SECOND DIVISION

[G.R. No. 135992. July 23, 2004]

EASTERN TELECOMMUNICATIONS PHILIPPINES, INC. and

TELECOMMUNICATIONS TECHNOLOGIES, INC., petitioners,
vs. INTERNATIONAL COMMUNICATION
CORPORATION, respondent.

D E C I S I O N
AUSTRIA-MARTINEZ, J.:

The role of the telecommunications industry in

Philippine progress and development cannot be
understated. Time was when the industry was dominated
by a few -- an oligarchy of sorts where the elite made
the decisions and serfdom had no choice but acquiesce.
Sensing the need to abrogate their dominion, the
government formulated policies in order to create an
environment conducive to the entry of new players.
Thus, in October 1990, the National Telecommunications
Development Plan 1991-2010 (NTDP) was formulated and
came into being. Designed by the Department of
Transportation and Communications (DOTC), the NTDP
provides for the framework of government policies,
objectives and strategies that will guide the industrys
development for the next 20 years. As expected, with it
came the increase in the demand for telecommunications
services, especially in the area of local exchange
carrier service (LECS).[1]
Concomitantly, the DOTC issued guidelines for the
rationalization of local exchange telecommunications
service. In particular, the DOTC issued on September
30, 1991, Department Circular No. 91-260, with the
purpose of minimizing or eliminating situations wherein
multiple operators provide local exchange service in a
given area. Pursuant thereto, the National
Telecommunications Commission (NTC) was tasked to
define the boundaries of local exchange areas and
authorize only one franchised local exchange carrier to
provide local exchange service within such areas.
Thereafter, on July 12, 1993, then President Fidel V.
Ramos issued Executive Order No. 109 entitled Local
Exchange Carrier Service. Section 2 thereof provides
that all existing International Gateway Facility (IGF)
operators[2] are required to provide local exchange
carrier services in unserved and underserved areas,
including Metro Manila, thereby promoting universal
access to basic telecommunications service.
The NTC promulgated Memorandum Circular No. 11-9-93
on September 17, 1993 implementing the objectives of
E.O. No. 109.[3] Section 3 of the Circular mandates
existing IGF operators to file a petition for the
issuance of Certificate of Public Convenience and
Necessity (CPCN) to install, operate and maintain local
exchange carrier services within two years from
effectivity thereof. Section 4 further requires IGF
operators to provide a minimum of 300 local exchange
lines per one international switch termination and a
minimum of 300,000 local exchange lines within three
years from grant of authority.
To cap the governments efforts, Republic Act No.
7925, otherwise known as the Public Telecommunications
Policy Act of the Philippines, was enacted on March 23,
1995. With regard to local exchange service, Section 10
thereof mandates an international carrier to comply
with its obligation to provide local exchange service
in unserved or underserved areas within three years
from the grant of authority as required by existing
regulations. On September 25, 1995, the NTC issued the
Implementing Rules and Regulations for R.A. No. 7925
per its NTC MC No. 8-9-95.
Taking advantage of the opportunities brought about
by the passage of these laws, several IGF operators
applied for CPCN to install, operate and maintain local
exchange carrier services in certain areas. Respondent
International Communication Corporation, now known as
Bayan Telecommunications Corporation or
Bayantel,[4] applied for and was given by the NTC a
Provisional Authority (PA)[5] on March 3, 1995, to
install, operate and provide local exchange service in
Quezon City, Malabon and Valenzuela, Metro Manila, and
the entire Bicol region. Meanwhile, petitioner
Telecommunications Technologies Philippines, Inc.
(TTPI), as an affiliate of petitioner Eastern
Telecommunications Philippines, Inc. (ETPI), was
granted by the NTC a PA on September 25, 1996, to
install, operate and maintain a local exchange service
in the Provinces of Batanes, Cagayan Valley, Isabela,
Kalinga-Apayao, Nueva Vizcaya, Ifugao, Quirino, the
cities of Manila and Caloocan, and the Municipality of
Navotas, Metro Manila.
It appears, however, that before TTPI was able to
fully accomplish its rollout obligation, ICC applied
for and was given a PA by the NTC on November 10, 1997,
to install, operate and maintain a local exchange
service in Manila and Navotas,[6] two areas which were
already covered by TTPI under its PA dated September
25, 1996.
Aggrieved, petitioners filed a petition for review
with the Court of Appeals with application for a
temporary restraining order and a writ of preliminary
injunction, docketed as CA-G.R. SP No. 46047, arguing
that the NTC committed grave abuse of discretion in
granting a provisional authority to respondent ICC to
operate in areas already assigned to TTPI.
On April 30, 1998, the Court of Appeals
dismissed[7] the petition for review on the ground that
the NTC did not commit any grave abuse of discretion in
granting the PA to TTPI. It sustained the NTCs finding
that ICC is legally and financially competent and its
network plan technically feasible. The Court of Appeals
also ruled that there was no violation of the equal
protection clause because the PA granted to ICC and
TTPI were given under different situations and there is
no point of comparison between the two.[8]
Hence, the present petition for review on certiorari,
raising the following issues:
I

Whether or not the Honorable Court of Appeals committed

a serious error of law in upholding the Order of the
NTC granting a PA to Respondent to operate LEC services
in Manila and Navotas which are areas already assigned
to petitioner TTPI under a prior and subsisting PA.

II

Whether or not Petitioner is entitled to a Writ of

Preliminary Injunction to restrain Respondent from
installing LEC services in the areas granted to it by
the Order under review.[9]

In support thereof, petitioners posit the following

arguments:
(1) The assignment to ICC of areas already allocated
to TTPI violates the Service Area Scheme (SAS), which
is the guidepost of the laws and issuances governing
local exchange service;
(2) ICC did not make any showing that an existing
operator, TTPI in this case, failed to comply with the
service performance and technical standards prescribed
by the NTC, and that the area is underserved, as
required under Section 23 of MC No. 11-9-93;
(3) The facts and figures cited by the NTC, i.e.,
ICCs alleged remarkable performance in fulfilling its
rollout obligation and the growth rate in the
installation of telephone lines in Manila and Navotas,
do not justify the grant of the PA in favor of ICC, nor
are they supported by the evidence on record as these
were not presented during the proceedings before the
NTC;
 (4) ICC did not comply with the requirement of prior
consultation with the NTC before it filed its
application, in violation of Sections 3 and 3.1 of MC
11-9-93;
(5) ICC did not comply with Section 27 of MC 11-9-93
requiring that an escrow deposit be made equivalent to
20% and a performance bond equivalent to 10% of the
investment required for the first two years of the
project;
(6) ICC is not financially and technically capable of
undertaking the project;
(7) The grant of a PA in favor of ICC to operate in
areas covered by TTPI will render it difficult for the
latter to cross-subsidize its operations in less
profitable areas covered by it and will threaten its
viability to continue as a local exchange operator.[10]
After a review of the records of this case, the Court
finds no grave abuse of discretion committed by the
Court of Appeals in sustaining the NTCs grant of
provisional authority to ICC.
The power of the NTC to grant a provisional authority
has long been settled. As the regulatory agency of the
national government with jurisdiction over all
telecommunications entities, it is clothed with
authority and given ample discretion to grant a
provisional permit or authority.[11] It also has the
authority to issue Certificates of Public Convenience
and Necessity (CPCN) for the installation, operation,
and maintenance of communications facilities and
services, radio communications systems, telephone and
telegraph systems, including the authority to determine
the areas of operations of applicants for
telecommunications services. [12] In this regard, the NTC
is clothed with sufficient discretion to act on matters
solely within its competence.[13]
In granting ICC the PA to operate a local exchange
carrier service in the Manila and Navotas areas, the
NTC took into consideration ICCs financial and
technical resources and found them to be adequate. The
NTC also noted ICCs performance in complying with its
rollout obligations under the previous PA granted to
it, thus:

With the proven track record of herein applicant as one

of the pacesetters in carrying out its landlines
commitment in its assigned areas, applicant can best
respond to public demand for faster installation of
telephone lines in Manila and Navotas.

The grant of this application is, therefore, a fitting

recognition that should be accorded to any deserving
applicant, such as herein applicant ICC whose
remarkable performance in terms of public service as
mandated by Executive Order 109 and Republic Act No.
7925 has persuaded this Commission to affix the stamp
of its approval.[14]

The Court will not interfere with these findings of

the NTC, as these are matters that are addressed to its
sound discretion, being the government agency entrusted
with the regulation of activities coming under its
special and technical forte.[15] Moreover, the exercise
of administrative discretion is a policy decision and a
matter that can best be discharged by the government
agency concerned, and not by the courts.[16]
Petitioner insists compliance with the service area
scheme (SAS) mandated by DOTC Dept. Circular No. 91-
260, to wit:

1. The National Telecommunications Commission

(NTC) shall define the boundaries of local
exchange areas, and shall henceforth authorize
only one franchised Local Exchange Carrier
(LEC) to provide LEC service within such
areas.

The Court is not persuaded. Said department circular

was issued by the DOTC in 1991, before the advent of
E.O. No. 109 and R.A. No. 7925. When E.O. No. 109 was
promulgated in 1993, and R.A. No. 7925 enacted in 1995,
the service area scheme was noticeably omitted
therefrom. Instead, E.O. No. 109 and R.A. No. 7925
adopted a policy of healthy competition among the local
exchange carrier service providers.
The need to formulate new policies is dictated by
evolving goals and demands in telecommunications
services. Thus, E.O. No. 109 acknowledges that there is
a need to promulgate new policy directives to meet the
targets of Government through the National
Telecommunications Development Plan (NTDP) of the
Department of Transportation and Communications (DOTC),
specifically: (1) to ensure the orderly development of
the telecommunications sector through the provision of
service to all areas of the country; (2) to satisfy the
unserviced demand for telephones; and (3) to provide
healthy competition among authorized service providers.
Likewise, one of the national policies and objectives
of R.A. No. 7925 is to foster the improvement and
expansion of telecommunications services in the country
through a healthy competitive environment, 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.[17]
Recently, in Pilipino Telephone Corporation vs.
NTC,[18] the Court had occasion to rule on a case akin to
the present dispute, involving the same respondent ICC,
and the Pilipino Telephone Corporation (Piltel). In
the Piltel case, ICC applied for a provisional
authority to operate a local exchange service in areas
already covered by Piltel, which includes
MisamisOccidental, Zamboanga del Sur, Davao del Sur,
South Cotabato and Saranggani. Piltel opposed ICCs
application but the NTC denied it, and granted ICCs
application. The Court of Appeals dismissed Piltels
petition for review, and on certiorari before this
Court, we affirmed the dismissal. The Court found that
the NTC did not commit any grave abuse of discretion
when it granted the ICC a provisional authority to
operate in areas covered by Piltel. We held:

We will not disturb the factual findings of the NTC on

the technical and financial capability of the ICC to
undertake the proposed project. We generally accord
great weight and even finality to factual findings of
administrative bodies such as the NTC, if substantial
evidence supports the findings as in this case. The
exception to this rule is when the administrative
agency arbitrarily disregarded evidence before it or
misapprehended evidence to such an extent as to compel
a contrary conclusion had it properly appreciated the
evidence. PILTEL gravely failed to show that this
exception applies to the instant case. Moreover, the
exercise of administrative discretion, such as the
issuance of a PA, is a policy decision and a matter
that the NTC can best discharge, not the courts.

PILTEL contends that the NTC violated Section 23 of NTC

Memorandum Circular No. 11-9-93, otherwise known as the
Implementing Guidelines on the Provisions of EO 109
which states:

Section 23. No other company or entity shall be

authorized to provide local exchange service in areas
where the LECs comply with the relevant provisions of
MTC MC No. 10-17-90 and NTC MC No. 10-16-90 and that
the local exchange service area is not underserved.
(Emphasis supplied)

Section 23 of EO 109 does not categorically state that

the issuance of a PA is exclusive to any
telecommunications company. Neither Congress nor the
NTC can grant an exclusive franchise, certificate, or
any other form of authorization to operate a public
utility. In Republic v. Express Telecommunications Co.,
the Court held that the Constitution is quite emphatic
that the operation of a public utility shall not be
exclusive. Section 11, Article XII of the Constitution
provides:

Sec. 11. No franchise, certificate, or any other form

of authorization for the operation of a public utility
shall be granted except to citizens of the Philippines
or to corporations or associations organized under the
laws of the Philippines at least sixty per centum of
whose capital is owned by such citizens, nor shall such
franchise, certificate or authorization be exclusive in
character or for a longer period than fifty years.
Neither shall any such franchise or right be granted
except under the condition that it shall be subject to
amendment, alteration, or repeal by the Congress when
the common good so requires. xxx (Emphasis supplied)

Thus, in Radio Communications of the Philippines, Inc.

v. National Telecommunications Commission, the Court
ruled that the Constitution mandates that a franchise
cannot be exclusive in nature.

. . .

Among the declared national policies in Republic Act

No. 7925, otherwise known as the Public
Telecommunications Policy Act of the Philippines, is
the healthy competition among telecommunications
carriers, to wit:

Obviously, the need for a healthy competitive

environment in telecommunications is sufficient impetus
for the NTC to consider all those applicants, who are
willing to offer competition, develop the market and
provide the environment necessary for greater public
service.

Furthermore, free competition in the industry may also

provide the answer to a much-desired improvement in the
quality and delivery of this type of public utility, to
improved technology, fast and handy mobil[e] service,
and reduced user dissatisfaction.
PILTELs contention that the NTC Order amounts to a
confiscation of property without due process of law is
untenable. Confiscation means the seizure of private
property by the government without compensation to the
owner. A franchise to operate a public utility is not
an exclusive private property of the franchisee. Under
the Constitution, no franchisee can demand or acquire
exclusivity in the operation of a public utility. Thus,
a franchisee of a public utility cannot complain of
seizure or taking of property because of the issuance
of another franchise to a competitor. Every franchise,
certificate or authority to operate a public utility
is, by constitutional mandate, non-exclusive. PILTEL
cannot complain of a taking of an exclusive right that
it does not own and which no franchisee can ever own.

Likewise, PILTELs argument that the NTC Order violates

PILTELs rights as a prior operator has no merit. The
Court resolved a similar question in Republic v.
Republic Telephone Company, Inc. In striking down
Retelcos claim that it had a right to be protected in
its investment as a franchise-holder and prior operator
of a telephone service in Malolos, Bulacan, the Court
held:

RETELCOs foremost argument is that such operations and

maintenance of the telephone system and solicitation of
subscribers by [petitioners] constituted an unfair and
ruinous competition to the detriment of [RETELCO which]
is a grantee of both municipal and legislative
franchises for the purpose. In effect, RETELCO pleads
for protection from the courts on the assumption that
its franchises vested in it an exclusive right as prior
operator. There is no clear showing by RETELCO,
however, that its franchises are of an exclusive
character. xxx At any rate, it may very well be pointed
out as well that neither did the franchise of PLDT at
the time of the controversy confer exclusive rights
upon PLDT in the operation of a telephone system. In
fact, we have made it a matter of judicial notice that
all legislative franchises for the operation of a
telephone system contain the following provision:

It is expressly provided that in the event the

Philippine Government should desire to maintain and
operate for itself the system and enterprise herein
authorized, the grantee shall surrender his franchise
and will turn over to the Government said system and
all serviceable equipment therein, at cost, less
reasonable depreciation.[19]

Similarly in this case, the grant of a PA to ICC to

operate in areas covered by TTPI is not tainted with
any grave abuse of discretion as it was issued by the
NTC after taking into account ICCs technical and
financial capabilities, and in keeping with the policy
of healthy competition fostered by E.O. No. 109 and
R.A. No. 7925.
In addition, Section 6 of R.A. No. 7925 specifically
limits the DOTC from exercising any power that will
tend to influence or effect a review or a modification
of the NTCs quasi-judicial functions, to wit:

Section 6. Responsibilities of and Limitations to

Department Powers. -- The Department of Transportation
and Communications (Department) shall not exercise any
power which will tend to influence or effect a review
or a modification of the Commissions quasi-judicial
function.

The power of the NTC in granting or denying a

provisional authority to operate a local exchange
carrier service is a quasi-judicial function,[20] a
sphere in which the DOTC cannot intrude upon. If at
all, the service area scheme provided in DOTC Dept.
Circular No. 91-260 is only one of the factors, but
should not in any way, tie down the NTC in its
determination of the propriety of a grant of a
provisional authority to a qualified applicant for
local exchange service.
 True, NTC MC No. 11-9-93 requires prior consultation
with the NTC of the proposed service areas. As
petitioners themselves argue, prior consultation allows
the NTC to assess the impact of the proposed
application on the viability of the local exchange
operator in the area desired by the would-be applicant
and on the viability of the entire telecommunications
industry as well as rationalize the plans to minimize
any adverse impact.[21] In this case, prior consultation
was substantially complied with and its purpose
accomplished, when ICC filed its application and the
NTC was given the opportunity to assess ICCs viability
to render local exchange service in the Manila and
Navotas areas, and its impact on the telecommunications
industry.
It is also true that NTC MC No. 8-9-95 allows a duly
enfranchised entity to maintain a local exchange
network if it is shown that an existing authorized
local exchange operator fails to satisfy the demand for
local exchange service.[22] In this case, the NTC noted
the increasing rate in the demand for local lines
within the Manila and Navotas areas, and in order for
these areas to catch up with its neighboring cities,
installation of lines must be sped up.[23] This, in fact,
is tantamount to a finding that the existing local
exchange operator failed to meet the growing demand for
local lines.
ICCs technical and financial capabilities, as well as
the growth rate in the number of lines in particular
areas, are matters within NTCs competence and should be
accorded respect. The NTC is given wide latitude in the
evaluation of evidence and in the exercise of its
adjudicative functions, and this includes the authority
to take judicial notice of facts within its special
competence.[24]
TTPI anticipates that allowing ICC to enter its
service areas will make it difficult for it to cross-
subsidize its operations in the less profitable areas.
Such argument, however, is futile. The cross-subsidy
approach is apparently the governments response to the
foreseen situation wherein given its policy of
universal access, a local exchange provider will find
itself operating in areas where the demand and the
publics capacity to subscribe will be lesser than in
other areas, making these areas more of a liability
than an asset. Thus, Section 4 of E.O. No. 109
provides:

SEC. 4. Cross-Subsidy. Until universal access to

basic telecommunications is achieved, and
such service is priced to reflect actual
costs, local exchange service shall
continue to be cross-subsidized by other
telecommunications services within the
same company.

Meanwhile, NTC MC No. 8-9-95 provides:

ACCESS CHARGES

GENERAL

(a) Until the local exchange service is priced

reflecting actual costs, the local exchange
service shall be cross-subsidized by other
telecommunications services.

(c) The subsidy need by the LE service operator to

earn a rate of return at parity with other
segments of telecommunications industry shall
be charged against the international and
domestic toll and CMTS interconnect
services.[25]

Both issuances allow a local exchange operator to

cross-subsidize its operations from its other
telecommunications services, and not solely on the
revenues derived from the operators local exchange
service.
 Notably, R.A. No. 7617, as amended by R.A. No. 7674,
grants TTPI the legislative franchise to install,
operate and maintain telecommunications systems
throughout the Philippines but not limited to the
operations of local exchange service or public switched
network, public-calling stations, inter-exchange
carrier or national toll transmission, value-added or
enhanced services intelligent networks, mobile or
personal communications services, international gateway
facility, and paging services, among others.[26] From
these services, TTPI has other sources of revenue from
which it may cross-subsidize its local exchange
operations.
The Court, however, agrees with petitioners that the
NTC erred when it failed to require ICC to make an
escrow deposit and a performance bond. Section 27 of
NTC MC No. 11-9-93 specifically provides:

SEC. 27. Authorized public telecommunications

carriers shall be required to deposit in
escrow in a reputable bank 20% of the
investment required for the first two
years of the implementation of
the proposed project.

In addition to escrow, the authorized

public telecommunications carriers shall
be required to post a performance
bond equivalent to 10% of the investment
required for the first two years of
the approved project but not to exceed
P500 Million. The performance bond shall
be forfeited in favor of the government in
the event that the authorized PTC fail to
comply with the terms and conditions of
the authority granted. (Emphases Ours)

The escrow deposit and the posting of a performance

bond are required in each proposed and approved project
of a local exchange operator. Project refers to a
planned undertaking.[27]ICCs project for local exchange
service in the Manila and Navotas areas is separate and
distinct from its projects in other areas; hence, the
NTC should have directed ICC to submit such
requirements. Evidently, the escrow deposit is required
to ensure that there is available money on hand to
defray ICCs expenditures for its project, while the
performance bond will answer for the faithful
compliance and performance of ICCs rollout obligation
and to compensate the government for any damages
incurred in case of ICCs default. Without these, the
government will be left holding an empty bag in the
event ICC reneges in its rollout obligation.
Section 27 of NTC MC No. 11-9-93 is silent as to
whether the posting of an escrow deposit and
performance bond is a condition sine qua non for the
grant of a provisional authority. While the provision
uses the term shall, said directive pertains to the
NTC, which shall require the public telecommunications
carrier to make such deposit and posting. In any event,
records show that as of May 20, 2004, ICC has been
granted an extension of its provisional authority up to
November 10, 2006.[28] Records also show that ICC has
already been providing local exchange carrier service
in the areas concerned, having installed 16,000 lines
in the City of Manila, 12,000 of which have already
been subscribed, 624 lines in Caloocan City, all of
which have been subscribed, while the roll-out plan for
facilities and provisioning in the City of Navotas is
being finalized.[29] Hence, so as not to disrupt ICCs
rollout plan compliance, it would be more judicious for
the Court to merely require ICC to comply with Section
27 of NTC MC No. 11-9-93, within such period to be
determined by the NTC.
Furthermore, it is well to stress that petitioner
TTPI cannot claim any exclusive right to render
telecommunications service in areas which the NTC
considers to be in need of additional providers. R.A.
No. 7925 is quite emphatic on this score, viz.:
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 factobecome 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. (Emphasis Ours)

More than anything else, public service should be the

primordial objective of local exchange operators. The
entry of another provider in areas covered by TTPI
should pose as a challenge for it to improve its
quality of service. Ultimately, it will be the public
that will benefit. As pointed out in Republic of the
Phils. vs. Rep. Telephone Co, Inc.:[30]

Free competition in the industry may also provide the

answer to a much-desired improvement in the quality and
delivery of this type of public utility, to improved
technology, fast and handy mobil service, and reduced
user dissatisfaction. After all, neither PLDT nor any
other public utility has a constitutional right to a
monopoly position in view of the Constitutional
proscription that no franchise certificate or
authorization shall be exclusive in character or shall
last longer than fifty (50) years (ibid., Section 11;
Article XIV, Section 5, 1973 Constitution; Article XIV,
Section 8, 1935 Constitution).

WHEREFORE, the petition for review on certiorari is

PARTIALLY GRANTED. The Order of the National
Telecommunications Commission dated November 10, 1997
in NTC Case No. 96-195 is AFFIRMED with the following
modifications:
 Respondent International Communication Corporation,
in accordance with Section 27 of NTC MC No. 11-9-93, is
required to:

(1) Deposit in escrow in a reputable bank 20% of

the investment required for the first two
years of the implementation of the proposed
project; and

(2) Post a performance bond equivalent to 10% of

the investment required for the first two
years of the approved project but not to
exceed P500 Million.

within such period to be determined by the National

Telecommunications Commission.
No pronouncement as to costs.
SO ORDERED.
Puno, (Chairman), Callejo, Sr., Tinga, and Chico-
Nazario, JJ., concur.