Regulatory Functions: National Telecommunications Commission

Management Services
Report No. 2004 – 05B

Government-wide Performance Audit
Regulatory Functions
National Telecommunications
Commission
Republic of the Philippines
Commission on Audit
MANAGEMENT SERVICES
Commonwealth Avenue, Quezon City, Philippines
Telephone Nos.: 931-9235, 931-7455
October 28, 2005
ATTY. RONALD OLIVAR SOLIS

Commissioner
National Telecommunications Commission
Agham Road, Quezon City
Sir:
We are pleased to transmit the report on the government-wide

performance audit of the regulatory functions of the National
Telecommunications Commission (NTC). The audit was conducted from
August 2 to December 15, 2004 in compliance with COA MS and TS Office
Order Nos. 2004-033 and 2004-033A dated July 7, and September 16, 2004,
respectively. The results of the audit were transmitted for comments to that
Office on May 31, 2005. The comments were incorporated in the reports where
appropriate.
The audit was conducted to assess the effectiveness of carrying out the
regulatory functions of NTC in ensuring the viability of regulated entities and
protecting public interest giving considerations to the development of standards,
rules and regulations and enforcement and monitoring of compliance thereof.
We look forward to the proper implementation of the audit

recommendations and we would appreciate being informed of the actions taken
thereon within one month from receipt hereof.
We acknowledge the cooperation and assistance extended to the audit

team by the officials and staff of that Office.
Very truly yours,
By Authority of the Chairman:
Management Services
Contents Page
Part I Executive Summary 1
Background 2
Audit Objective 3
Audit Scope and Methodology 3
Audit Conclusion 4
Management’s Reaction to Audit Observations 5
Part II NTC’s Regulatory Functions 6
Introduction 7
The NTC’s Regulatory Framework 7
Telecom Services 9
Local Exchange Carrier Service 10
Cellular Mobile Telephone Service 10
The NTC’s Organizational Structure 11
Rate-Setting Methodology 12
Part III Audit Observations 13
Chapter I – Development of Service Standards 14
Introduction 15
Observations 15, 20, 29, 38
Management’s Comments and
Team’s Rejoinder 19, 28, 35, 40
Chapter II – Effective Enforcement of Standards,

Rules and Regulations 42
Introduction 43
Observations 43, 46
Team’s Rejoinder 45, 49
Chapter III - Timely Compliance with Laws,

Rules and Regulations 50
Introduction 51
Observation 51
Team’s Rejoinder 54
Contents Page
Chapter IV – Sound Monitoring Mechanism 55
Introduction 56
Observations 58, 69
Team’s Rejoinder 68
Part IV Recommendations 72
Part I
Executive Summary
1
EXECUTIVE SUMMARY
BACKGROUND
The term “regulatory” comes from the word “regulate” which, as defined in
the Webster dictionary, means, “to bring under the control of law or
constituted authority.” In the Philippines, just like in any other country,
public utilities are regulated by the government by requiring them to secure
permits and licenses before they can operate business, submit relevant reports
or documents, and by approving the rates to be imposed to the public, where
appropriate. Government regulatory intervention is employed to attain social
goals such as safety of workers, environmental concerns, consumer protection
and protection of public interest.
Under the Public Service Law, “public utilities” are described as business
organizations which regularly supply the public some commodity or services,
such as electricity, gas, water, transportation, or telephone and telegraph
services. These services are part of every household’s budget and affect
almost everybody. Thus, rate hikes, contaminated water, sea mishaps, and
unsatisfactory performance of utilities delivering these services have been
everybody’s concern and become the subject of numerous rallies,
commentaries, and inquiries.
These services are being regulated by the following:
Government Agency Regulated Entities
Energy Regulatory Commission (ERC) Electric Power Operators

Local Water Utilities Administration Water Districts
(LWUA)
Maritime Industry Authority (MARINA) Maritime Operators
National Telecommunications Commission Telecommunication Operators,
(NTC) Broadcast Entities
Metropolitan Waterworks and Sewerage Water Concessionaires within
System (MWSS) Metro Manila
Air Transportation Office (ATO) Public Air Utility Facilities and
Services Operators
Land Transportation Franchising and Public Land Transportation
Regulatory Board (LTFRB) Operators
In line with these issues, the audit was conducted to determine the
effectiveness of regulatory function of concerned government regulatory
agencies with due consideration to the protection of public interests.
2
EXECUTIVE SUMMARY
AUDIT OBJECTIVE
The audit was conducted to assess the effectiveness of carrying out the
regulatory functions of four Regulatory Offices in ensuring the viability of
public utilities and protecting public interest giving considerations to the
development of service standards, rules and regulations and monitoring and
enforcement of compliance thereof.
AUDIT SCOPE AND METHODOLOGY
The audit covered the regulatory functions of the Energy Regulatory

Commission (ERC), Local Water Utilities Administration (LWUA), Maritime
Industry Authority (MARINA) and the National Telecommunications
Commission (NTC). The team considered the following criteria in assessing
the existing regulatory framework of NTC during calendar years 2002 and
2003:
• Development of Service Standards

• Effective Enforcement of Standards, Rules and Regulations
• Timely Enforcement of Rules and Regulations
• Sound Monitoring Mechanism
To attain the audit objective, the team performed the following procedures:
• Obtained copies and reviewed relevant rules, acts, policies and procedures on the
regulatory functions of the NTC;
• Interviewed Officers and key personnel in the Common Carrier Authorization

Department (CCAD) on the issues relating to licensing, authorization and
monitoring of Public Telecommunications Entities;
• Evaluated the existing standard requirements and performance standard to be

complied by telecommunications operators;
• Reviewed Certificate of Public Convenience and Necessity issued to Public

Telephone Entities and interconnection agreements of selected telephone entities;
• Validated data maintained by the CCAD for the Provinces of Camarines Sur and
Batangas to ascertain the physical interconnection of telecommunications
operators operating in those provinces and the existence of installed lines as per
roll-out plan of CMTS and IGF operators.
3
EXECUTIVE SUMMARY
• Ascertained the grade of service provided by telephone operators by

administering questionnaires; and
• Validated compliance by the Public Telephone Entities to the conditions set forth
in the CPCN.
The audit was conducted from August 2 to December 15, 2004 in compliance
with MS/TS Office Order No. 2004-033 dated July 4, 2004.
AUDIT CONCLUSION
The effectiveness of the NTC in discharging its regulatory function is

adversely affected by its failure to establish the minimum number of operators
and the maximum bandwidth spectrum to be granted to each Cellular Mobile
Telephone System (CMTS) operator to maintain/sustain competition in the
CMTS market and to ensure competitive rates and satisfactory services to the
users. As it is, the CMTS market is dominated by two major CMTS operators
granted with substantial bandwidth spectrum. Under this condition, the end
users would not have that much choice to select a service provider.
Moreover, the reasonableness of the rates being charged could not also be
assured in view of the absence of validation or monitoring of the effect of the
approved rates on the return on investment of telecom operators. Meantime,
the publics’ concern on signal level, accessibility and audio quality is still to
be addressed.
Likewise, a great number of subscribers are being deprived of interconnection

services in view of the failure of NTC to enforce interconnection rules. In
some cases, where site connection is provided, the reasonableness of
interconnection fee is not assured as there is no cost methodology yet
developed by the NTC.
The existing fees on landline were also adversely affected by the

government’s policy of requiring telecom operators to provide a specified
number of landlines which is beyond the needs of the public. Thus, the cost
of unsubscribed lines is being shouldered by the users.
As the effectiveness of discharging regulatory functions affects the public

interest, the team recommended measures under Part IV of the report to
address these concerns.
4
EXECUTIVE SUMMARY
MANAGEMENT’S REACTION TO AUDIT OBSERVATIONS
The results of the audit were forwarded to the officials of NTC on May 31,
2005 for their comments and justifications. Generally, NTC recognized the
existence of some deficiencies. They submitted comments/justifications for
such existence. Their comments were incorporated in the report together with
the team’s rejoinder.
5
Part II
NTC’s Regulatory Function
6
NTC’s REGULATORY FUNCTIONS
INTRODUCTION
It is recognized internationally that telecommunications services are essential

in economic development. Thus, “The Public Telecommunications Policy Act
of the Philippines” was enacted under Republic Act No. 7925 to be
administered by the National Telecommunications Commission (NTC).
The NTC is the sole government agency tasked to regulate the

telecommunications and broadcast industry in the Philippines. It was created
under Executive Order No. 546 promulgated on July 23, 1979 and was
conferred with the regulatory and quasi-judicial function taken over from the
Board of Communications and the Telecommunications Control Bureau
which were abolished under the same order. Although independent in so far
as its regulatory and quasi-judicial functions are concerned, the NTC remains
under the administrative supervision of the Department of Transportation and
Communication.
THE NTC’S REGULATORY FRAMEWORK
The regulatory framework defines the scope of authority and mandate of the
regulator. The main activity of the regulator is presented in this context
diagram:
56
REGULATIONS, RULES AND
ENFORCEMENT
DEVELOPMENT OF
TELECOMMUNICATION
MONITORING
STANDARDS
BROADCAST
UNDERTAKING
RADIO SPECTRUM
MANAGEMENT
7
The NTC’s supervisory, regulatory and control functions including those

provided under Republic Act 7925 covers the following three broad areas:
Areas Supervisory, regulatory and Control Functions
On Telecommunications • Issue Certificate of Public Convenience and Necessity

(CPCN) for the installation, operation and maintenance
of communications facilities and services, radio
communications systems, including areas of operation.
• Establish areas of operation for duly franchised carriers
and determine rates for services offered by such
operators (except where such rates are established by
international bodies recognized by the Philippine
government as the proper arbiter of such rates).
• Establish and enforce rules, regulations and standards
with respect to any CPCN granted by the Commission.
• Supervise, regulate and monitor the operation of public
telecommunications services.
• Authorize service rates for public telecommunications
services and deregulate rates when the market is highly
competitive and move towards cost-based rates.
• Provide technical advisory assistance to other
government agencies and other entities on matters
regarding telecommunications. Foster a healthy
competitive environment in the telecommunications
sector.
• Establish a stable, transparent, speedy and fair
administrative process, giving due regard to the
observance of due process.
• Democratize ownership of telecommunications
• Register value-added service providers.
On Broadcasts Undertaking • Grant permits for the use of radio frequencies for radio
and television stations, and undertakes the registration
for transmitter.
• Regulate the ownership and operation of radio and TV
stations.
• Execute a memorandum of agreement with the
Kapisanan ng mga Broadkaster sa Pilipinas (KBP),
under which the KBP acts as the arbiter of broadcast
quality among its members, by enforcing adherence to
the KBP radio and television codes.
• Authorize, supervise, regulate and monitor the
operation of broadcast services.
• Establish, promulgate, implement and enforce technical
standards as well as rules and regulations for the
effective use of broadcast facilities.
• Democratize ownership of broadcast services.
8
Areas Supervisory, regulatory and Control Functions
On the Radio Spectrum • Grant permits for the use of radio frequencies for
wireless telephone and telegraph systems and radio
communications systems, including amateur radio
stations.
• Sub-allocate frequencies within bands allocated by the
International Telecommunications Union (ITU) to
specified services.
• Issue licenses to radio operators, including amateur
radio operators.
• Undertake frequency management activities and ensure
effective use of radio spectrum which is a limited
natural resources including the imposition of
reasonable spectrum usage fees.
TELECOM SERVICES
As of December 31, 2003, the NTC is regulating the following telecom

services:
Telecom Service 2000 2001 2002 2003
Local Exchange Carrier Services 77 74 73 73

Inter- Exchange Carrier Services 12 14 14 14
International Gateway Facility 11 11 11 11
Radio Mobile
• Cellular Mobile Telephone System 5 7 7 7
• Public Trunk Repeater Service 10 11 11 10
Radio Paging Services 15 11 11 8
Value-Added Services
• With Networks
Coastal 12 12 13 18
Broadband 18 19 19 19
• Without Networks 156 186 156 270
9
LOCAL EXCHANGE CARRIER SERVICE
NTC records also show that there were 6,557,403 telephone lines installed
nationwide of which only 3,299,352 were subscribed as of December 31,
2003 as tabulated below:
Installed Subscribed Teledensity

Region Population Capacity Lines Telelines Subscribed
CAR 1,492,050.00 93,567.00 33,527.00 6.27 2.25
NCR 10,935,524.00 2,818,358.00 1,647,671.00 25.77 15.07
1 4345194.00 195,088.00 108,888.00 4.49 2.51
II 2,977,032.00 30,236.00 29,000.00 1.02 .97
III 8,130,440.00 431,626.00 260,328.00 5.31 3.20
IV 12,206,054.00 1,064,590.00 564,370.00 8.72 4.62
V 5,001,342.00 124,957.00 72,656.00 2.50 1.45
VI 6,660,110.00 412,984.00 117,154.00 6.20 1.76
VII 5,856,441.00 458,637.00 185,620.00 7.83 3.17
VIII 3,977,372.00 127,264.00 16,339.00 3.20 0.41
IX 3,374,312.00 33,849.00 31,940.00 1.00 0.95
X 3,054,139.00 147,518.00 50,412.00 4.83 1.65
XI 5,646,477.00 381,295.00 104,730.00 6.75 1.85
XII 2,847,063.00 82,349.00 31,291.00 2.89 1.10
XIII 2,222,812.00 125,116.00 37,264.00 5.63 1.68
ARMM 2,327,967.00 29,969.00 8,162.00 1.29 0.35
Total 81,054,329 6,557,403 3,299,352 8.09 4.07
The low subscription of installed lines may be attributed to the decrease in the
affordability level and the availability and use of Cellular Mobile Telephone
System (CMTS), which registered a teledensity of 27.77 as of December 31,
2003.
CELLULAR MOBILE TELEPHONE SERVICE
There are, at present six CMTS operating nationwide with total subscribers of
22,509,560 as of December 31, 2003:
Operator 2001 2002 2003

BAYANTEL Not yet operational
DI GITEL Not yet operational 732,467
EXTELCOM 194,452 29,896 29,896
10
Operator 2001 2002 2003

GLOBE
5,405,415 6,572,185 8,800,000
ISLACOM 181,614 181,614 00
PILTEL 1,483,838 1,773,620 2,867,085
SMART 4,893,844 6,825,686 10,080,112
Total Mobile Subscribers 12,161,164 15,385,003 22,509,560
CMTS DENSITY 15.61 19.36 27.77
POPULATION 77,898,196 79,476,271 81,064,329
THE NTC’s ORGANIZATIONAL STRUCTURE
11
RATE- SETTING METHODOLOGY
NTC was required to reestablish rates-and-tariffs setting procedures to arrive

at rates and tariffs which are fair and reasonable considering the cost of
capital and return on investment.
Rates and tariffs for paging and value-added services were deregulated under
RA 7925 while other services remained regulated. However, it was provided,
that after public consultation, rates and tariffs for other telecommunications
services maybe deregulated when sufficient competition exists. An attempt to
deregulate rates and tariff for CMTS services in 2000 did not push through
due to court injunction.
NTC claimed in an interview that it is using the Return on Rate Base (RORB)
Methodology with 12% as the rate of return. However, this is apparently not
being applied religiously. As a matter of practice, rate rebalancing application
filed by various telecommunication operators since 1998 were approved as
proposed by the applicants. Thus, the request of PAPTELCO’s for a 35%
across the board increase on their existing rates was granted without
considering the RORB computation. On the other hand, Local Exchange
Carrier (LEC), International Gateway Facility (IGF) and CMTS operators
approved rebalanced rate is arrived at by calculating the revenue requirements
based on the appraised value of the property while the minimum rate is
calculated using the historical value. In some cases, the minimum rate is set
at 20% of the maximum rate.
It would appear then, that if evaluation was ever conducted, it was merely
based on documents presented without validation. Under the RORB
principles, only properties used and useful to the operation is considered and
only necessary expenditures are recoverable. Furthermore, income generated
from deregulated services which entailed utilization of network facilities
included in the rate base are deducted from the revenue requirement for the
purpose of fixing reasonable rates.
12
Part III
Audit Observations
13
Chapter I
Development of Service Standards
14
DEVELOPMENT OF SERVICE STANDARDS
INTRODUCTION
Standards refer to the minimum acceptable norms set forth to ensure that any
service required to be rendered could be delivered effectively and efficiently
without unnecessary interruption. These standards are set to protect public
interest and ensure the viability of public utilities.
At the least, these standards should include financial and technical capabilities
for awarding bandwidth spectrum and manpower requirements. These
requirements would more or less ensure continuous operation or service.
The audit revealed that the NTC’s performance is greatly affected by its
failure to develop appropriate standards to ensure effective competitive
market environment and reasonable fees to the users.
OBSERVATIONS
1. NTC was not able to establish the minimum number of operators

and the maximum bandwidth spectrum to be granted for each
CMTS operator to ensure effective competitive market
environment. As a result, 45 MHz bandwidth spectrum or about
42.45% of the total spectrum allocated for the CMTS operations
were awarded to two dominant CMTS operators. Their spectrum
allocation was further increased by 21 MHz bandwidth on
account of operational mergers with two other operators bringing
the total spectrum allocation to 66 MHz bandwidth representing
62.26% of the total CMTS allocations.
The radio spectrum is a natural resource divided into bands or ranges of

frequencies, which makes possible all forms of radio communications. In
large measure it is intangible. It is indispensable to operation and may
completely immobilized the national economy including military
services.
As this is a valuable limited resource, time will come when the viability
of our communication-electronic community will be determined in large
measure not by what the economy can absorb, but by the availability of
15
frequencies in the radio spectrum. For this reason, and considering the felt
need for an effective mechanism in assessing demands, allocating radio
spectrum and prescribing performance and efficiency standards in the use
of radio spectrum, NTC issued Memorandum Circular 2-4-90 on
February 13, 1990 prescribing the following guidelines:
• The availability of radio frequency shall first be ensured before a user is
permitted to purchase. The Permit to Purchase to be issued by the NTC
shall include a provisional Permit to Possess valid for forty-five (45)
days on non-extendable basis. Said permits shall be declared null and
void and the proposed frequency/ies recalled, unless a formal
application for issuance of Construction Permit or Radio station license
is submitted within the prescribed period of 45 days;
• Strict compliance by the telecommunications carriers with accepted

spectrum planning principles and licensing conditions through proper
spectrum engineering standards shall be observed;
• Only equipment type approved by NTC shall be authorized to operate in

the UHF/VHF narrow band;
• All frequency assignments shall be on the basis of shared usage unless

otherwise authorized by the NTC;
• Frequency plans shall be adopted using standardized channel separation

and channel spacing;
• Radio frequency channels shall be assigned to minimize interference

due to intermodulation products; and
• To define the area/distance coverage, radio station shall only be

authorized a maximum effected radiated power and/or allowable
antenna height.
Under these guidelines, NTC awarded 11MHz to Piltel and 10 MHz to

Extelcom. Upon issuance of RA 7925, NTC issued MC 3-3-96 on March
4, 1996 providing additional guidelines as follows:
• A re-allocation of radio spectrum shall be conducted to optimize its use

in consultation with the industry and/or affected parties. To optimize
its use, reallocations must take into consideration allocations of
frequencies for customer access services, broadcast services, maritime,
aeronautical and other safety devices, military and government radio
stations/networks operated to promote or served national interest;
• The NTC shall allocate to public telecommunications entities (PTEs),

the available radio frequencies required to satisfy demand for the next
(10) years based on a defined target and result of a radio frequency
planning study;
16
• Any frequency allocation in the Public Land Mobile and Fixed Services
shall be technology neutral. Users of the radio spectrum shall be
encouraged to use state of the art technologies and to use minimum
channel bandwidth and power output without sacrificing efficiency and
service reliability;
• Additional radio frequencies maybe assigned to (Public
Telecommunications Entity (PTE) to satisfy demand for services
authorized to be offered upon submission of information, number of
subscribers per radio channel and number of operating radio stations to
justify additional grant;
• Awarded radio frequencies that remained unused for one year from the
date of issuance of permits and licenses may be recalled after service of
notice and hearing;
• Where demand for a specific frequency exceeded availability, the NTC

shall hold open tenders for the same and ensure a wider access to this
limited resources;
• Any assignable frequency/ies for the year shall be published in a

newspaper of general circulation and conspicuously posted on the NTC
bulletin board within three months from the effectivity of the National
Radio Frequency Allocation Table (NRFAT) and within the first quarter
of each year thereafter;
• Applicant for the use of available published assignable frequency/ies

shall file their application indicating the preferred services to be
rendered with the NTC within 45 days from publication of the
assignable frequencies. Said application shall undergo a quasi-judicial
process to determine applicant’s qualification. When there are more
qualified applicants than the available frequencies, they shall participate
in the open tender of frequencies. Open tenders shall follow the standard
government bidding process;
• Qualified applicants under the deregulated services need not undergo a

quasi-judicial process and may participate in the tender for frequencies
under the deregulated services; and
• The quasi judicial process shall be completed within 120 days from
publication of assignable frequencies. All applicants found qualified
shall participate in the open tenders.
The team noted that the guidelines refer mainly to the manner by which
telecommunication operators should utilize their assigned spectrum. It did
not in any way establish the minimum number of operators needed as
well as the maximum bandwidth to be awarded to each operator to ensure
effective competition.
17
As of December 31, 2004, NTC had allocated on a staggered basis a total

of 106 MHz for CMTS operations, of which, 101 MHz was awarded to
seven telecommunications companies. However, on account of mergers
of Piltel with Smart and Islacom with Globe, the authorized CMTS
operators were reduced to five with the total awarded spectrum tabulated
below.
No. of Bandwidth
Frequencies Piltel/ Islacom/

(MHz) Globe Bayantel Date Granted
Extelcom Smart Digitel Technology
824-835/869-880 11 10.26.1990 ANALOG

835-845/880-890 10 12.12.1988 ANALOG
890-897.5/935-942.5 7.5 09.30.1993 GSM
897.5-905/942.5-950 7.5 05.17.1993 GSM
905-915/950-960 10 09.29.1993 GSM
1720-1725/1815-1820 5 09.10.2001 GSM
1725-1730/1820-1825 5 09.27.2001 GSM
1730-1732.5/1825-1827.5 2.5 09.00.1998 GSM
1732.5-1735/1827.5-1830 2.5 12.00.1998 GSM
1735-1740/1830-1835 5 01.00.2000 GSM
1740-1745/1835-1840 5 01.00.2000 GSM
1745-1750/1840-1845 5 03.00.2000 GSM
1750-1755/1845-1850 5 05.08.2000 GSM
1755-1760/1850-1855 5 09.23.2001 GSM
1760-1770/1855-1865 10 09.23.2001 GSM
1770-1775/1865-1870 NOT GSM
AWARDED
as of
12.31.2004
1775-1780/1870-1875 5 09.27.2001 GSM
TOTAL 15 36 30 10 10
It maybe noted that out of 106 assigned bandwidths, 66 MHz had been
awarded to Smart and Globe representing 62.26%. Of this total, 25 MHz
represents reallocation from existing users such as PAGASA to ease
traffic congestion of CMTS operators.
Since Smart and Globe were awarded bigger spectrum, they are in a better
position to expand their operation than the other authorized operators.
The mergers of existing operators and failure of others to activate and

upgrade its facilities affect effective competition. At present, while 15
MHz was awarded to Extelcom, its facilities are not yet upgraded from
analog to GSM technology. Upgrading is necessary to enable Extelcom
subscribers to access other CMTS operator’s network. On the other hand,
Bayantel, with assigned 10 MHz, has yet to put up CMTS facilities.
Digitel launched its CMTS operations under the “Sun Cellular” brand in
2003. Like Bayantel, frequency spectrum granted to this company was
only 10 MHz.
Under this condition, the existence of a competitive market environment

is at stake. This may have been caused by the failure of the NTC to
conduct a study to determine the ideal number of operators that could
18
viably operate at reasonable rates and the maximum bandwidth that could
be awarded to each operator to ensure the presence of competitive market
environment.
MANAGEMENT’S
COMMENTS TEAM’S REJOINDER
It was incidental that PAGASA’s Traffic congestion in the network of

frequency assignments which were Smart and Globe was the reason cited for
made in a much earlier date, long the re-allocation of 20 MHz under MC 3-
before the CMTS came about, were 3-99 dated March 23, 1999 and among
within the re-allocated bands for the reasons cited for the re-allocation of
CMTS. It is wrong to say that “25 30 MHz under MC 9-3-2000 dated
MHzz represents reallocation from March 9, 2000. The no. of bandwidths
existing users such as PAGASA to granted to Smart and Globe under the
ease traffic congestion” above MCs follow:
Operator MC 3-3- MC 9-3-

99 2000
SMART 10 MHz 5 MHz
GLOBE 5 MHz 5 MHz
TOTAL 15 MHz 10 MHz
COA acknowledged that spectrum

assignments are in accordance with the
International Table of Radio Frequency
Allocation and that frequency used by
PAGASA happened to be included
among the frequency ranges for CMTS
operation. However, the fact remained
that re-allocation were undertaken to ease
the traffic congestion in the network of
existing CMTS operators as disclosed in
the mentioned MCs.
A perfectly competitive market The team totally agreed to this concept.

ideally consists of a large number However, considering that our condition
of suppliers of goods or services has not yet reached this state, our
and a large number of consumers regulations require government
and it requires little or no intervention.
government intervention at all. In a
perfectly competitive market, no
single supplier will able to distort
the efficient operation of the
market or the setting of prices or
supply conditions.
19
MANAGEMENT’S
COMMENTS TEAM’S REJOINDER
Nevertheless, the ITU experts The team does not question the NTC’s
recognized the Commission’s decision to allow five mobile operators
decision to allow five mobile but its failure to define the maximum
operators from the mid 1990’s bandwidth spectrum to be granted for
made the Philippines one of the each CMTS operator to ensure effective
most competitive markets in the competitive market environment.
region and further recognizing that
Philippines has among the lowest As discussed above, while there are five
tariffs in the region. mobile operators, 62.26% of the
bandwidth was allocated to two dominant
operators. Moreover, the two other
operators are yet to upgrade and put up
CMTS facilities while the other one
started operating only in CY 2003.
Under this condition, it could hardly be
said that there is a competitive market.
With much respect, contrary to the The stimulated investment and sustained
observations of COA and rather growth is only true on the two dominant
taking the views and findings of the operators. As discussed earlier, other
ITU experts, we can say with operators has yet to operate. It cannot
confidence that the Philippines is therefore be said that this service is
one of the few countries where dynamic and competitive.
telecommunication service market,
to include the public mobile
telecom services such as CMTS, is
highly liberalized, privatized,
dynamic and competitive and that
the sector is stimulated by
investments, which accelerates its
sustained growth.
2. NTC has yet to prescribe the specific cost methodology for

interconnection fees required under NTC MC 14-07-2000. This
resulted in setting interconnection charges based on agreed rate
or revenue sharing agreement without considering the actual cost
of providing the service. Under this condition, there is no
assurance that the charges being passed on to consumer are fair
and reasonable. Moreover, these agreements were not being
reviewed by NTC due to absence of criteria for evaluation.
20
Under competitive market environment, the regulator should take notice

of operators that possess market power. Market power is defined as the
ability of a firm to independently raise prices above market levels for a
non-transitory period without losing sales to such a degree as to make this
behavior unprofitable. The factors frequently considered in determining
existence of market power include market share, barriers to market entry,
pricing behavior, profitability and vertical integration.
In telecommunications, operators that are vertically integrated (e.g. that

provide local access as well as long distance or international services) can
possess market power. They can use their market power in the local
access market to bring their long distance and international markets to
competitive advantage. They may inflate local access prices (including
interconnection prices) and use the surplus revenues to subsidize rate cuts
to make their long distance or international services competitive.
To avoid this condition and protect the interest of small players in the
market, the DOTC, under Department Circular No. 90-248 dated June 14,
1990 promulgated interconnection and revenue sharing policy. Under the
Revenue Sharing scheme, traffic settlement agreements shall be based
upon:
• a recovery of toll-related costs and a fair return on the investment of

both companies in the facilities used in making the toll calls exchanged
between the systems; and
• a subsidy to local exchange providers.
This scheme was, however, replaced by bilateral negotiation under NTC

MC 9-7-93 dated July 23, 1993 based on costs of providing toll
interconnection service. To monitor compliance, NTC required
submission of Cost Manual by telecommunications operators. Inquiry
disclosed that as of audit date, only PLDT had submitted the required
Manual. In view of this absence, the NTC could not evaluate the propriety
of interconnection charges.
To further ensure the smooth process in interconnection, the NTC issued

MC 14-7-2000 providing among others the following:
• Interconnection service charges shall be set to promote efficient and

sustainable competition and economic and efficient network use;
• Charges in Interconnection Agreements shall respect the principles of

objectivity, transparency, reciprocity and non-discrimination. Undue
imposition of excessive charges is not allowed;
21
• The interconnection service charges shall be based on underlying costs

where a fixed charge is imposed on a fixed cost incurred and a usage
charge on the usage cost.
• All charges for interconnection services shall be transparent and

unbundled to avoid paying any network elements, equipment, facility
or component not needed for interconnection;
• It also requires that specific charges for interconnect services be based

on the long run incremental costs of providing the services. To make
this operational, NTC should prescribe a specific cost methodology.
Inquiry revealed that in the absence of specific rules on cost-based

interconnection pricing, the NTC is applying Section 18 of Republic Act
7925 which provide that:
“The Access Charge/Revenue sharing arrangement between all

interconnecting carriers shall be negotiated between the parties
and the arrangement between the parties shall be submitted to the
Commission.
In adopting and approving an access charge formula or revenue

sharing agreements between two or more carriers, particularly but
not limited to a local exchange, interconnecting with a mobile
radio, inter-exchange long distance carriers, or international
carrier, the Commission shall ensure equity, reciprocity and
fairness among the parties concerned. In so approving the rates for
interconnection between the telecommunications carrier, the
Commission shall take into consideration the cost of the facilities
needed to complete the interconnection, the need to provide the cost
subsidy to the local exchange carriers to enable them to fulfill the
primary national objective of increasing telephone density in the
country and assure a rate of return on the total local exchange
network investment that is at parity with those earned by other
segments of the telecommunications industry.”
The team was informed that while operators were submitting the
interconnection agreements as required, there was no review so far
conducted as there were no criteria yet for the evaluation of such
agreement.
Moreover, the NTC has yet to develop a specific cost methodology

required under the circular. Interview revealed that sometime in year
2000, NTC attempted to establish the specific cost methodology with the
assistance of USAID experts. However, for reasons not disclosed to the
team, the project was abandoned.
22
There are four stages in calculating a cost-based interconnection pricing

as shown on the diagram presented below.
Stages in calculating cost-based interconnection pricing
Base Allocation Routing factors

Accounting Methodology Stage 3 (element usage per
data and Rules interconnection)
“24 hour” average

price per
Stage I interconnection
Element Cost
“Tariff gradients”
Stage 4 (balance between
Element Usage peak, off –peak and
(in Minutes) weekend usage)
Stage 2
Interconnection
“24 hour” average cost per Prices
element per unit of use
The activities under each stage are described below:
Stage Activities
Calculation of Element Cost This requires a detailed review of base accounting
data and the methodology and rules used to allocate
cost to network elements. Base data may be historic
cost or an estimate of future cost. One approach to
looking at future cost is to use the Long Run
Incremental Cost (LRIC). Applying the LRIC, cost
calculated is the cost of incrementing the network to
handle one extra unit of usage based on the current
economic value of the assets employed. The output
of this stage is the total cost of the principal network
elements or element cost.
Calculation of an Average Cost At this stage, there is no differentiation on the time
per Element per Unit of Use or the call is handled. To calculate, it is necessary to
the “24 Hour Rate” establish each network resource used. This may be
derived from measurements or as appropriate, a
theoretical appreciation of how calls are routed
through the network and what resources an average
calls consumes. Implicit in this process is the
understanding that the network resources will carry a
mix of traffic including both interconnection traffic
and traffic from own network customer. All traffic
shall be used in calculating the rate.
23
Stage Activities
Calculation of Average Price This stage involves a consideration of the network

per Interconnection Service elements needed to provide interconnection services
by applying the routing factors to weigh the cost of
each network element used.
Routing factors will depend on the profile of calls

generated by an interconnecting party in terms of both
time of day and location. For existing operators, this
may be measured retrospectively, however, a
theoretical approach based on general network
average may also be used and are often more
appropriate since profiles may vary between operators
and can change overtime.
Application of Tariff gradients Retail tariffs for telecommunications services vary by
to Get Interconnection Prices time of day and may be appropriate for
interconnection rates to vary in similar manner. The
final stage of the process is to adjust the “24 Hour
Rate” to take account of the differences. Thus, the rate
used when applied to a representative usage profile
results in the average 24 hour rate.
The application of cost based methodology pricing would ensure:
• Fair and reasonable pricing since this methodology involves only the
calculation of cost directly attributed to the service provided;
• Uniform access charges for all PTE’s interconnected to a dominant

carrier (e.g., PLDT vs. PAPTELCO’s) ;
• That cost inefficiencies could not be passed on to access seeker; and
• That cost-based interconnection pricing is consistent with best practices

adopted by regulators in other countries.
In the absence of prescribed cost methodology, different access charges

rates were imposed on similar services by the service providers to the
Public Telephone Entities (PTE’s), illustrated as follows:
Interconnecting Parties National Toll Service International Toll Service
PLDT vs Telecom 25% of the total monthly 7% of the total revenue billing of
Management and Services, billing, bothways; all international calls;
Inc.MSI 8% if paid within 120 days 6% of PLDT shares on the revenue
August 1, 1989 1% in excess of billing of all international calls
Toledo City, Cebu P25,000.00 originating from TMSI exchange.
2% in excess of
P50,000.00
5% if paid within 6 months
24
Interconnecting Parties National Toll Service International Toll Service
PLDT vs. Telecom 30% of total monthly 40% of net PLDT share on all
Management and Services, revenues for all calls, revenues for all international calls
Inc. bothways originating or terminating at TMSI-
November 13, 1989 3% of total monthly Tangub City
Tangub City, Misamis revenues if 30% is paid
Occidental within 120 days
1% of total monthly
revenues in excess of P
25,000.00 but not more
than P 50,000.00
2% of total monthly
than P 100,000.00
3% of total monthly
100,000.00.
Additional P .60 per
message if the average
revenue per message is less
than P 10.00
PLDT vs. Telecom 15% of the total monthly revenues
Management and Services, for all international calls
Inc. -do- collectible at TMSI-
August 8, 1997 Kolambungan;
Kolambungan, Lanao del Sur
15% of the PLDT’s share in the
monthly revenue for all
international calls originating or
terminating at TMSI-Kolambungan
PLDT vs. Countrywide -do- -do-
Telecom, Inc.
January 22, 1996
Cebu City
PLDT vs. Municipal 40% of the total monthly -do-
Telephone Projects Office revenues for all calls
October 24, 1997 chargeable, bothways.
Pasig City
PLDT vs. R.C. Yulo 30% of total monthly 40% of the net PLDT share on all
Telephone System revenues for all calls, revenues for all international calls
July 24, 2000 bothways originating or terminating at
Pontevedra, Negros 3% of total monthly RCYTEL.
Occidental revenues if 30% is paid
within 120 days
1% of total monthly
than P 50,000.00
2% of total monthly
than P 100,000.00
3% of total monthly
100,000.00.
Additional P .60 per
message if the average
revenue per message is less
than P 10.00
25
This translates to different access charges imposed upon subscribers for

similar services provided assuming that PLDT is both the transmitting
and terminating network, as in:
• National Long Distance Calls
Originating Transmitting Terminating

PAPTELCO Rate/Call Network Network Network Due to
(30%) (40%) (30%) PLDT
A P 8.00 P 2.40 P 3.20 P 2.40 P5.60
B P 10.00 P 3.00 P 4.00 P 3.00 P 7.00
• International Calls
Share of Share of
PAPTELCO PLDT
PAPTELCO Rate/Call (15%) (85%)
A P 12.00 P 1.80 P 10.20
B P 10.00 P 1.50 P 8.50
Access and hauling charges executed on March 11, 1999 in Makati,

specifically between PLDT and Globe Telecom, are likewise agreed on a
revenue sharing agreement to wit:
National Long Distance Calls/

Mobile to Mobile Calls International Calls
Usage/Access Charges
National Long Distance:
Globe shall pay PLDT the local PSTN For international calls originating
charge in the sum of P 2.00/mnt. for all from the Globe Cellular System,
local calls. PLDT shall collect from its excluding collect calls, globe
subscriber the airtime charge and remit to shall pay PLDT 85% of the
Globe the said aitime charges after authorized rates of PLDT for
deducting the PLDT local PSTN charge as international long distance calls.
provided for in the preceding sentence.
From Globe Cellular System to PLDT For international calls paid by

system, Globe shall collect the total sum of foreign administration, PLDT
the toll PSTN charge for national long shall pay Globe 15% of the
distance calls and the airtime charge from Philippine share.
26
National Long Distance Calls/

Mobile to Mobile Calls International Calls
its subscribers, and remit to PLDT the sum Collect calls originating from
equivalent to 75% of the applicable NTC Globe’s subscriber shall be
approved PLDT long distance rates. accepted by PLDT, and for those
terminating at Globe’s subscriber,
From PLDT system to Globe cellular globe shall accept international
system, PLDT shall collect the total sum of collect calls terminating at Globe
the Toll PSTN Charge for national long subscriber shall be determined in
distance calls and the airtime charge from accordance with the first
its subscribers, and remit to Globe a sum paragraph, while collect calls
equivalent to 25% of the applicable NTC originating from Globe subscriber
approved PLDT long distance rates and shall be compensated in
total airtime charges. accordance with the second
paragraph.
Mobile to Mobile Calls:
For mobile calls between the subscribers of

globe and PLDT Cellular Mobile systems,
the party from which call originated shall
collect from its subscribers the airtime
charges and remit to the other an amount
equal to 50% of its applicable authorized
airtime charge.
For mobile calls between the subscriber of

Globe and other cellular mobile system
transiting through PLDT system, Globe
shall pay PLDT the transit charge in the
amount of P 2.00/mnt. For all calls
originating from the Globe system. Globe
shall be responsible for the corresponding
share to be remitted or claimed from, as the
case may be, the other cellular mobile
operator.
In case that PLDT assumes from Globe the

responsibility of remitting the appropriate
share of the other mobile operators, Globe
shall provide PLDT the required data or
settlement statement for the validation and
reconciliation with the other mobile
operators. Should there arise any monetary
deficiency or claim of any nature by the
mobile operators against PLDT in
connection with the remittance, globe
agrees to assume all responsibilities and
holds PLDT free and harmless from any
liability of whatsoever nature.
Under the present condition, where there are no reviews undertaken, there
is no assurance that the charges being passed on to consumer is fair and
reasonable. The operators visited by the team during the evaluation are
27
charging different rates per subscriber for national long distance calls as
shown in the tabulation below.
Domestic Long Distance International

Operator Fixed Mobile Long
Distance
Camarines Sur:
Iriga Telephone System 4 php/mnt. 9 php/mnt. .40$/mnt.
L.M. United 5 php/mnt. 12php/mnt.
SANTELCOR 5.50 php/mnt. 16.50 php/mnt.
Digitel 4.00 php/mnt. 12.00 php/mnt. .40$/mnt.
Bicol Rural Telephone Co. 11.00 php/mnt.
Batangas City:
West Batangas Telephone System 4.00 php/mnt (L) 7.50 php/mnt. .40 $/mnt.
5.00 php/mnt (V/M)
Digitel 4.00 php/mnt. 12.00 php/mnt. .40$/mnt.
Globe 5.00 php/mnt. 8.00 php/mnt. .40 $/mnt.
PLDT .40$/mnt.
Continental Tel. system .40$/mnt.
MANAGEMENT’S COMMENTS TEAM’S REJOINDER
After the issuance of NTC MC 14-07- The team appreciates the actions
2000, the Commission with technical undertaken by NTC.
assistance from USAID prepared
discussion paper and draft guidelines on
cost-based interconnection (wholesale)
pricing using the applicable variations of
the long run incremental cost (LRIC).
The discussion paper and the draft rules
were subjected to public hearings and
consultations. Strong objections were
raised.
The Commission is pursuing the

proposal. However, because of the rapid
advances in technology influencing the
structure of the telecommunications
industry these appears to be a need to
study other options to reflect market
prices. The Commission is currently in
the process of evaluating these other
options.
28
3. The NTC did not conduct teledensity analysis before requiring and
approving CMTS, IGF and LEC operators’ applications to install
local exchange lines. This leads to unsubscribed lines in NCR of
1,170,687 costing about P23.443 billion, which cost is now being
shouldered by present subscribers. In other cases, some operators
failed to install lines in their authorized service areas as indicated
in their roll-out plan depriving the customers the opportunity to
choose service providers, which is the ultimate objective of the
open competition.
One of the mandatory functions of NTC is to issue Certificate of Public

Convenience and Necessity (CPCN) for the installation, operations and
maintenance of communication facilities and services, and radio
communication system covering specific area of operation. For this
purpose, NTC evaluates the legal, financial and technical capabilities of
the telecommunication operators by requiring the submission of certain
documents. As gathered from NTC decisions covering CPCN of selected
telecommunications operators, the capability of telecommunications
operator are evaluated in the following manner:
Requirements Evaluation Criteria

Legal • Franchise from Congress of the Authority to operate and
Philippines or local government legal existence are
determined by the existence
• SEC Registration Certificate and of franchise, SEC
Articles of Incorporation registration and feasibility
study showing that market
• Feasibility study showing the exist for the proposed
operational, financial and services.
marketing feasibility of the project
Financial • Company’s latest Financial Debt to equity ratio of at
Statements least 70:30 and the capability
to finance the proposed
• Estimate of acquisition cost of all projects through credit
planned equipment associated with facility extended by
the project including system reputable financial
installation institutions and
suppliers’ credit evidence by
suppliers’ written
commitment.
Proforma Income Statement and Internally generated funds as

Balance Sheet for the first 10 years determined from the
including projected operating proforma financial
expenses, depreciation charges, statements and capital
demand and revenue forecasts and infused by stockholders.
rate assumptions
29
Requirements Evaluation Criteria

• Sources of funding throughout the
life of the project
• Clearance from payment of

supervision and regulation fee
• Company treasurer’s affidavit

Technical Working drawings of the project Measured in terms of the
signed by Professional Electrical and feasibility of operating the
Electronics and Communication projects efficiency as
Engineers, showing the following: evaluated by NTC engineers
considering the submitted
• A complete floor plan of the working drawings keeping in
central office showing all major mind the commission’s
frames and related equipment policy on technology
units; neutrality.
• A description of the system

being installed;
• System capacity, no. of

switchboard positions, etc;
• Outside plant plan, layout, and

drawings of typical support
structure arrangements,
applicable ducting systems and
manhole specifications;
• Complete operational plan,

including numbering plan,
capacity plan (current and future
demand estimates), additional
system planned for the future
and relevant statistics on such
systems, including capacities,
trunking plan, homing plan and
numbering arrangements;
• A full description of the systems

interconnection plan to the
existing public switched
telephone network and related
interconnection agreements for
NTC’s approval;
• Technical specifications of the

winning bidders’ documents for
projects acquired through
competitive bidding.
30
These telecommunication operators are issued CPCN to operate the

following system/facilities:
• Cellular Mobile Telephone System (CMTS) – a wide area mobile radio

telephone system with its own switch, base stations and transmission
facilities capable of providing high capacity mobile telecommunications
by utilizing radio frequencies that is neither a wireless local loop (WLL)
service provided by a (Local Exchange Carrier (LEC) or a trunk radio
service ordinarily being provided by a trunked radio carrier.
• International Gateway Facility (IGF) – a facility consisting of

international transmission, switching and network management facilities
that serve as point of entry and exit in the Philippines of International
traffic between a PTE’s network and point/s outside the Philippines.
• Local Exchange (LE)– the entire plant and facilities used in providing
transmission and switching of telecommunications services, primarily
but not limited to voice-to-voice service, in a geographic area anywhere
in the Philippines.
In addition to the above requirements, CMTS and IGF operators are

required to install 400,000 and 300,000 local exchange lines respectively,
in their designated service areas before they are granted CPCN to operate.
On the other hand, Local Exchange Carrier (LEC) operators should install
local exchange lines based on their commitment as defined in their roll-
out plan or as approved in their CPCN.
At present, there are seven CMTS/IGF/LEC operators operating within

the National Capital Region (NCR) with total committed lines to be
installed of 4,185,198. Particulars are shown below.
Type of CPCN Service Commit Installed Subscribed

Operator Issued Areas ment Lines Lines Remarks
Smart CMTS/IGF/LEC Pasay 140,922 53,008 A total of 478,000 lines

Paranaque 152,660 84,820 was committed to be
Muntinlupa 104,405 45,940 installed under CPCN
issued on July 22, 2002
Installed and subscribed

figures were those
labeled as
“SMART/PLDT” in the
CCAD report. Lines
labeled as “PLDT” are
accounted as PLDT
installations.
31

No installations were
reported in the
following authorized
service areas: Las Pinas,
Pateros and /Taguig.
Sub-Total 478,000* 397,987 183,768
ETPI IGF/LEC Manila 217,140 66,310 13,136 A total of 272,607 lines
Navotas 12,288 was committed to be
Caloocan 43,179 installed under
Provisional Authority
granted on Sept. 25,
1996.
Sub-Total 272,607 66,310 13,136
Bayantel IGF/LEC Quezon City 243,.840 134,190 Commitment figure
Valenzuela 46,720 20,607 represents total lines
Malabon 18,560 7,352 actually installed of
Manila 17,920 9008 303,360 in compliance
Navotas 81 with EO 109 and
Caloocan 613 authorized lines to be
installed under NTC
Case 96-195 of 150,000.
Sub-Total 453,360 327,040 171,851
Globe CMTS/IGF/LEC Makati 131,250 170,952 30,578 Total local exchange
San Juan 105,000 lines committed to be
Mandaluyong 105,000 installed in NCR under
Marikina 52,500 51,838 12,078 its accelerated roll-out
Pasig 131,250 205,198 32,540 plan dated December 9,
1994 embodied under
NTC Case No. 93-326
and 94-256.
Sub-Total 525,000 427,988 75,196
Bell Tel LEC Makati 3,070 346 A total of 784,204 lines
Muntinlupa 1,784 213 was committed to be
Pasay 1,878 445 installed as of
Pasig 1,462 242 December 31, 2003 or
th
on the 5 year after the
grant of authority under
NTC Case No. 94-229
dated October 28, 1997.
No lines were installed

in the following
authorized service areas:
Mandaluyong,
Marikina, Paranaque,
Pateros, San Juan and
Taguig.
Sub-Total 784,204* 8,194 1,246
Digitel IGF/LEC Quezon City 812 210 A total of 82,000 lines
was committed to be
installed under NTC
Case No. 97-191.
No lines were installed

in the following
authorized service areas:
Malabon and
Valenzuela
Sub-Total 82,000 812 210
32

PLDT IGF/PLDT Caloocan 150,318 150,318 75,501 Committed figure

Las Pinas 77,578 77,578 58,463 represents actual LEC
Makati 275,113 275,113 263,283 lines installed as of
Malabon 24,720 24,720 24,341 December 31, 2003 as
Mandaluyong 178,194 178,194 43,583 reported by CCAD.
Manila 381,416 381,416 253,685
Marikina 93,348 93,348 32,054 Subscribed lines in
Navotas 13,287 Navotas although
Pasig 53,118 53,118 95,096 labeled as
Pateros 4,848 “PLDT/SMART” was
Quezon City 286,232 286,232 250,069 considered as PLDT
San Juan 28,009 installation because the
Taguig 22,214 22,214 27,186 municipality is not
Valenzuela 47,776 47,776 32,859 among the authorized
service area of SMART
Sub-Total 1,590,027 1,590,027 1,202,264
TOTAL 4,185,198 2,818,358 1,647,671
Teledensity 25.77 15.07
* breakdown per municipality not indicated in the PA/CPCN
It maybe noted that of the total local exchange lines committed to be

installed, only 2,818,358 representing 67.34% were actually installed as
of December 31, 2003, of which only 1,647,671 or 58.46% were actually
subscribed. These figures then raise doubts on the necessity of requiring
these operators to install that many lines.
Analysis further showed that the required number of lines is equivalent to

a teledensity of 38.27 considering the reported population in NCR of
10,935,524 as of December 31, 2003. Teledensity is defined as the
number of telephone lines for every 100 individuals. With this number,
there would be one available line for every 2.61 individuals. This figure
could be considered high as fixed line users are group of individuals in
one household. The average household size in NCR as gathered from
National Statistics Office (NSO) report is 4.63.
Granting that the NTC’s objective is to provide one line for every
household, then the number of lines required to be installed should only
be 2,361,884 equivalent to a teledensity of 21.60. This requirement was
already exceeded as the actual installed lines of 2,818,358 is equivalent to
a teledensity of 25.77 or excess lines of 456,474.
Considering the estimated installation cost of about P20, 025 per line, this
gave rise to additional cost of P9.141billion. Moreover, as discussed
earlier, only 58.46% of the installed lines were actually subscribed with
1,170,687 unsubscribed lines costing P23.443 billion.
Apparently, the NTC did not conduct a teledensity analysis before the
operators were required or allowed to install LEC lines. It maybe noted
33
that the cost of these facilities which were not being used is being
shouldered by the present subscribers as LEC rates are regulated. This
means that the present subscriber’s fee which differs among operators
does not represent the cost of the actual services accorded to them.
At present, the local exchange subscribers are being charged as follows:
PLDT/
Globe Smart Digitel Bell Bayantel ETPI
IDD Rates
Minimum/pulse $.040 $0.025 $0.025 $.0.100 $0.300 $0.100
Maximum/pulse 0.220 0.300 0.025 0.300 0.300 0.300
NDD Rates
Minimum/minute P4.50 P2.50 P3.00
Maximum/minute 7.50 6.00
Fixed Monthly
Rate
Residential P315.84* P663.78 P587.81 P678.00 P337.26* P230 for

150 pulse
and
0.25/minute
in excess of
150 pulse
Business 637.85* 1,383.62 1,205.19 1,383.00 709.00* P460 for

300 pulse
and
0.25/minute
in excess of
300 pulse
* rates are exclusive of VAT and FCA
This cost also includes charges on Foreign Currency Adjustment as

telecommunications equipment are imported from other countries and
finance from foreign borrowings. The Currency Exchange Rate
Adjustment (CERA) is computed at 1% for every P.10 increase or
decrease in currency exchange rate.
The team further noted that the NTC’s pre-numbering plan approving
three authorized operators in each area to spur competition and provide
subscribers a choice did not serve its purpose in view of the merger of
PLDT and Smart and failure of other authorized operators to install lines
in their designated service areas, as illustrated on the next page.
34
Authorized Installed
Municipality Operators Lines
Las Pinas PLDT/Smart 77,578
Bell Tel 0
Mandaluyong PLDT 178,194
Globe 0
Bell Tel 0
Paranaque PLDT/Smart 152,660
Bell Tel 0
Taguig PLDT/Smart 22,214
Bell Tel 0
The foregoing tabulation showed that PLDT/Smart emerged as the lone

LEC operator and therefore operating as a monopoly in the
municipalities/cities of Las Pinas, Mandaluyong, Paranaque and Taguig, a
situation which is being avoided under RA 7925.
MANAGEMENT TEAM’S REJOINDER

COMMENTS
The requirement to install a The team recognized that the NTC
minimum number of local merely comply with the requirement
exchange lines is embodied in under existing rules and regulations.
Executive Order No. 109 and However, an evaluation of the effects on
Republic Act No. 7925. complying with such regulation should
have been undertaken.
We beg to disagree that NTC did The NTC did not provide the team with
not conduct teledensity analysis the results of teledensity analysis used in
before requiring and approving approving operators’ applications.
CMTS/IGF and LEC operators’ However, as illustrated in the report, the
applications to install local requirement for CMTS and IGF
exchange lines. The Commission, operators to install 400,000 and 300,000
in fact has used the JICA (Japan local exchange lines contributed in the
International Cooperation Agency) presence of unsubscribed lines, the cost
and DOTC (Department of of which are now being shouldered by
Transportation and the customers.
Communications) telephone lines
demand forecast for the years 1994,
1998, 2004 and 2010 in approving
the roll-out plans submitted by
carriers.
When the country was divided into The team does not question NTC’s
eleven (11) service areas, each strategy of requiring operators to install
service area consisted of viable and lines in both viable and non-viable areas.
35

COMMENTS
non-viable areas in order to make This can even be considered a good
sure that the rural areas were to be strategy in rendering services in the rural
provided with telephone service. areas. The issue now at hand is the basis
Memorandum Circular No. 11-9- for approving the roll-out plans of LEC
93, Implementing Guidelines of EO operators and requiring CMTS and IGF
109, was issued by NTC. In the operators to install lines in excess of the
said guidelines, an IGF and CMTS actual needs or demands.
operator were required to provide
at least one (1) rural local exchange
line for every ten (10) urban
exchange lines installed. This
requirement was aimed to increase
the teledensity in the rural areas. In
the actual evaluations of the roll-
outs, NTC did not approve the roll-
outs as proposed. Roll-out plans
which did not comply with the
objective of EO 109 were revised.
When the roll-out plans were The team does not discount the fact that
approved by NTC, the strategy economic crisis and the entry of cellular
adopted was thought to work out phones may have contributed in the
well. However, the 1997 Asian presence of unsubscribed lines. The
economic crisis affected the team, however, noted that while there
demand for telephone service were already apparent excess lines, the
resulting to large amount of NTC still requires Smart to install
unsubscribed lines in NCR and in 478,000 lines under CPCN issued on July
other areas where roll-out plans 22, 2002.
were completed. Due to the Asian
economic crisis, some operators
failed to secure additional funding
for the remaining phases of their
roll-out plans, thus, they were
unable to install the required lines
in the rural areas. The phenomenal
growth of the cellular phones also
contributed to the slow take up of
the fixed lines.
While the Commission believes The team acknowledged the efforts being
that the Service Area Scheme has undertaken by NTC to address this
somehow increased the teledensity concern.
in some areas, the Commission also
believes that it failed to some
degree because of over-
provisioning of facilities in major
36

COMMENTS
urban centers and under
provisioning in the countryside that
is why a review is being made to
address the so-called Area failure
of the Service Scheme.
Under “Remarks” for Smart, the This information should have been
report states “No installations were disclosed in the tabulation being prepared
reported in the authorized service by CCAD. As there was no definite
areas: Las Pinas, Pateros and information provided, the team could not
Taguig.” include any installations by Smart in
these areas.
It should be clarified that the lack
of entry under in the column
labeled “Installed Lines 2003” in
the tabulation prepared by CCAD
does not mean that no lines were
installed in the said areas. Cables
are extended to neighboring areas
from another telephone exchange
lines located in another area where
there are sufficient installed lines.
In Paragraph 3, COA observed The team appreciates the action

“The foregoing tabulation showed undertaken by NTC.
that PLDT/Smart emerged as the
lone LEC operator and therefore
operating as a monopoly in the
municipalities/cities of Las Pinas,
Mandaluyong, Paranaque and
Taguig, a situation being avoided
under RA 7925”
NTC is aware of the above

observation of COA. In fact, NTC
has approved Bayantel’s
application to provide LEC service
in all areas in Metro Manila
including Las Pinas, Mandaluyong,
Paranaque and Taguig in an order
issued on December 3, 2003 under
Case No. 99-135.
37
4. In general, the standards set for fixed telephone lines maybe

considered adequate. However, additional criteria for cellular
mobile telephone system operators should be developed to address
customers’ concerns on signal level, accessibility and audio
quality.
To monitor the performance of telecommunications operators, the NTC

under MC 10-17-90 and 07-06-2002 prescribed the network performance
standards tabulated below.
Long-Term
Network Performance Standards Short Term Standards
FIXED OR WIRELINE SERVICE
Grade of Service 1% per segment of 2.5% per segment of the
the network network measured
measured during 0 during 0 BH
BH
Dial Tone Delay (The time interval 95% within 3 85% within 5 seconds
between subscriber off hook and reception seconds
of dial tone).
Call Completion Rate (The percentage of
calls that were able to receive an answer
signal measured during the busy hour) 60% in Busy Hour 40% in Busy Hour
Processing Time (The percentage of calls
receiving an answer signal after dialing
within a specified period of time) 95% in 10 seconds 80% in 10 seconds
Inside Plant Maintenance Performance
Percent Troubles Cleared 95% in 24 hours 80% in 48 hours
Trouble Index
Regular Subscriber Line 2/100 lines/month 7/100 lines/month
Repair Time-Regular subscriber line 95% in 24 hours 80% in 46 hours
Outside Plant Maintenance Performance
Trouble Density 15/100 lines/month 20/100 lines/month
Troubles per 100 stations/month 12/100/month 17/100/month
Clearing Time 95% in 24 hours 75% in 48 hours
Trouble Density Trunking 1/100/trunk 3/100/trunk
Repair Time Trunking 97% in 24 hours 75% in 48 hours
Operated Assisted Call
Long calls speed of answer 85% in 10 seconds 60% in 10 seconds
Toll calls speed of answer 95% in 10 seconds 60% in 10 seconds
Processing time 95% in 15 seconds 80% in 60 seconds
Commercial Services
Billing accuracy and complaints 1/100 per month 5/100 per month
Response to complaints 90% in 24 hours 90% in 48 hours
Service application-average processing time 90% in 5 working 90% in 10 working days
days
38
Transmission Performance
(The degree to which a telecommunication
system reproduces the offered signal) Standards
• Voice Idle Circuit Noise – 36 dBrnc

Attenuation (Subscriber loop incl. thru CO Lines
– 8.5 dB
Attenuation (junction circuits) – 16 dB (max)
A. Ordinary International Circuits (also

• Data M.1040).
(Characters of Receive level at the end office should
telephone-type not be less than 15dB.
leased circuits) Maximum loss in any part of circuits
should not exceed 28 dB.
Loss frequency distortion curve.
Psophometric noise power limit.
Satellite circuit between earth stations
contributes 10,000 pWOp (-50 dBmOp).
B. Special-quality leased circuits (also

M.1020).
Receive level, overall loss, and random
circuit noise as are given.
Loss-frequency distortion curve
Group delay distortion
Level variation:
Short Term (in a few seconds):+3 dB.
Long Term (daily and seasonal): +4dB
a. Impulse noise exceeding -21 dBmO

• Other Parameters should not be more than 15 minutes
b. Phase jitter – maximum peak to peak
c. Quantizing noise – if any section of the
circuit is routed over PCM System,
minimum signal-to-quantizing-noise
ratio normally expected is 22 dB.
d. Single-tone interference shall not
exceed the value which is below the
circuit.
e. Frequency error – Maximum = +5Hz.
f. Harmonic distortion – 700 Hz injected
at -19 dBmO will be at least 25 dB
below fundamental frequency.
CELLULAR MOBILE TELEPHONE SYSTEM
Grade of Service (GOS) 7% (end - to – end within the operator’s own

(The measure of the probability that during network) Operators are encouraged to improve
a specified period of peak traffic, usually the GOS by 1% every two years until it is 4%.
the busy hour, and a call offered to a group
of trunks or circuit will fail to find an idle
circuit at the first attempt).
39
Transmission Performance
(The degree to which a telecommunication
system reproduces the offered signal) Standards
Allowable Drop Call Rate (DCR) 5%

(The ratio of calls that irregularly Operators are encouraged to improve the DCR
terminated to the total number of calls made by 1% every two years until it is 2%.
during the measurement period)
The standards set for fixed lines may be considered adequate. However,
in case of CMTS services, the standard set which covers grade of service
and drop call rate may not be considered adequate as these do not cover
the following issues which are considered and being adopted by the
International Telecommunications Union and the European
Telecommunications Institute:
• Coverage/Verification of signal level. The use of test equipment will

allow measurement of the strength of the signal received by the mobile
terminal.
• Accessibility. Consist of verifying a mobile network capacity to make

calls. The capacity to successfully make voice communication between
two terminals, one in a mobile network and one in a fixed network. In
cases were it is not possible to establish communication or same was
interrupted during the conversation phase, the test systems identifies the
cause of the interruption of failure.
• Audio Quality. Consist of verifying conversation perception during a

successful call and over a pre-set period of time. To measure the
indicator, a telephone conversation is simulated between two users.
MANAGEMENT’S TEAM’S REJOINDER

COMMENTS
The technical standards set in MC The team appreciates the action taken by
10-17-90 were issued in 1990 when NTC to address this concern.
most of the telephone systems were
still analog at that time. At present,
the existing telephone systems are
already digital that the problems
commonly encountered in analog
systems have considerably
decreased. Nevertheless, NTC,
cognizant of the need to address the
changes in technology and the need
to protect the public, issued Office
40
MANAGEMENT’S TEAM’S REJOINDER

COMMENTS
Order No. 12-12-2003 in 2003
creating a Technical Committee
and Technical Working Groups to
undertake the formulations and
development of Technical
Regulations and Standards for
Telecommunications Equipment.
Under this Office Order, two (2)
Technical Working Groups were
formed to formulate standards
which will address the concerns of
COA. These TWGs are the TWG
on PSTN, ISDN, PDN, VoIP
Terminal Equipment Standards and
the TWG on
Mobile/Cordless/Satellite Phone
Standards. Prior to the conduct of
the audit by COA, the observation
raised was already being addressed
by NTC
41
Chapter II
Effective Enforcement of Standards,

Rules and Regulations
42
EFFECTIVE ENFORCEMENT OF STANDARDS, RULES AND
REGULATIONS
INTRODUCTION
Enforcement is a set of actions taken by the governments to ensure

compliance with existing rules and regulations. Any standard, rules and
regulations, no matter how relevant would not be of value if not being
applied. Enforcement then is the end activity that would measure the
effectiveness, reliability and validity of any government policy.
As discussed earlier, NTC has prescribed service performance standards to be

met by telecommunications carriers including interconnection of network
facility to attain universal access and end to end interoperability.
The audit, however, revealed that the NTC failed to enforce compliance by
the operators on the interconnection and reportorial requirements prescribed
under NTC MC 10-17-90 and the conditions in the grant of the Certificate of
Public Convenience and Necessity.
OBSERVATIONS
1. Compliance by the operators on the interconnection requirement

was not strictly enforced by the NTC. As of December 31, 2003, at
least 240 municipalities nationwide with two or more Local
Exchange Carrier were not interconnected at the municipal level.
This condition exposes the subscribers to inconveniences and
unnecessary added cost.
As discussed earlier, it is mandatory for all duly authorized PTE’s to

interconnect with one another at any technically feasible point in their
networks under non-discriminatory terms, conditions and charges. Such
services should be of a quality no less favorable than that provided for its
own subscribers and in a timely fashion, on terms, condition and cost
based charges that are transparent, reasonable, having regard to economic
feasibility and sufficiently unbundled. Adherence to the laws, rules and
regulations on interconnection either existing or which shall be enacted
and promulgated in the future, is one of the conditions under the CPCN
issued by the NTC.
43
REGULATIONS
Records showed that the implementation of this provision was not strictly
enforced by the NTC. As of December 31, 2003, there were 240
municipalities nationwide with two or more Local Exchange Operators
that were not interconnected with each other as tabulated bellow:
Region No.
CAR 2
Region I 10
Region II 8
Region III 31
Region IV 25
Region V 21
Region VI 37
Region VII 21
Region VIII 10
Region IX 7
Region X 25
Region XI 21
Region XII 14
Region XIII 6
ARMM 2
Total 240
In an inspection conducted by the team, it was observed that

interconnection could either be confined within the locality or province-
wide. LEC interconnected province-wide provide better service to
subscribers as they enjoy free toll charges for all calls made within the
province.
The absence of interconnection was particularly noted during the conduct

of ocular inspection in the provinces of Camarines Sur and Batangas on
the following cases:
Company/Exchange Remarks
General Telephone The Padre Garcia Exchange is not locally
interconnected with Globe, thus calls
between their subscribers in Padre Garcia
is long distance
Continental Telephone Not locally interconnected with Globe,
thus calls between their subscribers in
Calaca is long distance.
West Batangas Telephone Existing interconnection with Globe was
System temporarily stopped.
44
REGULATIONS
While the NTC was also aware of telecommunications operators not

interconnected, there was no action taken to require compliance thereon.
NTC merely act on failed interconnection negotiation when the case is
brought to its attention. In such condition, the subscribers need to pay toll
charges for calls made to a party/subscriber of other local exchange
operators within the same locality. The absence of interconnection also
adversely affects the viability of smaller operators and prevents
competition as new and existing subscribers would prefer dominant
carrier where unlimited calls are ensured at no additional cost.
COA observed that “while the NTC was The team recognized that NTC
also aware of the telecommunications could not attend to all problems at
operators not interconnected, there was the same time. However, the
no action taken to require compliance absence of interconnection in some
thereon. NTC merely act on failed areas and delayed action on
interconnection negotiation when the case interconnection problems
is brought to its attention.” It maybe true adversely affected both subscribers
that there were a number of and the viability of smaller
municipalities nationwide with two or operators.
more LECs wherein said carriers are not
interconnected at the municipal level.
However, the absence of interconnection
in the local level does not mean total
absence of interconnection. Considering
that the number of municipalities with
two or more LECs which, per COA
findings, totals to 240, NTC prioritizes
implementing the mandatory
interconnection. NTC deems it best to
give priority to interconnection
negotiations brought to NTC for
mediations but it does not mean that the
rest of the municipalities are left-out. In
the authorizations issued by NTC, the
carriers are required to interconnect in
pursuance to the requirements for
mandatory interconnection. The absence
of interconnection can be a ground for
non-renewal of the Provisional
Authorizations.
The Commission is continuously

addressing the issue on interconnection.
45
REGULATIONS
2. The NTC failed to enforce the submission of service performance

reports required under NTC MC 10-17-90 and as a condition in
the grant of the CPCN. All sampled operators do not submit the
required reports and no sanction were imposed. As a result, NTC
was not able to assure compliance with the required service
performance.
Under NTC MC 10-17-90 and NTC MC 07-06-02, telephone companies

are required to comply with certain standards and submit service
performance reports on a quarterly basis. These reports should be used by
the NTC to validate telecommunication companies’ compliance with
required service performance standard.
The performance standard required to be complied with covered grade of

service and drop call rate. Failure of the telecommunication companies to
meet these standards would warrant the following action:
Reference Provision
NTC MC 10-17-90 dated All public telecommunications carriers shall adhere to

October 15, 1990 the service performance standards herein promulgated.
All public telecommunications carriers shall submit to
this Commission, quarterly reports as may be prescribed
by Commission of their service performance in
compliance with the standards set, prepared by and duly
signed and sealed by a licensed Electronic and
Communications Engineer (ECE) actually employed by
the authorized public telecommunications carrier.
Certificate of Public One of the conditions in the grant of the CPCN is that
Convenience and Necessity the applicant shall during its commercial operation shall
submit to the Commission, quarterly statistical reports
regarding operation and maintenance of its telephone
system, including the number of subscribers, pending
application, traffic data, service interruptions and its
cause, manpower compliments and such other technical,
legal or financial data as may be required by the
commission. Violation of any of the condition stated in
the CPCN shall constitute a valid ground for the
revocation and cancellation of CPCN.
NTC MC 07-06-02 dated Item 8. CMTS operators that fail to comply with the
June 5, 2002 herein prescribed standards particularly on the Grade of
Service and the Drop Call Rate shall explain to the
Commission within a reasonable time from the date of
written notice the reason why it failed to comply with
the prescribed standards. If the Commission finds that
the reasons were not meritorious, the CMTS operator
may be directed to cease from accepting new
46
REGULATIONS
Reference Provision
customers/subscription until the prescribed standards
are fully complied with.
Item 9. The Commission may impose penalties

pursuant to law for non-compliance with the prescribed
service performance standard.
The team however, noted that apparently, these regulations were not
strictly enforced. Records of the NTC showed that telecommunications
companies do not submit reports on service performance on a regular
basis as required in the circular and as one of the conditions in the grant
of the CPCN/PA. In the validation conducted by the team in the provinces
of Batangas and Camarines Sur, all twelve (12) telecommunications
operators providing telecommunication services were not submitting
reports on network performance. These operators are as follows:
Province Operators
GMCR (Globe)
Continental Telephone System
General Telephone System
Batangas
Digital Telecommunication
West Batangas Telephone System
Philippine Long Distance Telephone System
Bayan Telecommunication
LM United Telephone System
Bicol Rural Telephone System
Camarines Sur
Digital Telecommunication
Iriga Telephone System
Santos Telephone System
Moreover, in the same validation, the team noted that compliance by the
telecommunications operators on the following conditions set forth in
their CPCN are also not being enforced and complied with:
1. The applicant shall complete the installation of the system and

commence providing telephone services within the period of 12 months
from the date of the grant of the license.
2. The applicant shall during its commercial operation submit to NTC,

quarterly statistical reports regarding operations and maintenance of its
telephone system including the number of subscribers, pending
application, traffic data, service interruptions and its cause, manpower
compliments and such other technical, legal or financial data as may be
required by the NTC.
47
REGULATIONS
3. The applicant shall set aside annually from the income of operation an
amount which shall not be less than five per centum (5%) of the value of
its depreciable property used and useful in the operation of its service
and shall deposit the said amount in a reserve fund to compensate for
the physical depreciation of the system. This fund shall be expended
only in accordance with the provision of Section 16 (1) Public Service
Act.
4. The applicant shall submit on or before March 1st of every year, an

annual report of its finances and operations for the previous years as
provided for by Section 17 (h) of CA No. 146, as amended in the
prescribed annual report form by the NTC.
5. The applicant shall allow the Technical Staff of the NTC to conduct at
any time an ocular inspection on the telephone system to determine
compliance with existing Service Performance Standard, Outside Plant
Standards and the Technical Standards on Transmission, Signalling,
Routing, Numbering, Charging and Synchronization and other standards
the Commission may prescribed.
6. The applicant shall install public toll and/or calling stations in the
municipal hall, bus terminals, commercial areas and other public places
and shall ensure that the same are operational and accessible to the
general public and to disabled persons in accordance with Batas
Pambansa Bilang 344 (Accessibility Law) and its implementing rules
and regulations.
TELCOS’ compliance with these conditions follow:
Province Carrier/TELCO 1 2 3 4 5 6
Camarines Sur Bayan Telecommunications / x x / / /

L. M. United / x x / x x
Bicol Rural Telephone / x x / x x
Digital Telecommunications / x / / x /
Iriga Telephone System / x x / x /
Santos Telephone Corporation / x / / x x
Batangas City GMCR (GLOBE) / x x / x /
Continental Telephone System / x x / x x
General Telephone System / x x / x x
Digital Telecommunications / x / / x /
West Batangas Telephone System / x x / x /
PLDT / x / x /
Legend: / - complied ; x – not complied
48
REGULATIONS
This tabular information shows that:
• All the twelve (12) authorized Carriers/TELCOs were not submitting

the Quarterly Statistical Report to the Regional Office and to CCAD;
• Eight (8) Carrier/TELCOs were not maintaining the Reserve Fund for
depreciation. Compliance by these operators to the required standards
could not also be confirmed as they were not submitting reports.
• Eleven (11) authorized Carrier/TELCOs were not visited by NTC

during CYs 2002 and 2003.
Under this condition, any deficiency in the performance of TELCOs was

not appropriately acted upon at the expense and inconvenience of the
subscribers. In the absence of any report and the required validation, the
NTC would not be in a position to assess compliance by telecom operator
to the prescribed service performance standards. The NTC could even
use the statistical reports in deciding whether or not to grant authority
for additional lines, network expansion and upgrading of facilities and/or
cancellation of CPCN.
The team also noted that there was no penalty provided in any NTC
regulation for failure to submit reports on service performance. The
absence of any regulation to that effect would not provide guidance to
NTC officials on the appropriate action to be taken and may result in
inconsistent decision. Also, absence of any sanction or penalty for non-
compliance of requirements/regulation is conducive to commission of
violations and non-adherence to regulations by telecom operators.
It may be true that no sanctions were The team appreciates the actions
imposed on operators not submitting taken by NTC. However,
reports because sanctions provided by law considering the apparent disregard
is too light, only P200/day of violation of TELCOs on some regulations,
until the infraction is corrected. the NTC should consider imposing
Furthermore, the upgrading of facilities to more stringent sanctions to ensure
digital technology and the competition strict compliance.
environment improved the service
performance of the telecom players. The
Commission is consistently reminding the
players of their obligation to submit
performance reports.
49
Chapter III
Timely Compliance with Laws, Rules and

Regulations
50
TIMELY COMPLIANCE WITH LAWS, RULES AND REGULATIONS
INTRODUCTION
Laws are promulgated and rules and regulations are prescribed to establish
order in the performance of certain function and activity and ensure the
attainment of an objective or target. A timely action is recognized as an
important element in ensuring the effective discharge of any given function.
These laws and regulations provide parameters and deadline for its
implementation.
The audit revealed that the protracted time table for NTC to resolve
interconnection issues from the prescribed thirty days to several years
unnecessarily exposes telecommunications users to inconveniences in terms
of added cost and longer time to connect calls.
OBSERVATION
The NTC failed to resolve interconnection issues within the

prescribed period of 30 days. As a result, subscribers of
interconnecting parties are burdened with paying toll charges for
calls across networks made within the same locality.
It is mandatory for all duly authorized public telephone entities to

interconnect with one another in a timely fashion. Interconnection should
enable subscribers or customers of two public telephone entities to
communicate with each other.
In the exercise of its duty to enforce interconnection among disputing

telecommunications carriers, the NTC shall take into account the following,
among others:
• the interest and convenience of the public;

• the necessity of interconnection;
• the desirability of stimulating innovative market offerings and of providing
users with a wide range of telecommunications services both at national and
local level;
• the availability of technically and commercially viable alternatives to the
interconnection requested;
• the desirability of ensuring equal access arrangements;
51
• the need to maintain the integrity of the public telecommunications network

and the interoperability of services;
• the nature of the request in relation to the resources available to meet the
request;
• the relative market positions of the parties;
• the promotion of competition; and
• the need to achieve and maintain universal access.
To ensure smooth interconnection activities, the NTC prescribed under MC

14-07-2000 the general framework for interconnection. The procedures for
negotiation, arbitration and approval of interconnection for basic or enhanced
interconnection were set as follows:
• Proceeding for compulsory arbitration may be initiated motu proprio by the

NTC against the parties or by any formal petition by any interested person/s
or local government unit where the parties operate should they fail to reach
an agreement within the ninety (90) day period above-provided.
• Immediately thereafter, the NTC shall assume jurisdiction over the case,
immediately direct the provisional interconnection of the parties’ networks
and declare the terms and conditions, commercial, technical or otherwise,
that shall govern the interconnection of the parties.
• The NTC shall immediately notify the parties thereof and serve upon them
copies of the petition or complaint with an order directing them to file their
respective responsive pleadings within a non-extendible period of (10) days
from receipt thereof.
• The case shall be deemed submitted for resolution after the filing of the
responsive pleadings, unless the NTC determines the need for the parties to
file reply and rejoinder, in which case the matter is deemed submitted for
resolution upon the filing of the latter pleading.
• In all other cases the proceedings may be commenced by the filing of a

verified petition by a party with supporting documents and papers and must
contain the following;
¾ the names of the parties,

¾ unresolved issues and respective position of the parties with respect to
those issues ; and
¾ other matters related to the interconnection that the parties may wish to
submit for resolution.
• The respondent shall file its answer to the petition within a non-extendible
period of ten (10) days from receipt of a copy thereof and provide additional
information as it deems necessary for the expeditious resolution of the
matter. After the lapse of ten (10) days, the case is deemed submitted for
resolution regardless of whether or not the respondent was able to file its
responsive pleading; and
52
• Within a period of thirty (30) days from the time it is submitted for
resolution, the NTC shall resolve the petition through the issuance of an
Interconnection Mandate ordering the parties to interconnect with each other
under such terms and conditions set by the NTC. The resolution shall be
final and immediately executory.
Based on these schedules, all cases brought before the NTC should have been
resolved within 60 days as the period of submission of pleadings and answers
to petition of 10 days each were both non-extendible. Records, however,
showed that cases filed with NTC as early as March 2000 remained
unresolved as of December 1, 2004 for the following reasons which could be
considered within the NTC’s power to decide:
Brought into the

Parties attention of the Reason for the Impasse
NTC on
Digital March 2000 Disagreement on the sharing of cost

Telecommunications, Latest action taken: of interconnection, inclusion of toll
Philippines and Radio Meeting was held on interconnection and technical issue
City Telecommunications, April 24, 2004 between on point of interconnection.
Pandayan Meycauayan interconnecting parties.
Bulacan
Digital November 4, 2002 No information on file on the failure

Telecommunications, Latest action taken: to negotiate. Team was informed
Philippines and Pampanga Send memorandum to that PLDT imposed upon Pampanga
Telephone Company both carriers for a Telephone Company that
(PTC) meeting. interconnection with Digitel should
be local interconnection only and
not to include IXC. PTC is
interconnected with PLDT’s IXC.
The condition is not acceptable to
Digitel.
Digital July 2000 Irigatel imposed condition before

Telecommunications, ADM. Case No. 2002- entering into an interconnection
Philippines and Iriga 130 NTC versus Digitel agreement with Digitel
Telephone Co., Inc., and Irigatel
NTC directed the (Condition: Digitel should prioritize
respondents to faithfully interconnection with other
comply with their PAPTELCO before interconnecting
agreement to with Irigatel).
interconnect.
Meantime, such situation exposes the subscribers to inconvenience and

unnecessary toll charges for calls within the locality. In addition, the slow
pace arbitration mechanism would threaten the viability of small local
53
exchange operators and discourage new entrants as subscribers would

definitely favor dominant operators.
The 30-day period is directional. There The team agrees that there maybe cases
are interconnection cases brought before that could not be resolved within 30
the NTC that present issues that cannot days. However, requiring subscribers to
be resolved within the 30-day period. wait for as long as four years can be
considered disservice.
As documented in the report, there were

cases filed as early as March 2000 which
remained unresolved as of December
2004.
54
Chapter IV
Sound Monitoring Mechanism
55
SOUND MONITORING MECHANISM
INTRODUCTION
Monitoring of performance is one of the important aspects in promoting good

governance. However, only the presence of an effective monitoring system
would ensure that rules and regulations are adhered to, prescribed standards
are met and objectives are attained. Monitoring provide assurance and
feedback on whether program objectives are being achieved efficiently and
effectively. It provides information on how to further enhance effectiveness
and the reason why the desired objectives were not attained at the targeted
time. It also provides an ongoing check on the effectiveness of the control
measures.
Timely and accurate monitoring of the operations of the telephone companies

gives assurance that the public received the mandated service it deserved
under a liberalized telecommunications environment.
Monitoring reports required by NTC from telecommunication companies

include:
Frequency of
Rules and Regulations Requirements Monitoring
NTC Memorandum Quarterly Reports on National Quarterly

Circular 10-17-90 on the Service Performance of
National Service Telecommunications Carriers
Performance for
Telecommunications
Carriers
NTC Memorandum Quarterly Report on National Quarterly
Circular 07-06-2002 on Service Performance of Cellular
the National Service Mobile Telephone System
Performance on Cellular
Mobile Telephone System
Certificate of Public Quarterly Statistical Report Quarterly
Conveyance and Maintenance of the 5% of the
Necessity/Provisional value of depreciable property used
Authority (CPCN/PA) and useful in the operation to a Yearly
Reserve Fund
Submission of the Financial Yearly
Statement not later than March 1st
of each year Quarterly
Ocular inspection by the Technical
Staff of the NTC on the telephone
system/network
56
Frequency of
Rules and Regulations Requirements Monitoring
NTC Memorandum Interconnection of all Local Quarterly
Circular 9-7-93 on the Exchange Operators at the
Implementing guidelines Municipal Level
on the Interconnection of
Public
Telecommunications
Carrier
Office Order No. 27-04- Act on complains received from As complains are
2002 creation of the One the general public regarding the received
Stop Public Assistance services of the NTC
Center (OSPAC)
To facilitate the resolution and disposition of all complains filed before the
NTC, One Stop Public Assistance Center was created to perform the
following:
• Receive/Accept complaints of any kind from the public affecting the

services of the Commission;
• Determines the nature of the complaints and act and/or forward the same in
accordance with the systems and procedures stated in the Office Order;
• Provide assistance to the public relating to cell phone blocking or give

information relative thereto;
• Coordinates and consults with NTC Regional OSPAC Offices, DOTC and
DTI and other agencies of the government involved in Consumer Welfare
Protection to facilitate the required action on a particular matter at hand and
for mutual assistance; and
• Perform such other duties and functions that the Commission may authorize
from time to time.
Complaints received are resolved or acted upon by the OSPAC in accordance

with the agreements entered into with the telecom carriers, Philippine
National Police and other concerned signatories. Each regional office of the
NTC has an OSPAC unit and submits report to the NTC Central Office.
The audit revealed that NTC was not monitoring the implementation of the
approved rate considering the 12% rate of return under the return on rate base
methodology. Thus, some telecommunication companies enjoyed a rate of
return of as much as 29%.
The team further noted that NTC-Regional Offices No. IV and V did not
maintain data base of network facilities of telecommunication providers under
57
their jurisdiction. This hinders the effective monitoring of illegally installed

and operated facilities and inefficient equipment.
OBSERVATIONS
1. The effect of approved rates on the return on investment of

telecom operators was not properly monitored. Thus, while the
NTC approved the request of TELCOs for across the board
increase considering the 12% return under the return on rate
base, some telecommunications companies enjoyed a rate of
return of as much as 29%.
Except for paging system and value-added services, rates for

telecommunications services are regulated under existing laws and
regulation. Paging is no longer considered as basic telecommunication
service on account of the emergence of more efficient technology such as
mobile phones while value-added services are only incidental to the
provision of basic services. Hence the rates are deregulated. The
regulated services include:
• Local exchange
• Cellular mobile telephone
• Public trunk repeater
• International gateway facility
• Satellite
• International record carrier
• Domestic record carrier
• Very small aperture terminals
• Public coastal
• Radiotelephones
To carry out this function, the NTC was required under MC 8-9-95 dated
September 25, 1995 implementing RA 7925 to reestablish rates and tariff
setting procedures in order to arrive at rates and tariffs which are fair and
reasonable and which provide for economic viability of
telecommunications entities and a fair return on investments considering
the prevailing cost of capital in the domestic and international markets.
Apparently, as of December 2004, the NTC was not yet able to establish
the appropriate rate setting methodology despite technical assistance from
foreign consultants. Inquiry disclosed that AGILE, the consultant, left the
58
project incomplete as their term of contract with the project’s principal

had expired. It maybe mentioned that the project was financed from a
foreign aid and that NTC was only a project beneficiary.
In the absence of new rate setting methodology, the requests of TELCOs

for across the board increase in rate was approved taking into
consideration the 12% rate of return under the RORB methodology. The
return on investment (ROI) was based on the submitted financial
statements without further validation or verification. This is particularly
true in the case of the request dated January 27, 1998 of the Philippine
Association of Private Telephone Companies, Inc. (PAPTELCO)
composed of 41 independent private telecommunication companies,
providing local exchange services throughout the country for domestic
local calls. The petition for rate increase was premised on the following:
• Decreasing revenue shares in the decreasing international accounting

rates;
• Increasing minimum wages mandated by Regional Wage Boards in their
respective service areas;
• Unforeseen depreciation of the Philippine peso;
• Upsurge in the capital and operating cost; and
• Unbridled ruinous competition in their respective service areas.
They claimed that these factors have adversely affected the financial
operations of member companies affecting their viability. The increase
applied for then was intended to counter the adverse financial effects and
at the same time, finance the expansion, improvement, modernization and
maintenance of their respective local exchange facilities to ensure
continued cost efficient and satisfactory service to the general public.
The NTC then evaluated PAPTELCOs application by computing the

respective ROI of member companies using the RORB Methodology. As
computed by the NTC, using 1998 or 1999 Annual Reports, of the 41
companies, only one was generating an ROI above the authorized 12%.
All others reflected negative ROI or far below the authorized 12%. Thus,
the application for increase was approved under case No. 98-023.
LEC service providers operating on a national scale such as PLDT,

Smart, Bayantel, and Globe also filed their petitions for rate balancing as
early as 1997, for the following reasons:
Company Reasons for Petitions NTC Action

PLDT International toll rates have • Grants PLDT a
been subsidizing local Provisional Authority
telephone service, however, (PA) on November 10,
with the pronouncements of 1997 under Case No. 97-
59

Federal Communications • 039 to rebalance its rates
Commission (FCC) of USA for international and
on the inevitable radical domestic toll and local
reduction in international toll service.
accounting rates, rates for • In approving the rates of
domestic toll and local P60 and P90 for
exchange service must be residential and business
restructured to make up for subscribers, NTC
the shortfall in revenues to considered the
maintain the viability of the following:
LEC service. ¾ 12% ROI on the
appraised value
plant account
¾ 82%, 12% and 6%
of plant account was
allocated to LEC
network, domestic
toll network and
international toll
network,
respectively.
¾ Allocation used for
expenses are 56%,
14% and 30% for
LEC, national toll
and international toll
networks
respectively.
¾ Residential to
business subscribers
ratio was 65:35
SMART • IGF’s ability to subsidize • Grants SMART a PA on
LEC was affected by March 28, 2000 under
FCC’s pronouncements to Case No. 98-074 to
reduce international toll rebalance its rates for
accounting rates and is international and
threatened by the domestic toll and local
operations of ISR and service.
VOIP. • The approved rate
• The company’s ROI on increase is P67 and
CMTS operations as of P141.50 which
December 31, 1998 is only represents 15.20% and
8.18%, hence, it can’t 15.50% of the existing
provide subsidy to LEC rates for residential and
service. business consumers,
respectively.
60

Financial study submitted
by SMART was premised
on the 12% ROI.
SMART • IGF’s ability to subsidize • Grants SMART a PA on
LEC was affected by March 28, 2000 under
FCC’s pronouncements to Case No. 98-074 to
reduce international toll rebalance its rates for
accounting rates and is international and
threatened by the domestic toll and local
operations of ISR and service.
VOIP. • The approved rate
• The company’s ROI on increase is P67 and
CMTS operations as of P141.50 which
December 31, 1998 is only represents 15.20% and
8.18%, hence, it can’t 15.50% of the existing
provide subsidy to LEC rates for residential and
service. business consumers,
respectively.
• Financial study
submitted by SMART
was premised on the
12% ROI.
BAYANTEL • Cross subsidy that is • Grants Bayantel under
envisioned by RA 7925 to Case No. 97-055 dated
be generated from July 19, 1999 an
international operations authority to increase its
which is supposed to monthly recurring rates
support the LEC service for LEC service as
has substantially decreased follows:
due to reduction in ¾ A minimum of P20
international accounting and maximum of
rates. P99.16 for
• The company must residential
generate sufficient revenues subscribers
from LEC service to sustain ¾ A minimum of P75
the company’s LEC and maximum of
operations and to bring the P159.15 for business
said rates closer to the subscribers
actual costs of the service ¾ A minimum of P100
and considerably lessen the and maximum of
need for cross-subsidy from P199.60 for the 1st
other services, notably and 2nd trunklines.
international toll service. ¾ A minimum of P100
and maximum of
P189.99 for the 3rd
and subsequent
trunklines.
61
• NTC adopted the

allocation used in PLDT
for plant account and
operating expenses as
both companies offers
the same services.
• Residential to business
subscriber ratio is 80:20.
• A 12% ROI on appraised
and historical value of
plant account was
considered in computing
the maximum and
minimum amount of
increase, respectively.
GLOBE • The inevitable reduction in • Grants Globe a PA on
international toll accounting February 7, 2000 under
rates lead to reduction in the Case No. 98-036 to
available subsidy for the restructure its rates for
company’s LEC service. international and domestic
• The company is applying for toll and local service.
an increase of P62 and P260 • The increase shall be
for residential and business implemented in two phases.
subscribers or an increase from An increase of P43 (15% of
P286 to P348 and from P588 authorized rates) and P250
to P848 for residential and (26% of the authorized
business subscribers rates) for residential and
respectively. business subscribers
respectively, to be
implemented 30 days from
date of Order and another
increase of P19 and P110
for residential and business
subscribers respectively, to
be implemented after seven
months from date of Order.
• For trunkline charges, the
increase shall be 26% of the
authorized trunkline rates
except for the residential
trunkline, the approved rate
of which shall be P848 for
the first and second
trunkline and P842 for the
third and up trunklines. For
all other rates groupings,
similar percentage increase
shall be authorized to
applicant.
62
• The applicant shall be

allowed to design its own
rates restructure for national
long distance service within
the range of P3 to P6 per
minute similar to what
where authorized to PLDT
and Bayantel.
• For operator assisted
international services, the
rates shall be within the
range from US$1.00 to
US$5.22 per minute.
• The cost was allocated
following the method used
in evaluating PLDT and
Bayantel petitions.
The rates imposed by these companies before and after rebalancing

follows:
PAPTELCOS
Authorized Rates
ROI
Before After
Company prior to Remarks
rebalancing rebalancing
rebalancing
Res. Bus. Res. Bus.
1. Banahaw Tel. Co. 0.23% 110.00 170.00 148.50 229.50
2. Bataan Tel Exchange .034%
3. Bicol Tel &
Telegraph Inc. 1.87%
4. Bicol Rural Tel Co. 3.19% 220.00 385.00 297.00 519.75
5. Calapan Tel System Has separate
Inc. application
6. Calbayog City Tel
System 0.21% 220.00 385.00 297.00 519.75
7. Camiguin Tel Coop
Inc. (6.39%) 200.00 400.00 270.00 540.00
8. Continental Tel.
System Inc. (2.23%) 220.00 385.00 297.00 519.75
9. Cruz Tel Co. Inc. 1.02% 220.00 385.00 297.00 519.75
10. Danao Tel Co. Hold subject to
submission of
docs
11. General Tel System
Inc. 1.28% 220.00 385.00 297.00 519.75
12. Independent Tel Co.
Inc. 12.34%
63
PAPTELCOS
Authorized Rates
ROI
Before After
rebalancing
Res. Bus. Res. Bus.
13. Ipil Telephone Co.
Inc. 2.10%
14. Iriga Tel Co. Hold subject to
submission of
docs
15. Labo Tel System 7.25%
16. Lukban Tel System
Inc. 0.53% 220.00 385.00 297.00 519.75
17. LM United Tel
System 1.93% 220.00 385.00 297.00 519.75
18. Maranaw Tel Co 2.47% 220.00 385.00 297.00 519.75
19. Marbel Tel System
Inc. 10.97% 220.00 385.00 297.00 519.75
20. Mati Tel Corp (2.76%) 220.00 385.00 297.00 519.75
21. Mayon Tel Corp Hold subject to
submission of
docs
22. Midsayap Com.
System Corp. 0.46% 150.00 250.00 202.50 337.50
23. Northern Camarines
Tel Co 0.76%
24. Northern Tel Co 5.72%
25. Ormoc Tel Co. 0.11% 55.00 133.00 74.25 179.55
26. Pampanga Tel Co Has separate
application
27. Panay Tel Corp 5.97% 220.00 385.00 297.00 519.75
28. Panay Tel Co II 2.35% 200.00 315.00 270.00 425.25
29. Princess Urduja Hold subject to
Com Inc. submission of
docs
30. Radio City Tel Co (14.89%) 75.00 105.00 101.25 141.75
31. Romblon Tel Co 3.49%
32. RC Yulo Tel
System 2.18%
33. San Carlos City Tel
System-Negros Occ 1.98% 220.00 385.00 297.00 519.75
34. San Carlos City Tel
Co-Pangasinan 2.74% 220.00 385.00 297.00 519.75
35. Santos Tel Corp 1.93% 200.00 315.00 270.00 425.25
36. Southern Iloilo Tel
Co. Inc. 2.83% 220.00 385.00 297.00 519.75
37. Southern Tel Co. 1.08% 220.00 385.00 297.00 519.75
38. Sultan Kudarat Tel
System Inc 1.11%
39.Telecommunications (11.34%)
Mgt. & Services
40. Victorias Tel Sys 1.21%
64
PAPTELCOS
Authorized Rates
ROI
Before After
rebalancing
Res. Bus. Res. Bus.
41. Western Batangas
Tel System
NATIONAL OPERATORS
Authorized Rates
ROI
Before After
rebalancing rebalancing rebalancing
Res. Bus. Res. Bus.
Phil. Long Distance Tel
Co. (PLDT) 8.15% 326.41 728.30 386.41 818.30
Smart Communications IGF – 25.19% ROI was
Inc. (SMART) CMTS-8.18% computed per
LEC-not 440.30 913.44 507.30 1054.9 service based on
disclosed 4 cost allocations
While national operators who are likewise CMTS/LEC operators do not

earn significantly from LEC operations, they are at present earning from
their Short Messaging Service (SMS) also known as texting. SMS is not
regulated as this is considered only as a value-added service. The voice
messaging is the one being regulated.
Originally, there were seven companies that were granted authority to

operate cellular mobile telephone service. This was reduced to five in
view of mergers of Piltel with Smart and Islacom with Globe.
However, out of five operators, only three are currently actively
operating, namely:
Company Brand Names

Smart • Smart Buddy
• Talk n Text
Globe • Globe
• Touch Mobile
Digitel • Sun Cellular
Bayantel has yet to start operations while Extelcom was not able to up-
grade its CMTS facilities and thus opted to concentrate on its wireline
operations.
65
Review disclosed that despite mergers, CMTS operators’ Financial

Statements are not consolidated but are being prepared individually.
Review of Financial Statements for CY 2003 disclosed that they have
generated the following net revenues:
Piltel Innove
Smart (Talk n Text) Globe (Touch Mobile)
Basic Local 118,698,455 430,627,999 1,633,136,240 1,148,871,252

Service
Interconnection 15,058,779,093 1,656,967,047 15,419,378,625 2,510,861,009
Access
Long Distance 262,763,532 709,438,617 5,750,664,943 385,513,207
Network
Other Services 9,860,844 288,754,410 69,559,764
Cellular 39,929,992,188 9,301,836,436 31,549,396,788 2,351,751,706
Mobile Service
Trunking 3,053,320,577
Service
Other Operating 171,542,433
Income
Misc. 4,920,125,448 173,480,349 3,336,013,018 17,158,378
Operating
Non-operating 439,800,045 9,887,111 1,072,003,883
income
Total 60,730,158,763 12,292,098,402 57,977,344,024
Revenues
Total Cost & 45,356,873,005 15,223,061,478
Expenses
Net Revenue 15,373,285,758 (3,010,271,144) 10,345,253,024 3,632,162,253
The financial profile of Sun Cellular was not included in the tabulation as
it only launches its operations in 2003. Thus, the results of its operations
may not yet be comparable with other operators.
It can be gleaned that greater percentage of the revenue was derived from
Cellular Mobile Telephone Service (CMTS) operation which is composed
of:
Smart Globe Innove

Revenues
Amount % Amount % Amount %
Airtime fees- 18,230,347,112 45.66 8,637,650,313 27.39 1,127,093,557 47.92
local
International 1,007,571,109 2.52 1,923,759,213 6.10
roaming
Text 20,244,384,699 50.70 16,085,439,709 50.98 1,240,809,696 52.76
messaging
fee
Registration 181,182 - 119,000 -
Fees
66
Smart Globe Innove

Revenues
Amount % Amount % Amount %
Subscription 447,508,086 1.12 4,629,302,282 14.67
Revenue
SIM Card 273,126,271 0.86 (16,151,547) (0.68)
Revenue
Total 39,929,992,188 100.00 31,549,396,788 100.00 2,351,751,706 100.00
Of the total CMTS revenue, 50.70% to 52.76% account for text

messaging which is a deregulated service.
The team noted that while the NTC considered 12% as the authorized rate
of return, it was not monitoring the implementation of the approved rates
to ensure that revenue generated are within the ROI level. This condition,
in effect allows the company to earn unlimited return at the expense of
the subscribers.
Considering the revenue for value-added services, the ROI of selected

telecommunications companies based on their Financial Statement for
2003 using the RORB Methodology ranges from 12% to 29%, as
tabulated below:
Smart Globe Innove

Property and Equipment 47,302,518,591.00 81,077,874,416.00 19,867,703,423.00
Total Operating Expenses 38,793,951,425.00 38,246,100,423.00 6,921,539,545.00
1/6 of Operating Expenses 6,465,658,570.83 6,374,350,070.50 1,153,589,924.17
Invested Capital 53,768,177,161.83 87,452,224,486.50 21,021,293,347.17
Net Income 15,373,285,758 10,345,253,024.00 3,632,162,253.00
ROI= Net Income/Invested
Capital 29% 12% 17%
Included in the computation are provisions for certain expenses not

allowable under the RORB principle, such as:
Smart Globe Innove

Non-operating
expenses such as
interest and
provision for income P3,264,499,483 P7,432,934,996 P3,632,162,253
tax considered in the
calculation of Net
Income
Taxes and non-cash
items included in the 14,565,708,811 10,947,676,699 2,221,104,691
computation of
invested capital
67
The ROI of Globe was adversely affected by providing annual fee of

P369 million for Innove’s CMTS equipment and capacity provisioning
fee of P9.34 billion.
Section 17 of RA 7925 provides “The As discussed in the report, the NTC

Commission shall establish rates and approved the rates under the RORB
tariffs which are fair and reasonable and Methodology. As this is the
which provide for the economic viability methodology used, it is but proper for
of telecommunications entities and a fair NTC to monitor compliance thereof.
return on their investments considering
the prevailing cost of capital in the
domestic and international markets.
The Commission shall exempt any

specific telecommunications service from
its rate or tariff regulations if the service
has sufficient competition to ensure fair
and reasonable rates or tariffs.
It is clear from this provision that when

there is sufficient competition, the
market dynamics shall determine the
rates or tariff. The Commission has
identified trunked radio service in
addition to value added service and radio
paging service as having sufficient
competition and has deregulated the
rates.
The Commission has identified other

telecommunications services as having
sufficient competition but the
implementation of the MC covering such
services has been restrained by the
Regional Trial Court of Quezon City.
In approving applications for rates the If this is considered the maximum, the
Commission uses the 12% rate of return more that NTC should monitor that the
on rate base as basis in initially setting operators’ ROI do not exceed 12%.
the rates. When there is competition in
the service said initial rates shall be
treated as maximum. Any decreases in
rates shall no longer require quasi-
judicial proceedings but approvals
through administrative process.
68
2. The Regional Offices did not maintain data base on network

facilities of each telecommunication provider. This hinders the
effective monitoring of illegally installed and operated facilities
and inefficient equipment.
The Regional Offices conduct monitoring activities and inspection of

telecommunications equipment upon instruction of the Central Office and
for the following purposes:
• To reprimand operators of hand held or two-way radios who were

operating without a valid license issued by NTC;
• To validate interference complaints filed by radio stations;
• For licensing of Radio Base Stations (RBS) of CMTS operators and

microwave links of both CMTS and local exchange operators. The
inspections are limited to the determination of equipment type/brand
and serial number as there is no equipment to detect/test interference
that may arise as a result of said installations. Interference problems
were, however, addressed whenever there was interference complaint;
and
• To validate the reported local exchange lines installed by CMTS and

IGF operators who were required to install 400,000 and 300,000 lines,
respectively, in compliance with EO 109. The validation of the installed
lines was required prior to the issuance of CPCN.
The team, however, noted that while the Regional Offices were in-charge
of monitoring the activities of telecommunication providers within their
respective jurisdiction, they did not maintain data base on network
facilities of each telecommunication provider. They are therefore not
aware on the magnitude of telecommunications facilities operating within
their area. This condition hinders effective monitoring and detection of
illegally installed units and inefficient equipment causing interference to
other operators to the detriment of public service and posing risks on the
viability of competing carriers. It must be mentioned that among the
responsibilities of the NTC are protecting public interest and sustaining
competitive market environment.
This was particularly observed by the team during inspection conducted

to confirm lines installed by LEC operators as reported to NTC-Central
Office in the provinces of Camarines Sur and Batangas. The team was
accompanied by representatives from the Regional Offices No. V and IV.
69
Ideally, during the said inspection, the Regional Offices’ representative

would validate and confirm from their record the total equipment installed
to ensure that all existing equipment of the providers are licensed, all
licensed equipment are efficiently operating and would not cause
interference with the operation of other competing providers or other
users of frequencies. This could, however, not be undertaken as there is
no record of all equipment licensed per operator.
The team confirmed the following lines installed by operators in each

municipality in the provinces of Camarines Sur and Batangas, viz:
CAMARINES SUR
LM Bicol
Exchange Bayantel Digitel Iriga United Santos Rural Telof
Tel Tel Tel
Baao 240 750

Bato 750
Bula 200
Calabanga 640 1500
Canaman 2000
Dolorosa 400
GOA 640
Iriga 1000 3000
Lagonoy 640
Libmanan 350 560
Magarao 416 400
Milaor 1000
Nabua 1000
Naga City 12839
Ocampo 240
Pacol 256
Pamplona 2000
Pili 1264
San Jose 300
Sipocot 351 568
Tigaon 451
BATANGAS CITY
West Continental General Tel
Exchange Globe Digitel Batangas Tel Tel System System PLDT
System
Agoncillo 1500
Balayan 3498 2700
Batangas City 9462 10,172
Bauan 2281 4,316
Calaca 1000
Calatagan
Cuenca 1184
Ibaan 1740
Laurel
Lemery 1746 1000
Lian 347 1700
Lipa City 7,100 8528 11,662
Mabini
70
BATANGAS CITY
West Continental General Tel
Exchange Globe Digitel Batangas Tel Tel System System PLDT
System
Malvar
Mataas
Kahoy
Nasugbo 2585
Padre Garcia 1600
Rosario 3190
San Jose 1,888
San Juan 384 2600
San Nicolas 1200
San Pascual
Sto. Tomas 2088
Taal 630
Tanauan 5,000
Tuy 400 216
Alitagtag 1,264
Talisay 730
Punta Fuego 288
The validations on the installed lines of Globe were limited to its

installation in Lipa City. Of the reported 26,104 local exchange lines
installed thereat, only its RSU installation of 3,500 lines was validated.
Inquiry from the carrier’s technical personnel revealed that there were
nine Digital Line Concentrator (DLC) boxes installed within Lipa City
with a maximum capacity of 400 exchange lines each or a total of 3,600
lines, bringing the total installation to about 7,100 (3,500 + 3,600) lines
only or a deficiency of 19,004 (26,104 – 7,100) lines.
It must be noted that Globe’s compliance with the provisions of EO 109

was among the conditions for the grant of its consolidated CPCN as
authorized LEC, IGF, and CMTS operator. The inaccurate report may
also affect the NTC’s decision relative to the deregulation of the industry.
71
Part IV
Recommendations
72
RECOMMENDATIONS
AUDIT OBJECTIVE
In order to address the noted observations in the discharge of its

regulatory functions and ensure the protection of the public and
viability of regulated entities, the team recommends the following
courses of action:
1. Ensure that effective competition is in place. Award of spectrum,

actions on applications for mergers and grant of additional
spectrum should take into consideration the effect on competition.
2. Formulate interconnection cost-based methodology and enforce

compliance by TELCOs on interconnection guidelines. Meanwhile,
immediately resolve interconnection issues and ensure that
interconnection is effected. Impose penalties on
telecommunication operators for willfully refusing to interconnect
their network with the other network operating within a specific
locality.
3. Ensure that approval of new CPCNs will not result in additional

unsubscribed lines. For existing CPCNs, require the TELCOs to
maximize the use of available lines before installing additional
lines as all these charges would eventually be passed on to the
users.
4. In addition to the performance standards prescribed for CMTS

under NTC Memorandum Circular 07-06-2002, develop standards
to ensure quality of service. Conduct periodic surveys through
opinion polls to assess customers’ perception on the quality of
services being provided by the operators.
5. Establish guidelines on monitoring compliance by the operators

with the requirements set forth in the CPCN/PA including
submission of quarterly report on network performance.
6. Implement and enforce specific sanctions and penalties for failure

of operators and service providers to meet prescribed network
performance standards including submission of reports thereon
and all other conditions set forth in the CPCN/PA. The specific
73
RECOMMENDATIONS
sanctions should take into consideration fairness and timeliness of

implementation.
7. Validate and evaluate the impact of the approved rates on the ROI
of the operators and ensure that the rates are still relevant and
remained reasonable to the end users. Meantime, establish a rate
setting methodology appropriate under existing condition.
8. Expedite the process of maintaining data base on network

facilities of each operator and service providers to enhance
effective monitoring of all facilities and equipment subject to
licensing by the NTC. An accurate data base will provide the
regulator with real-time information in determining the volume,
location and specifications of all equipment subject to periodic
licensing/renewal and the projected income that may be derived
from their operations.
74
Submitted in compliance with COA MS and TS Office Order Nos. 2004-033
and 2004-033A dated July 7, and September 16, 2004, respectively.

Regulatory Functions: National Telecommunications Commission

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Regulatory Functions: National Telecommunications Commission

Uploaded by

Copyright:

Available Formats

Management Services

Report No. 2004 – 05B

October 28, 2005

ATTY. RONALD OLIVAR SOLIS

We are pleased to transmit the report on the government-wide

We look forward to the proper implementation of the audit

We acknowledge the cooperation and assistance extended to the audit

Very truly yours,

By Authority of the Chairman:

Part I Executive Summary 1

Part II NTC’s Regulatory Functions 6

Part III Audit Observations 13

Chapter I – Development of Service Standards 14

Chapter II – Effective Enforcement of Standards,

Chapter III - Timely Compliance with Laws,

Chapter IV – Sound Monitoring Mechanism 55

These services are being regulated by the following:

Government Agency Regulated Entities

Energy Regulatory Commission (ERC) Electric Power Operators

AUDIT SCOPE AND METHODOLOGY

The audit covered the regulatory functions of the Energy Regulatory

• Development of Service Standards

• Interviewed Officers and key personnel in the Common Carrier Authorization

• Evaluated the existing standard requirements and performance standard to be

• Reviewed Certificate of Public Convenience and Necessity issued to Public

• Ascertained the grade of service provided by telephone operators by

The effectiveness of the NTC in discharging its regulatory function is

Likewise, a great number of subscribers are being deprived of interconnection

The existing fees on landline were also adversely affected by the

As the effectiveness of discharging regulatory functions affects the public

MANAGEMENT’S REACTION TO AUDIT OBSERVATIONS

NTC’s Regulatory Function

It is recognized internationally that telecommunications services are essential

The NTC is the sole government agency tasked to regulate the

THE NTC’S REGULATORY FRAMEWORK

The NTC’s supervisory, regulatory and control functions including those

Areas Supervisory, regulatory and Control Functions

On Telecommunications • Issue Certificate of Public Convenience and Necessity

Areas Supervisory, regulatory and Control Functions

As of December 31, 2003, the NTC is regulating the following telecom

Telecom Service 2000 2001 2002 2003

Local Exchange Carrier Services 77 74 73 73

LOCAL EXCHANGE CARRIER SERVICE

Installed Subscribed Teledensity

Total 81,054,329 6,557,403 3,299,352 8.09 4.07

CELLULAR MOBILE TELEPHONE SERVICE

Operator 2001 2002 2003

Operator 2001 2002 2003

THE NTC’s ORGANIZATIONAL STRUCTURE

RATE- SETTING METHODOLOGY

NTC was required to reestablish rates-and-tariffs setting procedures to arrive

Development of Service Standards

1. NTC was not able to establish the minimum number of operators

The radio spectrum is a natural resource divided into bands or ranges of

• Strict compliance by the telecommunications carriers with accepted

• Only equipment type approved by NTC shall be authorized to operate in

• All frequency assignments shall be on the basis of shared usage unless

• Frequency plans shall be adopted using standardized channel separation

• Radio frequency channels shall be assigned to minimize interference

• To define the area/distance coverage, radio station shall only be

Under these guidelines, NTC awarded 11MHz to Piltel and 10 MHz to

• A re-allocation of radio spectrum shall be conducted to optimize its use