TELEVISION

SENATE HEARING

LOCATION: SENATE OF THE PHILIPPINES

AGENDA: RENEWAL OF SMART COMMUNICATIONS FRANCHISE
SENATOR CHIZ ESCUDERO (CHIZ): …on making any statement with respect to any question we might throw out at you with respect to (inaudible) of a new franchise.

RESOURCE PERSON (RP): I agree your honor. There has been jurisprudence, in fact, which has sustained your position on that, position that is something that Philippine Competition Commission is (inaudible).

CHIZ: Where do you come from Engineer Gala?

RP: Sir it’s like this. One of the contentions in the case that involves PCC and the telephone companies involve the spectrum allocation of the 700 mhz spectrum. Given that, the COUs (inaudible). And then we have been able to show that both Smart and Globe, effectively, have 70% ownership already. And there are not enough spectrums to go on for any emerging new players.

CHIZ: No. My question is why (inaudible) PCC cannot comment on any question that you might throw on them.

RP: Sir, I believe that the PCC is unduly hampered because there are many questions with regard to competition that will be involved in the issuance of the franchise of Smart.

SENATOR GRACE POE (GP): Yes.

RP: Madame Chair. If I may Madame Chair, I really want to correct the very misleading statements made by Engineer Gala. If he were a lawyer, he would have violated his oath already for making very misleading statements in a public hearing. First of all, the gag order of the Court of Appeals does not prevent the PCC from discharging in full its duties and mandate under the law. It is merely (inaudible) to subjudice law that prevents both sides of the controversy from making public statements about the case. It does not prevent the PCC from today, or in the future, submitting any position paper on this matter. That is a completely misleading statement.

If I may, Madame Chair, in the statements made by Engineer Gala, I really thought like he was speaking like a lawyer, but given the statements that he was makin, I’m sure that he is not. First of all, in the equality clause and the franchise that we are proposing for Smart, actually contained in the law itself. If Engineer Gala read his law, he would have known that Section 23 of the Public Telecommunications Act of 1995 or Republic Act 7925 already provide for the equality clause.

If I may read in full, “any advantage, favor, privilege, exemption, or immunity granted under existing franchises, or may hereafter be granted, shall ipso facto,” automatically, if you do not understand the ipso facto means, “become part of previously granted telecommunications franchises and shall be accorded immediately and unconditionally to the grantees of such franchises: Provided, however, that the foregoing shall neither apply to nor affect provisions of telecommunications franchises concerning territory covered by the franchise, the life span of the franchise,” which is precisely why we are here before the Senate and the House, “or the type of service authorized by the franchise”. The equality clause is also contained in almost all franchises issued by Congress. So we are not asking for any special favor from Congress in this regard. It is merely a confirmation of what is already provided in the general law and in existing franchise.

Third, on the matter of tax exemption, we have not sought any additional tax exemption from the House or from the Senate, as we have clarified earlier in the proceedings your Honor. Thank you.

GP: OK. With that, I would like to, yes, Engineer?

RP: Thank you, Senator Grace. Granting that I’m not a lawyer, of course, the lawyers in here will know better than I do. But my understanding is, if a law is passed today, this law, there’s a rule called ‘implicit repeal’, if that’s what applies, if this is passed, then that means Smart will no longer have to have the privileges that once had such as Customs Duties, the exemptions of Customs Duties for its equipment they no longer need. And for the same privileges that they have enjoyed once they no longer extend, once they get their extension of the franchise if the Congress decides to extend it. So granting that I’m not a lawyer Mr. Espinosa, my point is this, it’s simple. There is already significant market power in Smart for the past 25 years, and yet you have locations like Divilacan, Isabela that do not have cellular mobile telecommunication services which we’ve seen in our submission in Congress. So with that situation, it seems clear that Smart, if to be extended, should no longer have these kinds of incentives.

CHIZ: Madame Chair, if I may, before we lead the point. Commissioner Bernabe, this is a verbatim reproduction on what is in the law right now. Is that correct?

RP: Yes.

CHIZ: So even if you remove this provision from the bill, the law would still be read in this franchise and as if it’s still be written here, right? That is unless we amend the law sometime in the future.

RP: Yes that is correct.

CHIZ: So whether it’s here or not, it doesn’t really matter unless as I’ve said, we amend the law and repeal or amend accordingly that particular provision in the existing law?

RP: That is correct your Honor.

CHIZ: So no harm, no foul ‘to? Is that what you say? Meaning sana ‘pag na-amend ‘yung batas bakit hindi, pero sa ngayon whether we put it here or not…

RP: In one perspective, (inaudible) that it is redundant because to follow your line of argument has been already in the telecoms act and there’s no need to incorporate in this particular bill.

CHIZ: Exactly whichever it may go, it’s in the matter of style.

RP: Yes, but we have to be mindful as well before we amend the Telecoms Act, then we have to make sure that this particular law will also be amended.

CHIZ: That would be the advantage.

RP: Yes.

CHIZ: When you decide to change later on, there will be no need, there’s no room for argument that will apply to them as well.

RP: Exactly.

CHIZ: Madame Chair if I may also at this point, is it Atty. Simon or Simon?

RP: Atty. Simon.

CHIZ: Simon, Simon?

RP: Yes Mr. Senator.

CHIZ: Okay. In the definition on page three, line ten. What is meant by value added services? I know Director Espinosa Rey can answer that, but I want to find out DICT (Department of Information and Communications Techonolgy) opinion. What do you mean by value added services? Because, forgive me sir I was looking at your body language earlier. You were reading the provision as Senator Recto was asking you. And you just gave the direct answer, yes you had no problem with the definition which led me to doubt whether in DICT went through this provision; word per word, comma per comma, if indeed if you were to amend existing law; The Public Telecommunications Act, you would come up with the same definition too. So what do you mean by the value added services? On line ten it says, including value added services.

RP: Good afternoon, Mr. Senator. Honestly speaking Sir, with regard to the technical aspect of this House Bill, I think it would be better answered by the NTC.

CHIZ: Both NTC and DICT and the technical, but since you’re the lawyer, the Deputy Commissioner as probably an engineer, Sir?

RP: Ah.

CHIZ: You are an engineer; I would have supposed that you talked about it already. Before you came here, you can tell us, is this an accurate and good comprehensive fair definition of the words? Of the phrases ‘Electronic Communication Service’ and ‘Electronic Communications Network’. (inaudible) Have you gone through the commas, the words, the phraseology of this definition?

RP: Yes your Honor, well value-added service as defined in Republic Act 7925, beyond services those ordinarily provided by the local exchange carrier, international carrier, the national carriers.

CHIZ: Like what Sir?

RP: It is primarily voice.

CHIZ: Like what Sir?

RP: Like any other service, except voice, it means internet access, SMS and other except voice service.

CHIZ: So is their definition correct, accurate and if you have your way would you use this definition in the general law?

RP: The network, your honors, is going to unite the network in the near future and there will be no primary or basic service under the internet protocol network, your honors. So all services carried by IP can be considered as all of them are value-added services, value-added basic services, no distinction.

CHIZ: Sir, wala na ako sa value-added ang sinasabi ko, I’ll read it to you from line 22 page 2 up to line 3 of page thr3ee. Is this how you define ‘electronic communications network’? Ganito ang definition ng NTC?

RP: Well, the definition your Honor, yes that is how it is define, your Honor.

CHIZ: Verbatim? This came from you?

RP: No your Honor. Well that one and that is how it should be defined.

CHIZ: Madame Chairman, I request the NTC and DICT to submit to us their definition of these two references: Electronic Communications Network, Electronic Communications Service to placate the concerns Commissioner Bernabe. If I may, in the future, be comprehensive – bawal mangopya.

CHIZ: Madame Chair just for the administrative matter, before we proceed may I ask if we invited the Department of Finance?

GP: We did but more on the Bureau of Customs, they were invited but the DOF is not present.

CHIZ: Can you reiterate our invitation to the DOF as we would like to hear their position on the tax provisions in the franchise. Because from what I know they took an opposing position, tama? In the House? And I want to know if that’s still their position up to now given that we intend that to file. Several tax increase measures before the Senate and the House. Thank you, Madame Chair.

GP: Noted Mr. Escudero, I would like to ask MTRC on the tax provisions that are included in the franchising.

CHIZ: With the permission of Senator Recto, may I ask Rey, why did you not enforce the equality clause?

RP: We asserted the equality clause, your Honor, but the Supreme Court looked at the language of the franchise of Globe versus ours and they could not discern a clear intent that when the Congress used the terms in any taxes in our provisions versus of that Globe, which you also use and in all taxes, but included the more detailed phrase including but not limited to national provincial local that we were being accorded the same bread of exemption.

CHIZ: So if it’s Vegas to Globe (inaudible).

RP: It was very clear as to Globe because they were saying the Supreme Court, this is exactly what the Globe tax provision meant, and they said, well there is a text called difference in the two tax provisions and…

CHIZ: So the equality clause will not apply?

SENATOR RALPH RECTO (RR): Will not apply.

RP: They did not apply equality clause, your Honor.

CHIZ: As a general rule, how do you enforce the equality clause?

RR: Regulations.

RP: Anong silbi ng deemed ipso facto if you have to go to court to enforce it? I mean, I don’t understand it.

RR: With the permission of Madame Chair, with regard to the Supreme Court ruling, it would appear that the equality clause is only applicable for regulatory purposes, regulatory agency. Now when it comes to taxation it should be explicit in the law, Congress. That is why you are writing in such a way. Any exemptions should be written down in the franchise itself. So that’s basically what it is. It has to be very clear from the intent of Congress.

CHIZ: May I ask the PCC, nagdedebate-debate pa tayo sayang naman ang laway natin sa equality clause kanina. So there is no manner or procedure or process of executing or forcing the equality clause. They have to go to court? Or any earlier issued franchisee would have to go to court to enforce the equality clauses, ganoon ba ‘yon?

RP: With the sense that it is not something that, if it is not observed, Congress can weigh in or a regulatory body can immediately weigh in then that would invite the situation where the other party would necessarily have to seek in recourse in courts

CHIZ: No, but what I don’t understand if the equality clause is clear, ha? Ipso facto, accrue to the hearing grantee and deemed part of this act as if read into the act. So, what if the provision of Smart is vague, if the later franchisee was given a better tax provision and is clearer, then that should be deemed read into this franchise too. There is no enforcement mechanism?

CHIZ: Your Honor, I think it becomes an enforcement matter at the first instance while the provisions do exists in our franchise, for instance, and in the law. But if at the regulatory agency level such as the Bureau of Internal Revenue or the BOC, do not recognize the equality clause then we have to seek recourse through the court to enforce it, which is what happened actually in the case of Davao and eventually Batangas.