now or hereafter may be required by law to pay. (b)
The grantee shall further pay to the Treasurer of the Philippines each year, within
ten days after the audit and approval of the accounts as prescribed in this Act, one
and one-halfper centum of all gross receipts from the business transacted under
this franchise by the said grantee (Emphasis supplied).

On January 1, 1992, Rep. Act No. 7160, otherwise known as


the Local Government Code of 1991 (LGC), took effect. Section
232 of the Code grants local government units within the Metro
Manila Area the power to levy tax on real properties, thus:
SEC. 232. Power to Levy Real Property Tax. A province or city or a
municipality within the Metropolitan Manila Area may levy an annual ad valorem
tax on real property such as land, building, machinery and other improvements
not hereinafter specifically exempted.

Complementing the aforequoted provision is the second


paragraph of Section 234 of the same Code which withdrew any
exemption from realty tax heretofore granted to or enjoyed by all
persons, natural or juridical, to wit:
SEC. 234 - Exemptions from Real Property Tax. The following are
exempted from payment of the real property tax:
xxx xxx xxx

Except as provided herein, any exemption from payment of real property


tax previously granted to, or enjoyed by, all persons, whether natural or juridical,
including government-owned-or-controlled corporations is hereby withdrawn
upon effectivity of this Code(Emphasis supplied).

On July 20, 1992, barely few months after the LGC took
effect, Congress enacted Rep. Act No. 7633, amending Bayantels
original franchise. The amendatory law (Rep. Act No. 7633)
contained the following tax provision:
SEC. 11. The grantee, its successors or assigns shall be liable to pay the
same taxes on their real estate, buildings and personal property, exclusive of this
franchise, as other persons or corporations are now or hereafter may be required
by law to pay. In addition thereto, the grantee, its successors or assigns shall pay a
franchise tax equivalent to three percent (3%) of all gross receipts of the
telephone or other telecommunications businesses transacted under this franchise
by the grantee, its successors or assigns and the said percentage shall be in lieu of
all taxes on this franchise or earnings thereof. Provided, That the grantee, its
successors or assigns shall continue to be liable for income taxes payable under
Title II of the National Internal Revenue Code . xxx. [Emphasis supplied]

It is undisputed that within the territorial boundary


of Quezon City, Bayantel owned several real properties on which
it maintained various telecommunications facilities. These real
properties, as hereunder described, are covered by the following
tax declarations:
(a)

Tax Declaration Nos. D-096-04071, D-096-04074, D-096-04072 and D096-04073 pertaining to Bayantels Head Office and Operations Center in
Roosevelt St., San Francisco del Monte, Quezon City allegedly the nerve
center of petitioners telecommunications franchise operations, said
Operation Center housing mainly petitioners Network Operations Group
and switching, transmission and related equipment;

(b)

Tax Declaration Nos. D-124-01013, D-124-00939, D-124-00920 and D124-00941 covering Bayantels land, building and equipment in
Maginhawa St., Barangay East Teachers Village, Quezon City which
houses telecommunications facilities; and

(c)

Tax Declaration Nos. D-011-10809, D-011-10810, D-011-10811, and D011-11540 referring to Bayantels Exchange Centerlocated in Proj. 8, Brgy.

Bahay Toro, Tandang Sora, Quezon City which houses the Network
Operations Group and cover switching, transmission and other related
equipment.

In 1993, the government of Quezon City, pursuant to


the
taxing power vested on local government units by Section 5,
Article X of the 1987 Constitution, infra, in relation to Section 232
of the LGC, supra, enacted City Ordinance No. SP-91, S-93,
otherwise known as the Quezon City Revenue Code (QCRC),
[5]
imposing, under Section 5 thereof, a real property tax on all real
properties in Quezon City, and, reiterating in its Section 6, the
withdrawal of exemption from real property tax under Section 234
of the LGC, supra. Furthermore, much like the LGC, the QCRC,
under its Section 230, withdrew tax exemption privileges in
general, as follows:
SEC. 230. Withdrawal of Tax Exemption Privileges. Unless otherwise
provided in this Code, tax exemptions or incentivesgranted to, or presently
enjoyed by all persons, whether natural or juridical, including government
owned or controlled corporations, except local water districts, cooperatives duly
registered under RA 6938, non-stock and non-profit hospitals and educational
institutions, business enterprises certified by the Board of Investments (BOI) as
pioneer or non-pioneer for a period of six (6) and four (4) years, respectively, are
hereby withdrawn effective upon approval of this Code (Emphasis supplied).

Conformably with the Citys Revenue Code, new tax


declarations for Bayantels real properties in Quezon City were
issued by the City Assessor and were received by Bayantel on
August 13, 1998, except one (Tax Declaration No. 124-01013)
which was received on July 14, 1999.
Meanwhile, on March 16, 1995, Rep. Act No. 7925,
otherwise known as the Public Telecommunications Policy Act
of the Philippines, envisaged to level the playing field among
telecommunications companies, took effect. Section 23 of the Act
provides:
[6]

SEC. 23. Equality of Treatment in the Telecommunications Industry. Any


advantage, favor, privilege, exemption, or immunity granted under existing
franchises, or may hereafter be granted, shall ipso facto become part of previously
granted telecommunications franchises and shall be accorded immediately and
unconditionally to the grantees of such franchises: Provided, however, That the
foregoing shall neither apply to nor affect provisions of telecommunications
franchises concerning territory covered by the franchise, the life span of the
franchise, or the type of service authorized by the franchise.

On January 7, 1999, Bayantel wrote the office of the City


Assessor seeking the exclusion of its real properties in the city
from the roll of taxable real properties. With its request having
been denied, Bayantel interposed an appeal with the Local Board
of Assessment Appeals (LBAA). And, evidently on its firm belief of
its exempt status, Bayantel did not pay the real property taxes
assessed against it by the Quezon City government.
On account thereof, the Quezon City Treasurer sent out
notices of delinquency for the total amount ofP43,878,208.18,
followed by the issuance of several warrants of levy against
Bayantels properties preparatory to their sale at a public auction
set on July 30, 2002.
Threatened with the imminent loss of its properties, Bayantel
immediately withdrew its appeal with theLBAA and instead
filed
with the RTC of Quezon City a petition for prohibition with an
urgent application for a temporary restraining order (TRO) and/or
writ of preliminary injunction, thereat docketed as Civil Case No.
Q-02-47292, which was raffled to Branch 227 of the court.
On July 29, 2002, or in the eve of the public auction
scheduled the following day, the lower court issued a TRO,
followed, after due hearing, by a writ of preliminary
injunction via its order of August 20, 2002.

And, having heard the parties on the merits, the same court
came out with its challenged Decision of June 6, 2003, the
dispositive portion of which reads:
WHEREFORE, premises considered, pursuant to the enabling franchise
under Section 11 of Republic Act No. 7633, the real estate properties and
buildings of petitioner [now, respondent Bayantel] which have been admitted to
be used in the operation of petitioners franchise described in the following tax
declarations are hereby DECLARED exempt from real estate taxation:
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)

Tax Declaration No. D-096-04071


Tax Declaration No. D-096-04074
Tax Declaration No. D-124-01013
Tax Declaration No. D-011-10810
Tax Declaration No. D-011-10811
Tax Declaration No. D-011-10809
Tax Declaration No. D-124-00941
Tax Declaration No. D-124-00940
Tax Declaration No. D-124-00939
Tax Declaration No. D-096-04072
Tax Declaration No. D-096-04073
Tax Declaration No. D-011-11540

The preliminary prohibitory injunction issued in the August 20, 2002 Order of
this Court is hereby made permanent. Since this is a resolution of a purely legal
issue, there is no pronouncement as to costs.
SO ORDERED.

Their motion for reconsideration having been denied by the


court in its Order dated December 30, 2003, petitioners elevated
the case directly to this Court on pure questions of law, ascribing
to the lower court the following errors:
I.

[I]n declaring the real properties of respondent exempt from real property
taxes notwithstanding the fact that the tax exemption granted to Bayantel
in its original franchise had been withdrawn by the [LGC] and that the
said exemption was not restored by the enactment of RA 7633.

II.

[In] declaring the real properties of respondent exempt from real property
taxes notwithstanding the enactment of the [QCRC] which withdrew the
tax exemption which may have been granted by RA 7633.

III.

[In] declaring the real properties of respondent exempt from real property
taxes notwithstanding the vague and ambiguous grant of tax exemption
provided under Section 11 of RA 7633.

IV.

[In] declaring the real properties of respondent exempt from real property
taxes notwithstanding the fact that [it] had failed to exhaust administrative
remedies in its claim for real property tax exemption. (Words in bracket
added.)

As we see it, the errors assigned may ultimately be reduced


to two (2) basic issues, namely:
1.

Whether or not Bayantels real properties in Quezon City are exempt from
real property taxes under its legislative franchise; and

2.

Whether or not Bayantel is required to exhaust administrative remedies


before seeking judicial relief with the trial court.

We shall first address


being procedural in nature.

the

second

issue,

the

same

Petitioners argue that Bayantel had failed to avail itself of


the administrative remedies provided for under the LGC, adding
that the trial court erred in giving due course to Bayantels petition
for prohibition. To petitioners, the appeal mechanics under the
LGC constitute Bayantels plain and speedy remedy in this case.
The Court does not agree.
Petitions for prohibition are governed by the following
provision of Rule 65 of the Rules of Court:
SEC. 2. Petition for prohibition. When the proceedings of any tribunal, are
without or in excess of its or his jurisdiction, or with grave abuse of discretion
amounting to lack or excess of jurisdiction, and there is no appeal or any other
plain, speedy, and adequate remedy in the ordinary course of law, a person
aggrieved thereby may file a verified petition in the proper court, alleging the
facts with certainty and praying that judgment be rendered commanding the
respondent to desist from further proceedings in the action or matter specified

therein, or otherwise, granting such incidental reliefs as law and justice may
require.

With the reality that Bayantels real properties were already


levied upon on account of its nonpayment of real estate taxes
thereon, the Court agrees with Bayantel that an appeal to the
LBAA is not a speedy and adequate remedy within the context of
the aforequoted Section 2 of Rule 65. This is not to mention of the
auction sale of said properties already scheduled on July 30, 2002.
Moreover, one of the recognized exceptions to the
exhaustion- of-administrative remedies rule is when, as here, only
legal issues are to be resolved. In fact, the Court, cognizant of the
nature of the questions presently involved, gave due course to
the instant petition. As the Court has said in Ty vs. Trampe:[7]
xxx. Although as a rule, administrative remedies must first be exhausted
before resort to judicial action can prosper, there is a well-settled exception in
cases where the controversy does not involve questions of fact but only of law.
xxx.

Lest it be overlooked, an appeal to the LBAA, to be properly


considered, required prior payment under protest of the amount
of P43,878,208.18, a figure which, in the light of the then
prevailing Asian financial crisis, may have been difficult to raise
up. Given this reality, an appeal to the LBAA may not be
considered as a plain, speedy and adequate remedy. It is thus
understandable why Bayantel opted to withdraw its earlier appeal
with the LBAA and, instead, filed its petition for prohibition with
urgent application for injunctive relief in Civil Case No. Q-0247292. The remedy availed of by Bayantel under Section 2, Rule
65 of the Rules of Court must be upheld.

This brings the Court to the more weighty question of


whether or not Bayantels real properties in Quezon City are,
under its franchise, exempt from real property tax.
The lower court resolved the issue in the affirmative,
basically owing to the phrase exclusive of this franchise found in
Section 11 of Bayantels amended franchise, Rep. Act No. 7633. To
petitioners, however, the language of Section 11 of Rep. Act No.
7633 is neither clear nor unequivocal. The elaborate and
extensive
discussion
devoted by the trial court on the meaning and import of
said phrase, they add, suggests as much. Itis petitioners thesis
that Bayantel was in no time given any express exemption from
the payment of real property tax under its amendatory franchise.
There seems to be no issue as to Bayantels exemption from
real estate taxes by virtue of the term exclusive of the franchise
qualifying the phrase same taxes on its real estate, buildings and
personal property, found in Section 14, supra, of its franchise,
Rep. Act No. 3259, as originally granted.
The legislative intent expressed in the phrase exclusive of
this franchise cannot be construed other than distinguishing
between two (2) sets of properties, be they real or personal,
owned by the franchisee, namely, (a)those actually,
directly
and exclusively used in its radio or telecommunications business,
and (b) those propertieswhich are not so used. It is
worthy
to note that the properties subject of the
present
controversy
are only thosewhich are admittedly falling under the first
category.
To the mind of the Court, Section 14 of Rep. Act No.
3259 effectively works to grant or delegate to local governments
of Congress inherent power to tax the franchisees properties
belonging to the second group of properties indicated above, that

is, all properties which, exclusive of this franchise, are not actually
and directly used in the pursuit of its franchise. As may be
recalled, the taxing power of local governments under both the
1935 and the 1973 Constitutions solely depended upon
an enabling law. Absent such enabling law, local government
units were without authority to impose and collect taxes on real
properties within their respective territorial jurisdictions. While
Section 14 of Rep. Act No. 3259 may be validly viewed as an
implied delegation of power to tax, the delegation under that
provision, as couched, is limited to impositions over properties of
the franchisee which are not actually, directly and exclusively
used in the pursuit of its franchise. Necessarily, other properties
of Bayantel directly used in the pursuit of its business are beyond
the pale of the delegated taxing power of local governments. In a
very real sense, therefore, real properties of Bayantel, save
those exclusive ofits franchise,
are
subject
to
realty
taxes. Ultimately, therefore, the inevitable result was that all
realties which are actually, directly and exclusively used in the
operation of its franchise are exempted from any property tax.
Bayantels franchise being national in character, the
exemption thus granted under Section 14 of Rep. Act No. 3259
applies to all its real or personal properties found anywhere within
the Philippine archipelago.
However, with the LGCs taking effect on January 1, 1992,
Bayantels exemption from real estate taxes for properties of
whatever kind located within the Metro Manila area was, by force
of Section 234 of the Code,supra, expressly withdrawn. But, not
long thereafter, however, or on July 20, 1992, Congress passed
Rep. Act No. 7633 amending Bayantels original franchise. Worthy
of note is that Section 11 of Rep. Act No. 7633 is a virtual
reenacment of the tax provision, i.e., Section 14, supra, of
Bayantels original franchise under Rep. Act No. 3259. Stated
otherwise, Section 14 of Rep. Act No. 3259 which was deemed
impliedly repealed by Section 234 of the LGC was expressly

revived under Section 14 of Rep. Act No. 7633. In concrete terms,


the realty tax exemption heretofore enjoyed by Bayantel under its
original franchise, but subsequently withdrawn by force of Section
234 of the LGC, has been restored by Section 14 of Rep. Act No.
7633.
The Court has taken stock of the fact that by virtue of
Section 5, Article X of the 1987 Constitution, [8] local governments
are empowered to levy taxes. And pursuant to this constitutional
empowerment, juxtaposed withSection 232 [9] of the LGC,
the Quezon City government enacted in 1993 its local Revenue
Code, imposing real property tax on all real properties found
within its territorial jurisdiction. And as earlier stated, the
Citys Revenue Code, just like the LGC, expressly withdrew, under
Section 230 thereof, supra, all tax exemption privileges in
general.
This thus raises the question of whether or not the
Citys Revenue Code pursuant to which the city treasurer
of Quezon City levied real property taxes against Bayantels real
properties located within the City effectively withdrew the tax
exemption enjoyed by Bayantel under its franchise, as amended.
Bayantel answers the poser in the negative arguing that
once again it is only liable to pay the same taxes, as any other
persons or corporations on all its real or personal
properties, exclusive of its franchise.
Bayantels posture is well-taken. While the system of local
government taxation has changed with the onset of the 1987
Constitution, the power of local government units to tax is still
limited.
As
we
explained
[10]
in MactanCebu International Airport Authority:
The power to tax is primarily vested in the Congress; however, in our
jurisdiction, it may be exercised by local legislative bodies, no longer merely

be virtue of a valid delegation as before, but pursuant to direct authority


conferred by Section 5, Article X of the Constitution. Under the latter, the
exercise of the power may be subject to such guidelines and limitations as the
Congress may provide which, however, must be consistent with the basic policy
of local autonomy. (at p. 680; Emphasis supplied.)

Clearly then, while a new slant on the subject of local


taxation now prevails in the sense that the former doctrine of
local government units delegated power to tax had
been effectively modified with Article X, Section 5 of the 1987
Constitution now in place, .the basic doctrine on local taxation
remains essentially the same. For as the Court stressed
in Mactan, the power to tax is [still] primarily vested in the
Congress.
This new perspective is best articulated by Fr. Joaquin G.
Bernas, S.J., himself a Commissioner of the 1986 Constitutional
Commission which crafted the 1987 Constitution, thus:
What is the effect of Section 5 on the fiscal position of municipal
corporations? Section 5 does not change the doctrine that municipal
corporations do not possess inherent powers of taxation. What it does is to
confer municipal corporations a general power to levy taxes and otherwise
create sources of revenue. They no longer have to wait for a statutory grant of
these powers. The power of the legislative authority relative to the fiscal powers
of local governments has been reduced to the authority to impose limitations on
municipal powers. Moreover, these limitations must be consistent with the basic
policy of local autonomy. The important legal effect of Section 5 is thus to
reverse the principle that doubts are resolved against municipal
corporations. Henceforth, in interpreting statutory provisions on municipal fiscal
powers, doubts will be resolved in favor of municipal corporations. It is
understood, however, that taxes imposed by local government must be for a
public purpose, uniform within a locality, must not be confiscatory, and must be
within the jurisdiction of the local unit to pass.[11] (Emphasis supplied).

In net effect, the controversy presently before the Court


involves, at bottom, a clash between the inherent taxing power of
the legislature, which necessarily includes the power to exempt,

and the local governments delegated power to tax under the


aegis of the 1987 Constitution.
Now to go back to the Quezon City Revenue Code which
imposed real estate taxes on all real propertieswithin the citys
territory and removed exemptions theretofore previously granted
to, or presently enjoyed by all persons, whether natural or
juridical .,[12] there can really be no dispute that the power of the
Quezon City Government to tax is limited by Section 232 of the
LGC which expressly provides that a province or city or
municipality within the Metropolitan Manila Area may levy an
annual ad valorem tax on real property such as land, building,
machinery,
and
other
improvement not
hereinafter
specifically exempted. Under this law, the Legislature
highlighted its power to thereafter exempt certain realties from
the taxing power of local government units. An interpretation
denying Congress such power to exempt would reduce the
phrase not hereinafter specifically exempted as a pure jargon,
without meaning whatsoever. Needless to state, such absurd
situation is unacceptable.
For sure, in Philippine Long Distance Telephone Company,
Inc. (PLDT) vs. City of Davao,[13] this Court has upheld the power
of Congress to grant exemptions over the power of local
government units to impose taxes. There, the Court wrote:
Indeed, the grant of taxing powers to local
government
units under the Constitution and the LGC does not affect
the
powerof Congress to grant exemptions to
certain
persons,
pursuant
to a declared national
policy. The legal effect
of
the
constitutional
grant tolocal governments simply means that in interpreting statutory provisions o
n municipal taxing powers, doubts must be resolved in favor of municipal
corporations. (Emphasis supplied.)

As we see it, then, the issue in this case no longer dwells on


whether Congress has the power to exempt Bayantels properties
from realty taxes by its enactment of Rep. Act No. 7633 which
amended Bayantels original franchise. The more decisive
question turns on whether Congress actually did exempt
Bayantels properties at all by virtue of Section 11 of Rep.
Act No. 7633.
Admittedly, Rep. Act No. 7633 was enacted subsequent to
the LGC. Perfectly
aware that the LGC has already
withdrawn Bayantels former exemption from realty taxes,
Congress opted to pass Rep. Act No. 7633 using, under Section 11
thereof, exactly the same defining phrase exclusive of this
franchise which was the basis for Bayantels exemption from
realty taxes prior to the LGC. In plain language, Section 11 of Rep.
Act No. 7633 states that the grantee, its successors or assigns
shall be liable to pay the same taxes on their real estate,
buildings and personal property, exclusive of this franchise, as
other persons or corporations are now or hereafter may be
required by law to pay. The Court views this subsequent piece of
legislation as an express and real intention on the part of
Congress to once again remove from the LGCs delegated
taxing power, all of the franchisees (Bayantels) properties that
are actually, directly and exclusively used in the pursuit of its
franchise.
WHEREFORE, the petition is DENIED.
No pronouncement as to costs.
SO ORDERED.

CANCIO C. GARCIA
Associate Justice

WE CONCUR:

REYNATO S. PUNO
Associate Justice
Chairperson
ANGELINA SANDOVALGUTIERREZ
Associate Justice

RENATO C. CORONA
Associate Justice

ADOLFO S. AZCUNA
Associate Justice

ATTESTATION
I attest that the conclusions in the above decision were reached in
consultation before the case was assigned to the writer of the
opinion of the Courts Division.
REYNATO S. PUNO
Associate Justice
Chairperson, Second Division

CERTIFICATION
Pursuant to Article VIII, Section 13 of the Constitution, and the
Division Chairman's Attestation, it is hereby certified that the
conclusions in the above decision were reached in consultation
before the case was assigned to the writer of the opinion of the
Court.
ARTEMIO V. PANGANIBAN
Chief Justice

[1]

Penned by then Judge Vicente Q. Roxas, now Associate Justice of the Court of Appeals; Rollo, pp. 46-71.
Rollo, p. 72.
[3]
Formerly named International Communications Corporation.
[4]
An Act Granting the International Communications Corporation a Franchise to Establish Radio Stations for
Domestic Telecommunications, Radiophone, Broadcasting and Telecasting. Approved on June 17, 1961.
This franchise was later extended with the enactment of Republic Act No. 4905 on June 17, 1967, stating
that: SEC. 4. This franchise shall continue for a period of twenty-five years from the date the first of said
stations shall be placed in operation, and is granted upon the express condition that the same shall be void
unless the construction of said station be begun within two years from the date of the approval of this
amendatory Act and be completed within four years from said date.
[5]
This took effect on July 1, 1993.
[6]
Entitled An Act to Promote and Govern the Development of Philippine Telecommunications and the Delivery of
Public Telecommunication Services.
[7]
250 SCRA 500 (1995).
[2]

[8]

Sec. 5. Each local government unit shall have the power to create its own sources of revenues and to levy taxes
subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of
local autonomy. xxx. Mactan Cebu International Airport Authority vs. Marcos, 261 SCRA 667 (1996), per
then Associate Justice, now retired Chief Justice Hilario G. Davide, Jr., ponente.
[9]
SEC. 232. Power to Levy Real Property Tax. A province or city or municipality within the Metropolitan Manila
Area may levy an annual ad valorem tax on real property such as land, building, machinery, and other
improvement not hereinafter specifically exempted.
[10]
See Footnote #8, supra.
[11]
Bernas, The Constitution of the Republic of the Philippines, a Commentary, Vol. 11, 1988 ed., p. 381.
[12]
Section 6, Quezon City Revenue Code, quoted in Petitioners Memorandum; Rollo, p. 323.
[13]
363 SCRA 522 (2001), per Associate Justice Vicente V. Mendoza, ponente.

City Government of Quezon City v. Bayan


Telecommunications, Inc. [G.R. No.162015. March 6, 2006]
23 Nov
FACTS
Respondent Bayan Telecommunications, Inc. (Bayantel) is a legislative franchise
holder under Republic Act (R.A.) No. 3259 (1961) to establish and operate radio
stations for domestic telecommunications, radiophone, broadcasting and telecasting.
Section 14 (a) of R.A. No. 3259 states: The grantee shall be liable to pay the same
taxes on its real estate, buildings and personal property, exclusive of the franchise,
xxx. In 1992, R.A. No. 7160, otherwise known as the Local Government Code of
1991 (LGC) took effect. Section 232 of the Code grants local government units
within the Metro Manila Area the power to levy tax on real properties. Barely few
months after the LGC took effect, Congress enacted R.A. No. 7633, amending
Bayantels original franchise. The Section 11 of the amendatory contained the
following tax provision: The grantee, its successors or assigns shall be liable to
pay the same taxes on their real estate, buildings and personal property, exclusive of
this franchise, xxx. In 1993, the government of Quezon City enacted an ordinance
otherwise known as the Quezon City Revenue Code withdrawing tax
exemption privileges.
ISSUE
Whether or not Bayantels real properties in Quezon City are exempt from real
property taxes under its franchise.
RULING

YES. A clash between the inherent taxing power of the legislature, which necessarily
includes the power to exempt, and the local governments delegated power to tax
under the aegis of the 1987 Constitution must be ruled in favor of the former. The
grant of taxing powers to LGUs under the Constitution and the LGC does not affect
the power of Congress to grant exemptions to certain persons, pursuant to a declared
national policy. The legal effect of the constitutional grant to local governments
simply means that in interpreting statutory provisions on municipal taxing
powers, doubts must be resolved in favor of municipal corporations.
The legislative intent expressed in the phrase exclusive of this franchise cannot be
construed other than distinguishing between two (2) sets of properties, be they real or
personal, owned by the franchisee, namely, (a) those actually, directly and exclusively
used in its radio or telecommunications business, and (b) those properties which are
not so used. It is worthy to note that the properties subject of the present controversy
are only those which are admittedly falling under the first category.
Since R. A. No. 7633 was enacted subsequent to the LGC, perfectly aware that the
LGC has already withdrawn Bayantels former exemption from realty taxes, the
Congress using, Section 11 thereof with exactly the same defining phrase exclusive
of this franchise is the basis for Bayantels exemption from realty taxes prior to the
LGC. In plain language, the Court views this subsequent piece of legislation as an
express and real intention on the part of Congress to once again remove from the
LGCs delegated taxing power, all of the franchisees (Bayantels) properties that are
actually, directly and exclusively used in the pursuit of its franchise.

SECOND DIVISION

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

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

Telecommunications services are affected by a high degree of public


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

[2]

[3]

Yet with the advent of rapid technological changes affecting the


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

In the Philippines, a similar paradigm shift can be discerned with the


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

[6]

[7]

The present petition dramatizes to a degree the clash of philosophies


between traditional notions of regulation and the au corant trend to
deregulation. Appropriately, it involves the most ubiquitous feature of the
mobile phone, Short Messaging Service (SMS) or text messaging, which has
been transformed from a mere technological fad into a vital means of
communication. And propitiously, the case allows the Court to evaluate the
role of the National Telecommunications Commission (NTC) in this day and
age.
[8]

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


of inventions and innovations in the dynamic telecommunications field. Every
regulatory action it undertakes is of keen interest not only to industry analysts

and players but to the public at large. The intensive scrutiny is


understandable given the high financial stakes involved and the inexorable
impact on consumers. And its rulings are traditionally accorded respect even
by the courts, owing traditional deference to administrative agencies equipped
with special knowledge, experience and capability to hear and determine
promptly disputes on technical matters.
[9]

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


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

[11]

[12]

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

[14]

[15]

On 4 June 1999, Smart filed a Complaint with public respondent NTC,


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

[17]

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


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

SMS or text messaging services, in violation of the mandate of Republic Act


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

Globe filed its Answer with Motion to Dismiss on 7 June 1999, interposing
grounds that the Complaint was premature, Smarts failure to comply with the
conditions precedent required in Section 6 of NTC Memorandum Circular 9-793, and its omission of the mandatory Certification of Non-Forum Shopping.
Smart responded that it had already submitted the voluminous documents
asked by Globe in connection with other interconnection agreements between
the two carriers, and that with those voluminous documents the
interconnection of the SMS systems could be expedited by merely amending
the parties existing CMTS-to-CMTS interconnection agreements.
[19]

[20]

[21]

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

[23]

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

Globe filed with the Court of Appeals a Petition for Certiorari and
Prohibition to nullify and set aside the Order and to prohibit NTC from taking
any further action in the case. It reiterated its previous arguments that the
complaint should have been dismissed for failure to comply with conditions
precedent and the non-forum shopping rule. It also claimed that NTC acted
without jurisdiction in declaring that it had no authority to render SMS, pointing
out that the matter was not raised as an issue before it at all. Finally, Globe
alleged that the Orderis a patent nullity as it imposed an administrative penalty
[25]

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. Globe alleged that its departure
from its ruling in the Islacom case constitutes a denial of equal protection of
the law.
[27]

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


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

[29]

[30]

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


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

[32]

[33]

After the Court of Appeals denied the Motion for Partial Reconsideration,
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 Law to subject Globe
to an administrative sanction and a fine without prior notice and hearing in
violation of the due process requirements; that specifically due process was
denied Globe because the hearings actually conducted dwelt on different
issues; and, the appellate court erred in holding that any possible violation of
due process committed by NTC was cured by the fact that NTC refrained from
issuing a Show Cause Order with a Cease and Desist Order, directing instead
the parties to secure the requisite authority within thirty days. Globe also
[34]

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 Globes claim of
due process violations.
[35]

As presented during the oral arguments, the central issues are: (1)
whether NTC may legally require Globe to secure NTC approval before it
continues providing SMS; (2) whether SMS is a VAS under the PTA, or special
feature under NTC MC No. 14-11-97; and (3) whether NTC acted with due
process in levying the fine against Globe. Another issue is also raised
whether Globe should have first filed a motion for reconsideration before the
NTC, but this relatively minor question can be resolved in brief.
[36]

Necessity of Filing Motion for Reconsideration


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

[38]

[39]

Globes election to elevate the case directly to the Court of Appeals,


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

[41]

[42]

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

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

[45]

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

Public Telecommunications Act


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

[48]

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. Section 11
recognizes that VAS providers need not secure a franchise, provided that they
do not put up their own network. However, a different rule is laid down for
telecommunications entities such as Globe and PLDT. The section
unequivocally requires NTC approval for the operation of a value-added
service. It reads, viz:
[51]

[52]

Telecommunications entities may provide VAS, subject to the additional requirements


that:
a)

prior approval of the Commission is secured to ensure that such


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

b)

other providers of VAS are not discriminated against in rates nor


denied equitable access to their facilities; and

c)

separate books of accounts are maintained for the VAS. (Emphasis


supplied)
[53]

Oddly enough, neither the NTC nor the Court of Appeals cited the abovequoted 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. The validity of this
standard set by Section 11 is not put into question by the present petition, and
there is no need to inquire into its propriety. The power to enforce the
provisions of the PTA, including the implementation of the standards set
therein, is clearly reposed with the NTC.
[54]

[55]

[56]

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

[58]

[59]

[60]

More pertinently to the case at bar, the qualification highlights the fact that
the legal rationale for regulation of VAS is severely limited. There is an implicit
recognition that VAS is not strictly a public service offering in the way that
voice-to-voice lines are, for example, but merely supplementary to the basic
service. Ultimately, the regulatory attitude of the State towards VAS
offerings by PTEs is to treat its provisioning as a business decision
subject to the discretion of the offeror, so long as such services do not
interfere with mandatory public service requirements imposed on PTEs such
as those under E.O. No. 109. Thus, non-PTEs are not similarly required to

secure prior approval before offering VAS, as they are not burdened by
the public service requirements prescribed on PTEs. Due regard must
be accorded to this attitude, which is in consonance with the general
philosophy of deregulation expressed in the PTA.
[61]

The Pertinent NTC Memorandum Circulars


Next, we examine the regulatory framework devised by NTC in dealing
with VAS.
NTC relied on Section 420(f) of the Implementing Rules of the PTA
(Implementing Rules) as basis for its claim that prior approval must be
secured from it before Globe can operate SMS. Section 420 of the
Implementing Rules, contained in MC No. 8-9-95, states in full:
VALUE ADDED SERVICES (VAS)
(a) A non-PTE VAS provider shall not be required to secure a franchise from
Congress.
(b) A non-PTE VAS provider can utilize its own equipment capable only of
routing, storing and forwarding messages in whatever format for the
purpose of providing enhanced or augmented telecommunications
services. It shall not put up its own network. It shall use the transmission
network, toll or local distribution, of the authorized PTES.
(c) The provision of VAS shall not in any way affect the cross subsidy to the
local exchange network by the international and national toll services and
CMTS service.
(d) Entities intending to provide value added services only shall submit to the
commission application for registration for approval. The application form
shall include documents showing, among others, system configuration,
mode of operation, method of charging rates, lease agreement with the
PTE, etc.
(e) The application for registration shall be acted upon by the Commission
through an administrative process within thirty (30) days from date of
application.

(f)

PTEs intending to provide value added services are required to


secure prior approval by the Commission through an administrative
process.

(g) VAS providers shall comply strictly with the service performance and
other standards prescribed commission. (Emphasis supplied.)
Instead of expressly defining what VAS is, the Implementing Rules defines
what enhanced services are, namely: a service which adds a feature or value
not ordinarily provided by a public telecommunications entity such as format,
media conversion, encryption, enhanced security features, computer
processing, and the like. Given that the PTA defines VAS as enhanced
services, the definition provided in the Implementing Rules may likewise be
applied to VAS. Still, the language of the Implementing Rules is unnecessarily
confusing. Much trouble would have been spared had the NTC consistently
used the term VAS as it is used in the PTA.
[62]

The definition of enhanced services in the Implementing Rules, while more


distinct than that under the PTA, is still too sweeping. Rather than
enumerating what possible features could be classified as VAS or enhanced
services, the Implementing Rules instead focuses on the characteristics of
these features. The use of the phrase the like, and its implications of
analogy, presumes that a whole myriad of technologies can eventually be
subsumed under the definition of enhanced services. The NTC should not be
necessarily faulted for such indistinct formulation since it could not have
known in 1995 what possible VAS would be available in the future. The
definition laid down in the Implementing Rules may validly serve as a guide for
the NTC to determine what emergent offerings would fall under VAS.
[63]

[64]

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

citing therein that the notice was being given pursuant to NTC Memorandum
Circular No. 14-11-97. In response, the NTC acknowledged receipt of the
letter informing it of Islacoms offering the special feature of SMS for its
CMTS, and instructed Islacom to adhere to the provisions of MC No. 14-1197. The clear implication of the letter is that NTC considers the Circular as
applicable to SMS.
[65]

[66]

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


regulatory confusion befalling the NTC. The relevant portions thereof are
reproduced below:
SUBJECT: DEREGULATING THE PROVISION OF SPECIAL FEATURES
IN THE TELEPHONE NETWORK.
For the purpose of exempting specific telecommunications service from rate or tariff
regulations if the service has sufficient competition to ensure fair and reasonable rates
or tariffs, the Commission hereby deregulates the provision of special features
inherent to the Telephone Network.
Section 1. For the purpose of this Circular, Special Feature shall refer to a feature
inherent to the telephone network which may not be ordinarily provided by a
Telephone Service Provider such as call waiting, call forwarding, conference calling,
speed dialing, caller ID, malicious call ID, call transfer, charging information, call
pick-up, call barring, recorded announcement, no double connect, warm line, wake-up
call, hotline, voicemail, and special features offered to customers with PABXs such as
direct inward dialing and number hunting, and the like; provided that in the provision
of the feature, no law, rule, regulation or international convention on
telecommunications is circumvented or violated. The Commission shall
periodically update the list of special features in the Telephone Network which,
including the charging of rates therefor, shall be deregulated.
Section 2. A duly authorized Telephone Service Provider shall inform the
Commission in writing of the special features it can offer and the corresponding rates
thirty (30) days prior to launch date.
xxx
Section 4. Authorized Telephone Service Providers shall continue to charge their duly
approved rates for special services for 3 months from the effectivity of this circular,
after which they may set their own rates.
xxx (Emphasis supplied)

Just like VAS as defined under the PTA, special features are also not
ordinarily provided by the telephone company. Considering that MC No. 1411-97 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 NTCs rationale for regulation. The introduction of a new
concept, special feature, which is not provided for in the PTA just adds to the
confusion, especially in light of the similarities between special features and
VAS. Moreover, there is no requirement that a PTE seeking to offer special
features must secure prior approval from the NTC.
Is SMS a VAS, enhanced service, or a special feature? Apparently, even
the NTC is unsure. It had told Islacom that SMS was a special feature, then
subsequently held that it was a VAS. However, the pertinent laws and
regulations had not changed from the time of the Islacom letter up to the day
the Order was issued. Only the thinking of NTC did.
More significantly, NTC never required ISLACOM to apply for prior
approval in order to provide SMS, even after the Order to that effect was
promulgated against Globe and Smart. This fact was admitted by NTC during
oral arguments. NTCs treatment of Islacom, apart from being obviously
discriminatory, puts into question whether or not NTC truly believes that SMS
is VAS. NTC is unable to point out any subsequent rule or regulation, enacted
after it promulgated the adverse order against Globe and Smart, affirming the
newly-arrived determination that SMS is VAS.
[67]

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

[69]

Every party subject to administrative regulation deserves an


opportunity to know, through reasonable regulations promulgated by

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

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

[72]

The initial controversy may have involved a different subject matter,


interconnection, which is no longer contested. It cannot be denied though that
the findings and penalty now assailed before us was premised on the same
exercise of jurisdiction. Thus, it is not relevant to this case that the process for
obtaining prior approval under the PTA and its Implementing Rules is
administrative in nature. While this may be so, the assailed NTCs
determination and corresponding penalty were rendered in the exercise of
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. They are
synthesized in a subsequent case, as follows:
[73]

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

NTC violated several of these cardinal rights due Globe in the


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

The Court usually accords great respect to the technical findings of


administrative agencies in the fields of their expertise, even if they are
infelicitously worded. However, the above-quoted finding is nothing more than
bare assertions, unsupported by substantial evidence. The Order reveals that
no deep inquiry was made as to the nature of SMS or what its provisioning
entails. In fact, the Court is unable to find how exactly does SMS fits into a
[76]

nicety with NTC M.C. No. 8-9-95, which defines enhanced services as
analogous to format, media conversion, encryption, enhanced security
features, computer processing, and the like. The NTC merely notes that
SMS involves the transmission of data over [the] CMTS, a phraseology that
evinces no causal relation to the definition in M.C. No. 8-9-95. Neither did the
NTC endeavor to explain why the transmission of data necessarily classifies
SMS as a VAS.
[77]

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


the determinative characteristic of SMS, it would seem that this is already
sufficiently covered by Globe and Smarts respective legislative franchises.
Smart is authorized under its legislative franchise to establish and operate
integrated telecommunications/computer/ electronic services for public
domestic and international communications, while Globe is empowered to
establish and operate domestic telecommunications, and stations for
transmission and reception of messages by means of electricity,
electromagnetic waves or any kind of energy, force, variations or impulses,
whether conveyed by wires, radiated through space or transmitted through
other media and for the handling of any and all types of telecommunications
services.
[78]

[79]

[80]

The question of the proper legal classification of VAS is uniquely technical,


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

Yet at the same time, this absence of substantial evidence in support of


the finding that SMS is VAS already renders reversible that portion of the
NTC Order.
Moreover, the Order does not explain why the NTC was according the
VAS offerings of Globe and Smart a different regulatory treatment from that of
Islacom. Indeed, to this day, NTC has not offered any sensible explanation
why Islacom was accorded to a less onerous regulatory requirement, nor have
they compelled Islacom to suffer the same burdens as Globe and Smart.

While stability in the law, particularly in the business field, is desirable,


there is no demand that the NTC slavishly follow precedent. However, we
think it essential, for the sake of clarity and intellectual honesty, that if
an administrative agency decides inconsistently with previous action,
that it explain thoroughly why a different result is warranted, or if need
be, why the previous standards should no longer apply or should be
overturned. Such explanation is warranted in order to sufficiently
establish a decision as having rational basis. Any inconsistent decision
lacking thorough, ratiocination in support may be struck down as being
arbitrary. And any decision with absolutely nothing to support it is a
nullity.
[82]

[83]

[84]

[85]

Second. Globe and Smart were denied opportunity to present evidence on


the issues relating to the nature of VAS and the prior approval.
Another disturbing circumstance attending this petition is that until the
promulgation of the assailed Order Globe and Smart were never informed of
the fact that their operation of SMS without prior authority was at all an issue
for consideration. As a result, neither Globe or Smart was afforded an
opportunity to present evidence in their behalf on that point.
NTC asserts that since Globe and Smart were required to submit their
respective Certificates of Public Convenience and Necessity and franchises,
the parties were sufficiently notified that the authority to operate such service
was a matter which NTC could look into. This is wrong-headed considering
the governing law and regulations. It is clear that before NTC could penalize
Globe and Smart for unauthorized provision of SMS, it must first establish that
SMS is VAS. Since there was no express rule or regulation on that question,
Globe and Smart would be well within reason if they submitted evidence to
establish that SMS was not VAS. Unfortunately, no such opportunity arose
and no such arguments were raised simply because Globe and Smart were
not aware that the question of their authority to provide SMS was an issue at
all. Neither could it be said that the requisite of prior authority was indubitable
under the existing rules and regulations. Considering the prior treatment
towards Islacom, Globe (and Smart, had it chosen to do so) had every right to
rely on NTCs disposal of Islacoms initiative and to believe that prior approval
was not necessary.
Neither was the matter ever raised during the hearings conducted by NTC
on Smarts petition. This claim has been repeatedly invoked by Globe. It is
borne out by the records or the absence thereof. NTC could have easily
rebuffed this claim by pointing to a definitive record. Yet strikingly, NTC has
not asserted that the matter of Globes authority was raised in any pleading or

proceeding. In fact, Globe in itsConsolidated Reply before this Court


challenged NTC to produce the transcripts of the hearings it conducted to
prove that the issue of Globes authority to provide SMS was put in issue. The
Court similarly ordered the NTC to produce such transcripts. NTC failed to
produce any.
[86]

[87]

The opportunity to adduce evidence is essential in the administrative


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

[89]

Thus, the comical, though expected, result of a definitive order which is


totally unsupported by evidence. To this blatant violation of due process, this
Court stands athwart.
Third. The imposition of fine is void for violation of due process
The matter of whether NTC could have imposed the fine on Globe in the
assailed Order is necessarily related to due process considerations. Since this
question would also call to fore the relevant provisions of the Public Service
Act, it deserves its own extensive discussion.
Globe claims that the issue of its authority to operate SMS services was
never raised as an issue in the Complaint filed against it by Smart. Nor did
NTC ever require Globe to justify its authority to operate SMS
services before the issuance of the Order imposing the fine.
The Court of Appeals, in its assailed decision, upheld the power of NTC to
impose a fine and to make a pronouncement on Globes alleged lack of
operational authority without need of hearing, simply by citing the provision of
the Public Service Act which enumerates the instances when NTC may
act motu proprio. That is Section 17, paragraph (a), which reads thus:
[90]

Sec. 17. Proceedings of [the National Telecommunications Commission] without


previous hearing. The Commission shall have power, without previous hearing,
subject to established limitations and exceptions and saving provisions to the contrary:

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

[92]

In citing Section 21 as the basis of the fine, NTC effectively concedes the
necessity of prior notice and hearing. Yet the agency contends that the
sanction was justified by arguing that when it took cognizance of Smarts
complaint for interconnection, it may very well look into the issue of whether
the parties had the requisite authority to operate such services. As a result,
both parties were sufficiently notified that this was a matter that NTC could
look into in the course of the proceedings. The parties subsequently attended
at least five hearings presided by NTC.
[93]

[94]

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

[T]he necessity of notice and hearing in an administrative proceeding depends on the


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

The requirement of notice and hearing becomes even more imperative if the
statute itself demands it, as in the case of Section 21 of the Public Service
Act.
As earlier stated, the Court is convinced that prior to the promulgation of
the assailed Order Globe was never notified that its authority to operate SMS
was put in issue. There is an established procedure within NTC that provides
for the steps that should be undertaken before an entity such as Globe could
be subjected to a disciplinary measure. Section 1, Rule 10 of the NTC Rules
of Procedure provides that any action, the object of which is to subject a
holder of a certificate of public convenience or authorization, or any person
operating without authority from NTC, to any penalty or a disciplinary or other
measure shall be commenced by the filing of a complaint. Further, the
complaint should state, whenever practicable, the provisions of law or
regulation violated, and the acts or omissions complained of as constituting

the offense. While a complaint was indeed filed against Globe by Smart, the
lack of Globes authority to operate SMS was not raised in the Complaint,
solely predicated as it was on Globes refusal to interconnect with Smart.
[97]

[98]

Under the NTC Rules of Procedure, NTC is to serve a Show Cause


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

[100]

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

Conclusion
In summary: (i) there is no legal basis under the PTA or the memorandum
circulars promulgated by the NTC to denominate SMS as VAS, and any
subsequent determination by the NTC on whether SMS is VAS should be
made with proper regard for due process and in conformity with the PTA; (ii)
the assailed Order violates due process for failure to sufficiently explain the
reason for the decision rendered, for being unsupported by substantial
evidence, and for imputing violation to, and issuing a corresponding fine on,
Globe despite the absence of due notice and hearing which would have
afforded Globe the right to present evidence on its behalf.

Thus, the Order effectively discriminatory and arbitrary as it is, was issued
with grave abuse of discretion and it must be set aside. NTC may not legally
require Globe to secure its approval for Globe to continue providing SMS. This
does not imply though that NTC lacks authority to regulate SMS or to classify
it as VAS. However, the move should be implemented properly, through
unequivocal regulations applicable to all entities that are similarly situated,
and in an even-handed manner.
Concurrently, the Court realizes that the PTA is not intended to constrain
the industry within a cumbersome regulatory regime. The policy as preordained by legislative fiat renders the traditionally regimented business in an
elementary free state to make business decisions, avowing that it is under this
atmosphere that the industry would prosper. It is disappointing at least if the
deregulation thrust of the law is skirted deliberately. But it is ignominious if the
spirit is defeated through a crazy quilt of vague, overlapping rules that are
implemented haphazardly.
[102]

[103]

By no means should this Decision be interpreted as removing SMS from


the ambit of jurisdiction and review by the NTC. The issue before the Court is
only the prior approval requirement as imposed on Globe and Smart. The
NTC will continue to exercise, by way of its broad grant, jurisdiction over
Globe and Smarts SMS offerings, including questions of rates and customer
complaints. Yet caution must be had. Much complication could have been
avoided had the NTC adopted a proactive position, promulgating the
necessary rules and regulations to cope up with the advent of the
technologies it superintends. With the persistent advent of new offerings in
the telecommunications industry, the NTCs role will become more crucial than
at any time before. If NTCs behavior in the present case is but indicative of a
malaise pervading this crucial regulatory arm of the State, the Court fears the
resultant confusion within the industry and the consuming public. The
credibility of an administrative agency entrusted with specialized fields
subsists not on judicial doctrine alone, but more so on its intellectual strength,
adherence to law, and basic fairness.
WHEREFORE, the petition is GRANTED. The Decision of the Court of
Appeals dated 22 November 1999, as well as its Resolutiondated 29 July
2000, and the assailed Order of the NTC dated 19 July 1999 are hereby SET
ASIDE. No cost.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario,
JJ., concur.

[1]

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

[2]

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

[3]

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

[4]

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


Abernathy noted that after federal oversight over the wireless industry was granted to the FCC
under the Communications Act in 1993, the FCC was faced with the choice of imposing strict
common carrier regulations on incumbent cellular providers based on their supposed
entrenchment, thus mandating for example, price regulation, service quality controls and
mandated certain technologies. Instead, the FCC went the other direction, opting for less
government regulation to allow for market forces to dictate pricing and service
mandates. See Fifth Annual Midwestern Telecommunications Conference Keynote Address of
FCC
Commissioner
Kathleen
Q.
Abernathy,
Milwauke
WS
May
10,
2002 at www.fcc.gov/Speeches/Abernathy/2002/spkqa211.html (Visited 28 June 2004).

[5]

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

[6]

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

[7]

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

[8]

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

[9]

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

[10]

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

currently sits in the United States Supreme Court, is recognized as one of the preeminent experts
in Administrative Law in the United States.
[11]

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

[12]

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

[13]

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

[14]

Rollo, p. 149.

[15]

Ibid.

[16]

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

[17]

Rollo, pp. 149-150.

[18]

Id. at 152.

[19]

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

[20]

Rollo, p. 37.

[21]

Id. at 83.

[22]

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

[23]

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

[24]

Rollo, p. 87.

[25]

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

[26]

Rollo, p. 40.

[27]

Id. at 43.

[28]

Rollo, p. 67.

[29]

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

[30]

Ibid.

[31]

Rollo, p. 89.

[32]

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

[33]

In a Resolution dated 29 July 2000.

[34]

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

[35]

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

[36]

TSN dated 22 March 2004, p. 1.

[37]

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

[38]

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

[39]

See Rollo, p. 22.

[40]

Supra, note 26.

[41]

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

[42]

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

[43]

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

[44]

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

[45]

Rollo, p. 60.

[46]

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

[47]

Id., art. VI, sec. 18.

[48]

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

[49]

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

[50]

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

[51]

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

[52]

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

[53]

Id., art. IV, sec. 11.

[54]

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

[55]

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

[56]

Section 5 of Rep. Act No. 7925 reads:

SEC.

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


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

[57]

Supra note 3.

[58]

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

[59]

Termed under E.O. 109 as universal access.

[60]

Section 4, E.O. 109.

[61]

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

[62]

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

[63]

Ibid.

[64]

The year the Implementing Rules was promulgated.

[65]

Rollo, p. 267.

[66]

Ibid.

[67]

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

[68]

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

[69]

Annex B to NTCs Memorandum.

[70]

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

[71]

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

[72]

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

[73]

69 Phil. 635 (1940).

[74]

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

[75]

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

[76]

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

[77]

Supra note 62.

[78]

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

[79]

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

[80]

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

[81]

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

[82]

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

[83]

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

[84]

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

[85]

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

[86]

TSN dated 22 March 2004, p. 155.

[87]

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

[88]

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

[89]

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

[90]

Rollo, p. 21.

[91]

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

[92]

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

[93]

Rollo, p. 334.

[94]

Ibid.

[95]

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

[96]

Ibid.

[97]

Rule 10, Section 3, NTC Rules of Procedure.

[98]

Rollo, pp. 148-150.

[99]

Rule 10, Section 4, NTC Rules of Procedure.

[100]

Rollo, p. 152.

[101]

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

[102]

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

[103]

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

the NTC to enforce the law. This is indicative of the judicious balance adopted by the law towards
state concerns and business concerns.