ornmInti NO. - 71.

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January 12, 2009

Commissioner Ruel V. Canobas
National Telecommunications Commission
NTC Building, BIR Road, East Triangle
Diliman, Quezon City

Sir:

Reference is made to the collegial' request of the National

Telecommunications Commission (NTC) for legal opinion on whether or not the
60% Filipino ownership requirement provided in the 1987 Constitution applies to
Value added Service (VAS) Providers.

As stated in the letter request, the NTC requires corporations or

associations engaged in VAS to be at least 60% owned by Filipino citizens in
accordance with the following provisions of the 1987 Constitution and Republic
Act kv-kA) No. 1925, otherwise known as the 'Public Telecommunications Policy
Act of the Philippines", which respectively provide:

Section 11, Article XII of the 1987 Constitution

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 x x x.

Section?. Article IV of RA No. 7925

SECTION 7. Categories of Telecommunications Entities. — A

telecommunications entity shall be authorized to operate in one or
more of the telecommunications categories mentioned in this Act
provided each category is covered by its franchise.

Article IV of RA No. 7925 divided telecommunications entities into six: (1)

local exchange operator (2) inter-exchange carrier; (3) international carrier; (4)
value added service provider, (5) mobile radio services; and (6) radio paging
services.

The letter request was signed by Commissioner Ruel V. Canobas, Deputy Commissioner Jorge
V. Sarrniento and Deputy Commissioner Jaime PA. Fortes, Jr.

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To better understand the concept of a VAS provider, it is material to quote

Sections 3 and 11 of RA No. 7925:

SECTION 3. Definitions and interpretations. — x x x.

h) Value-added service provider (VAS) — 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. x x x.

SECTION 11. Value-added Service Provider — Provided that it

does not put up 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. x x x.

At this juncture, we find it necessary to point out that the core of the
present controversy is whether a VAS provider is a public utility.
the meaning of
In JG Summit Holdings, Inc. v. Court of Appeal?,
public utility has been explained by the Highest Tribunal, in this wise:

A "public utility" is "a business or service engaged in regularly

supplying the public with some commodity or service of public
consequence such as electricity, gas, water, transportation,
telephone or telegraph service". To constitute a public utility, the
facility must be necessary for the maintenance of life and
occupation of the residents. However, the fact that a business
offers services or goods that promote public good and serve the
interest of the public does not automatically make it a public utility.
Public use is not synonymous with public interest. As its name
indicates, the term "public utility" implies public use and service to
of a public
the public. The principal determinative characteristic
utility is that of service to, or readiness to serve, an indefinite public
or portion of the public as such which has a legal right to demand
and receive its services or commodities. Stated otherwise, the
owner or person in control of a public utility Must have devoted it to

2 412 SCRA 10 (2003).

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such use that the public generally or that part of the public which
has been served and has accepted the service, has the right to
demand that use or service so long as it is continued, with
reasonable efficiency and under proper charges.3

On the other hand, Section 13(b) of the Public Service Act, as amended
by RA No. 2677, defined public service, as follows:

Sec. 13 x x x.

(b) The term "public service" includes every person who owns,
operates, manages or controls, for hire or compensation, and done
for general business purposes, any common carrier, railroad, street
railway, traction railway, subway motor vehicle, either for freight or
passenger, or both with or without fixed route and whatever may be
its classification, freight or carriage service of any class, express
service, steamboat, or steamship line, pontlines, ferries and water
craft, engaged in the transportation of passengers or freight or both,
shipyard, marine railway, marine repair shop, wharf or dock, ice
plant, ice refrigeration plant, canal, irrigation system, gas, electric
light, heat and power, water supply and power, petroleum,
sewerage system, wire or wireless communi,mtions systems, broad
casting stations and other similar public services.

From the foregoing provisions and jurisprudence, we shall have to make

qualifications in resolving the said query. A VAS provider is allowed to
competitively offer its services and/or expertise and lease or rent
telecommunications equipment and facilities necessary to provide enhanced
services. In classifying a VAS provider, who is offering its services and/or
expertise, as a public utility, we need to consider the nature of its business or
services that it will render.

A VAS provider becomes a public utility, if it holds itself out to whoever

may wish to avail of its services, even if it relies on the transmission, switching
and local distribution facilities of the local exchange operators, inter-exchange
operators or overseas carriers. On the other hand, a VAS provider cannot be
regarded as a public utility, if it extends its services to a particular
telecommunications company covered by a private contract, and not to the at
consuming public. Therefore, the nationality requirement imposed by the 1987
Constitution will only apply to the first, but not to the second situation.

3 Ibid., pp. 20-21.

 urimull NO. , Acat

This conclusion derives support from the pronouncements made by the

Supreme Court in the said JG Summit Holdings case, to wit:

x x x the fact that a business is affected with public interest does

not imply that it is under a duty to serve the public. While the
business may be regulated for public good, the regulation cannot
justify the classification of a purely private enterprise as a public
utility. The legislature cannot, by its mere declaration, make
something a public utility which is not in fact such; and a private
business operated under private contracts with selected
customers and not devoted to public use cannot, by legislative
fiat or by order of a public service commission, be declared a
public utility, since that would be taking private property for public
use without just compensation, which cannot be done consistently
with the due process clause.°

Also, it is significant to state that a VAS provider who is a mere owner or

lessor of telecommunications facilities necessary to provide specialized services
shall not be deemed a public utility. The reason given by the Supreme Court is
simple. The right to operate a public utility may exist independently of and
separately from the ownership of the facilities thereof.5 Thus, the citizenship
requirement mandated by the Constitution is not applicable.

On a final note, we would like to stress that your request for opinion made
an admission regarding the absence of a law subjecting VAS providers to the
60% - 40% nationality requirement. Hence, the activities of VAS providers are not
included in List B of the Foreign Investment Negative List, which can only be
amended upon the approval of the President.

Please be guided accordingly.

Very truly yours,

RAUL M. GONZALEZ
Secretary
00/1 3.RVP
1 RICARDO
Op. tc. Query on vas providers. Chief Stal

4 ibid., p. 22. (Emphasis supplied)

5 Ibid., p. 39.