IT Law Journal

administrator January 3rd, 2005

Globe Telecom vs. NTC
G.R. No. 143964 July 26, 2004

This section will be a regular feature of the journal to highlight significant cases decided in the Philippines and in foreign jurisdictions relating to information technology

by Mary Ann Ll. Reyes

Facts: The present petition dramatizes to a degree the clash of philosophies between traditional notions of regulation and the au corant trend towards deregulation.

Globe Telecom and Smart Communications are both authorized under their respective legislative franchises to operate a cellular mobile telephone system (CMTS) using the global system for mobile communication or GSM technology. Among the inherent services supported by the GSM network is the short message service or SMS, also known colloquially as texting which has attained immense popularity in the Philippines as a mode of electronic communication.

On June 4, 1999, Smart filed a petition with the National Telecommunications Commission (NTC), praying that the commission order the immediate interconnection of Smart’s and Globe’s GSM networks, particularly their respective SMS services. According to Smart, Globe, with evident bad faith and malice, refused to grant Smart’s request for the interconnection of SMS as required by law.

NTC then issued the order which is the subject of the present petition before the Supreme Court mandating SMS interconnection, since SMS falls squarely within the definition of “value-added service” or “enhanced-service” given in NTC Memorandum Circular No. 8-9-95.

The NTC also declared that both Smart and Globe have been providing SMS without authority from it, in violation of the said MC which requires public telecommunication entities or PTEs intending to provide value-added services (VAS) to secure prior approval from NTC. It likewise directed the parties to secure the requisite authority to provide SMS within 30 days, subject to the payment of fine in case of failure to do so.

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. The company 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.

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 (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 NTC’s departure from its ruling in the Islacom case constitutes a denial of equal protection of the law.

On Nov. 22, 1999, the CA affirmed 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.

Yet, on Dec. 21, 1999, Globe filed a motion for partial reconsideration with the CA, seeking to reconsider only the portion of the decision that upheld NTC’s finding that Globe lacked the authority to provide SMS and its imposition of a fine. Globe reiterated that it has been legally operating its SMS system since 1994 and that SMS being a deregulated special feature of the telephone network may be operated without prior approval of NTC.

After the Court of Appeals denied the motion, Globe elevated the controversy to the Supreme Court. Smart also 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.

Issue: Is SMS a value-added service that requires prior approval from the NTC before it can be offered?

Held: In a decision penned by Associate Justice Dante Tinga, the Supreme Court held that there is no legal basis under the Public Telecommunications Act 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.

It added that the 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.

In arriving at its decision, the Court first inquired into the PTA, the law that governs all public telecommunications entities in the Philippines as well as the authority behind NTC’s cited memorandum circular.

One of the novel introductions of the PTA is the concept of a VAS 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.

Oddly enough, neither the NTC nor the CA cited the above-quoted provision in their respective decisions, which after all, is the statutory premise for the assailed regulatory action. This failure, the SC said, 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 power to enforce the provisions of the PTA, including the implementation of the standards set therein, is clearly reposed with the NTC.

NTC relied on Section 420(f) of the implementing rules of the PTA as basis for its claim that prior approval must be secured from it before Globe can operate SMS.

The Court noted that 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.

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 rules instead focus 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 hat possible VAS would be available in the future. The definition laid down in the implementing rules may validly serve as a guide for the NTC to determine what emergent offerings would fall under VAS.

Still, owing to the general nature of the definition laid down in the implementing rules, the expectation arises that the NTC would promulgate further issuances defining whether or not a specific feature newly available in the market is a VAS. Such expectation is especially demanded if the NTC is to penalize PTEs who fail to obtain prior approval in accordance with Section 11 of the PTA. But the SC noted that 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 NTC 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.

An examination of MC No. 14-11-97 further highlights the state of regulatory confusion befalling the NTC. Under the said circular, the NTC deregulated the provision of special features inherent to the telephone network. Special features 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.

Is SMS a VAS, “enhanced service,” or a “special feature”? The SC noted that even the NTC is unsure. It had told Islacom that SMS was a “special feature,” then subsequently held that it was a “VAS.” 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 inaction, the Court held, indicates a lack of seriousness on the part of the NTC to implement its own rulings. Also, it tends to indicate the lack of belief or confusion on NTC’s part as to how SMS should be treated. Given the abstract set of rules the NTC has chosen to implement, this should come as no surprise. Yet no matter how content the NTC may be with its attitude of sloth towards regulation, the effect may prove ruinous to the sector it regulates.

In short, the legal basis invoked by NTC in claiming that SMS is VAS has not been duly established. The fault falls squarely on NTC. With the dual classification of SMS as a special feature and a VAS and the varying rules pertinent to each classification, NTC has unnecessarily complicated the regulatory framework to the detriment of the industry and the consumers. But does that translate to a finding that the NTC Order subjecting Globe to prior approval is void? There is a fine line between professional mediocrity and illegality. NTC’s byzantine approach to SMS regulation is certainly inefficient. Unfortunately for NTC, its actions have also transgressed due process in many ways.

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, the High Tribunal emphasized.

The Court said that it 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 that no deep inquiry was made as to the nature of SMS or what its provisioning entails. In fact, the Court is unable to find how exactly does SMS “fits into a nicety” with NTC M.C. No. 8-9-95, which defines “enhanced services” as analogous to “format, media conversion, encryption, enhanced security features, computer processing, and the like.” The NTC merely notes that SMS involves the “transmission of data over [the] CMTS,” a phraseology that evinces no causal relation to the definition in M.C. No. 8-9-95. Neither did the NTC endeavor to explain why the “transmission of data” necessarily classifies SMS as a VAS.

In fact, if “the transmission of data over MTS” is to be reckoned as the determinative characteristic of SMS, it would seem that this is already sufficiently covered by Globe and Smart’s respective legislative franchises. 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.

It is clear that before NTC could penalize Globe and Smart for unauthorized provision of SMS, it must first establish that SMS is VAS.

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.

The SC however emphasized that the NTC will continue to exercise, by way of its broad grant, jurisdiction over Globe and Smart’s SMS offerings, including questions of rates and customer complaints. Yet caution must be had. Much complication could have been avoided had the NTC adopted a proactive position, promulgating the necessary rules and regulations to cope up with the advent of the technologies it superintends. With the persistent advent of new offerings in the telecommunications industry, the NTC’s role will become more crucial than at any time before. If NTC’s behavior in the present case is but indicative of a malaise pervading this crucial regulatory arm of the State, the Court fears the resultant confusion within the industry and the consuming public. The credibility of an administrative agency entrusted with specialized fields subsists not on judicial doctr ine alone, but more so on its intellectual strength, adherence to law, and basic fairness.

• ITLJ 2-1
• Comments(1)