DOJ OPINION NO. 011, s.

1992 January 28, 1992

HON. NICOMEDES PETE PRADO Secretary Department of Transportation and Communications Philcomsen Building Ortigas Avenue, Pasig Metro Manila Sir : This refers to your request for opinion on the constitutionality or legality of the following privatization scheme set forth in the Bid Documents, in connection with the public bidding conducted by the Department of Transportation and Communications (DOTC) for the lease of government-owned telecommunications facilities under the Regional Telecommunications Development Project (RTDP) and the National Telephone Program Phase I Tranche 1 (NTP I-1): prcd "1.3. Privatization Scheme

a) The Department of Transportation and Communications invites the prequalified bidders to submit proposals for the lease of the RTDP and NTP I-1 facilities. The winning bidder or a corporation in which the winning bidder is a majority shareholder will enter into a lease agreement with DOTC. b) In case a non-franchised (i.e. without a franchise in the RTDP and NTP I-1 areas) firm wins the bidding the same will be given no more than 5 years to secure the necessary franchise (i.e., legislative or municipal) in the areas specified in the bidding documents. While securing the franchise, the said firm will enter into a facilities management contract that is financially equivalent (i.e., the net income after tax of the firm under the lease arrangement is the same as that under the management contract) to its lease proposal. (Bid evaluation is on the basis of the lease proposals). After the operator obtains the required approvals from the government, the management contract will be changed to a lease. If the firm fails to get a franchise after five years, another bidding will be called. If the franchise is secured within five years, the firm and the DOTC will enter into a lease contract as proposed by the same firm. (emphasis ours). You state that the privatization scheme is being assailed as illegal because the government would in effect be granting an entity a permit to operate telecommunications facilities without a legislative franchise; that the public bidding process was therefore conducted in "gross violations of the

Constitution and established policy" in qualifying non-franchised bid participants for the lease of the government telecommunications facilities; that a similar view was expressed by Senator John Osmea, Chairman of the Senate Committee on Public Service, citing Section 13 of the Public Service Act; and that the counsel of Digital Telecommunications, Inc. (DIGITEL), the winning bidder, asserts that "Sections 13 and 15 of the Public Service Act do not require a legislative franchise as a precondition to the management or operation of a public service" and that no constitutional provision or law is violated "in awarding an entity the management of telecommunications facilities, even if such entity has no legislative franchise." As we see it, therefore, the main issue is whether or not a legislative franchise is required in the management and operation of public telecommunications facilities. It is clear from the aforesaid privatization scheme that a non-franchised firm is allowed to qualify for the bidding of a public telecommunications program. In effect, a non-franchised winning bidder shall be allowed to operate and manage telecommunications facilities without the required public utility franchise from Congress. Section 11 of Article XII of the Constitution provides: "No franchise, certificate or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations organized under the laws of ;the Philippines at least 60 per centum of whose capital is owned by such citizens, nor shall such franchise, certificate or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration or repeal by the Congress when common good requires. . ." prcd The aforequoted provisions lays down the Constitutional power of Congress to grant legislative franchises to public utilities. If prescribes the "limitations in the granting of a franchise, certificates or other forms of authorization for the operation of a public utility" (Ruperto G. Martin, Phil. Constitutional Law, 1988 ed., p. 464; See also Joaquin V. Bernal, Phil. Constitution, 1988 ed., pp. 453454). That the telecommunications business is a public utility is beyond dispute. In this jurisdiction, "public utility" refers to a business or service which is engaged in regularly supplying public with some commodity or service of public consequence, such as electricity, gas, water, transportation or telephone or telegraph service. It implies a public use and service to the public (Albano vs. Reyes, 1975 SCRA 264, Footnote No. 1, at 270, citing 64 Am Jur 2d 549; North Negros Co. vs. Hidalgo, 63 Phil. 669). Its main distinguishing characteristic is that of service to, or readiness to serve an indefinite public which has a legal right to demand and receive its service or commodities (64 Am Jur 2d 549 and the cases cited therein; See also 35A words and Phrases 88). Settling the specific issue of whether Congress alone has the power to grant public utility franchises, the Supreme court, in the recent case of Albano vs. Reyes, supra, categorically decreed that: "Even if the MICP be considered a public utility or a public service on the theory that it is a 'wharf' or 'dock' as contemplated under the Public Service act, its operation would not necessarily call for a franchise from the Legislative Branch. Franchises issued by Congress are not required before each and every public utility may operate. Thus, the law has granted certain administrative agencies the

power to grant licenses for or to authorize the operation of certain public utilities. (see E.O. Nos. 172 and 202). That the Constitutions provides in Art. XII, Sec. 11 that the issuance of franchise, certificate or other form of authorization for the operation of a public utility shall be subject to amendment, alteration or repeal by Congress does not necessarily imply . . . that only Congress has the power to grant such authorization. Our statute books are replete with laws granting specified agencies in the Executive Branch to issue such authorization for certain cases of public utilities." (emphasis supplied.) As judicially construed, therefore, a legislative franchise is necessary to operate a public utility unless Congress itself has done away with such a legislative requirement and has expressly delegated the authority to grant a franchise, certificate or other form of authorizations to operate a public utility to specific administrative agencies. Otherwise stated, if there was no such statutory investiture of power upon an administrative agency then the franchising authority is retained by Congress. prcd The jurisdiction over telecommunications is now lodged in the National Telecommunications Commission (NTC) in accordance with Executive Order No. 546 dated July 23, 1979 which abolished the Board of Communications and the Telecommunications Control Bureau and transferred their functions to the NTC (RCPI vs. The National Telecommunications Commission, 150 SCRA 450). Section 15 of said Executive Order states as follows : "Section 15. Functions of the Commission the (National Telecommunications) Commission shall exercise the following functions: a. Issue Certificate of Public Convenience for the operation of communications utilities and services, radio communications systems, wire or wireless telephone or telegraph systems, radio and television broadcasting system and other similar public utilities; . . . b. Grant permits for the use of radio frequencies for wireless telephone and telegraph systems and radio communication systems including amateur radio stations and radio and television broadcasting systems; . . . (emphasis supplied). There is nothing in the aforequoted provision of Executive Order No. 15 which expressly provides or from which may be reasonably inferred the intention to dispense with the requirement of a legislative franchise. It simply speaks of NTC's mandated power to issue a "Certificate of Public Convenience for the operation of communications utilities and services." Nowhere in the Executive Order does it say that a legislative franchise shall no longer be necessary to operate communications utilities. A statute which within itself is clear should be construed as it reads (Crawford, Statutory Construction, p. 278) and, leaving no doubt as to be scope of its operation, it must be obeyed (Gonzaga vs. CA, 51 SCRA 381). The view taken herein assumes greater significance when the distinction between a franchise and a Certificate of Public Convenience is considered. A franchise is the legislative authorization to engage in a business activity or enterprise of a public nature, whereas a certificate of public convenience and necessity is a regulatory measure which constitutes the franchise's authority to commence operation (See RCPI vs. NTC, supra 450). The grant of the former should precede the issuance of the latter. Indeed, authorities are agreed that a certificate of public convenience and necessity is an

authorization issued by the appropriate governmental agency for the operation of public services for which a franchise is required by law. (Secretary of Justice, Opn. No. 163, s. 1989). In sum, Executive Order no. 546 has not dispensed with the requirement of a legislative franchise in the operation of telecommunications utilities. In arriving at this conclusion, we are guided by the familiar rule that constitute conferring powers or investing duties upon offices/agencies/officials must be strictly construed and must be treated not merely as grants of power, but also as limitations thereof; that powers should not be extended by implication beyond what may be necessary for reasonable execution; and that official powers cannot be merely assumed by administrative officers implied in relation to circumstances arising only accidentally. (Sec. Of Justice, Opn. No. 224, s. 1982, citing Sutherland, Statutory Construction, p. 273; 42 Am Jur 318; 73 CJS; Opn. No. 144, s. 1986; Opn. No. 91, s. 1989). prcd It appearing that a legislative franchise is necessary prior to the operation of communications utilities, the bid condition or privatization scheme which in effect would dispense with this legislative requirement is fatally flawed and hence null and void. This being so, the residual issue that must be addressed is whether or not bidding process premised on the privatization scheme could still be legally upheld. Addressing this residual issue, it bears emphasis that the privatization scheme is a material or substantive condition in the Bid Documents which expressly forms part of the bidded contract. It is settled that an existing law or public policy forms part of a contract without the need for the parties expressly making reference to it (LMM vs. Abiera, 36 SCRA 437). A contract awarded in a public bidding in violation of "policy of the law" is a void contract (See Maharlika vs. Tagle, 142 SCRA 553) and such contract cannot be made valid by the failure of public officers to object to it upon proper grounds (64 Am Jur 2d, p. 858). Based on all the foregoing, we hold the view that a legislative franchise is required in the operation and management of telecommunications utilities and that the public bidding in question, having been conducted in violation of this legal requirement is void ab initio. prcd Please be guided accordingly.

Very truly yours, (SGD.) SILVESTRE H. BELLO III Secretary