III. Regulation of Public Service Flashcards
What are the elements of a franchise?
The elements of a franchise are:
* It is a special privilege belonging to an individual or corporation to do certain acts;
* The said privilege does not belong to citizens generally as a matter of common right;
* It is issued by the government;
* It is a grant or privilege from the sovereign power;
* It is legislative in nature; and
* It is subject to regulation by the State by virtue of its police power through its administrative agencies. [New Vision Satellite Network, Inc. vs. The Provincial Government of Cagayan (2021)]
What is the definition of a franchise??
A franchise is defined to be a special privilege to do certain things conferred by government on an individual or corporation, and which does not belong to citizens generally of common right. [New Vision Satelite Network, Inc. v. Provincial Gov’t of Cagayan]
Distinguish between a general (primary) and special (secondary) franchise.
GENERAL OR PRIMARY
* The right to exist as a corporation, by virtue of duly approved articles of incorporation, or a charter pursuant to a special law creating the corporation.
* The right is vested in the individuals who compose the corporation and not in the corporation itself. [State giving the corporation the power to act as a corporation]
SPECIAL OR SECONDARY
* The right or privileges conferred upon an existing corporation such as the right to use the streets of a municipality to lay pipes of tracks, erect poles, or string wires.
* The rights are vested in the corporation and may ordinarily be conveyed or mortgaged under a general power granted to a corporation to dispose of its property, except such special or secondary franchises as are charged with a public use. [State giving the authority to do CERTAIN ACTS]
Differentiate legislative franchise from administrative franchise.
LEGISLATIVE FRANCHISE
* granted by the Congress of the Philippines
ADMINISTRATIVE FRANCHISE
* granted by an administrative agency of the government, pursuant to the principle of subordinate legislation or delegation of legislative power.
* a special franchise directly emanating from Congress is not necessary if the law already specifically authorizes an administrative body to grant a franchise or to award a contract.
Distinguish between a franchise and a license
Distinction between franchise and a mere license or permit:
* “A ‘franchise’ is a right or privilege granted by the sovereignty to one or more parties to do some act or acts, which they could not do without this grant from the sovereign power; a privilege which emanates from the sovereign power of the state government; a branch of the sovereign power of the state, subsisting in a person or corporation by grant from the state.”
* A “license” on the other hand, confers no right or estate nor vested interest, nor does it constitute a binding contract between the parties, but it is a mere leave to be enjoyed as matter of indulgence at the will of the party granting it. It is in no sense a contract between the state and the licensee, but is a mere personal permit, neither transferable nor vendible.
A franchise is a vested right protected by the Constitution while a license is a mere personal privilege and is revocable.
[New Vision Satelite Network, Inc. v. Provincial Gov’t of Cagayan]
Distinguish between an administrative franchise and a secondary license or permit?
First, a survey of franchises recognized in jurisprudence shows that they involve:
o (i) **public utilities and common carriers;
o (ii) economic activities which are in the nature of natural monopolies, or industries where the most efficient number of operators is one or only a few;
o (iii) industries where the first entrants or incumbents have near-monopoly status **because of prohibitive fixed costs, economies of scale, and network effects, such that the first entrants or incumbent market players have a high degree of market dominance that impose an insurmountable barrier on potential entrants to enter the market and compete; and
o (iv) industries that require the use of natural resources or other scarce resources (such as the airwaves), which utilization thereof necessitates the exclusion of other persons or entities.
In the case of a financing company, lending company, virtual currency exchange operator, pawnshops, and other similar regulated entities requiring a secondary license in addition to general business and local permits, there can be** as many market players as are qualified and eligible under the specific laws regulating the business activity. This is because these entities are not engaged in industries which are natural monopolies, or industries where first entrants do not have monopoly or near-monopoly status. Succeeding market players are free to enter** the market as long as they comply with the requirements for the issuance of the administrative license to operate these businesses. Moreover, the requirement of obtaining a prior government permit to operate in these businesses is merely within the dictates of general welfare, and not because the economic reality of the industry involves scarce resources.
* Second, economic activities covered by franchises are typically charged with public use.
o The operation of a distribution utility requires the construction of poles on public and private lands, and the operation of a telecommunication network requires the excavation in the streets for the laying of cables and wires. These businesses are not simply regulated for the purpose of general welfare, but** regulated more strictly by the State** through the franchise system to regulate activities charged with public use.
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Third, the delegation of the authority to exercise the sovereign power of eminent domain is unmistakably a grant of franchise.
o This is typical in public utilities where certain public infrastructure facilities require the compulsory sale of lands and acquisition of rights of way and other properties to give way to public use.
o The power of eminent domain can only be exercised when it is for “public use,” and therefore, if a law delegates that power to a private entity, then that private entity can only exercise it for public use, which means that the private entity’s business activity itself is charged with public use.
What is the nature of a franchise?
A franchise is legislative in nature.
● It is the privilege granted by the State through its legislative body, subject to regulation by the State itself by virtue of its police power through its administrative agencies.[ABS CBN v. NTC, 2020]
May an administrative agency issue a franchise?
Yes. 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.
Our statute books are replete with laws granting specified agencies in the Executive Branch the power to issue such authorization for certain classes of public utilities.
[Albano v. Reyes, 1989]
Differentiate franchise from a CPC.
A franchise is distinguished from a CPC in that the former is a grant or privilege from the sovereign power, while the latter is a form of regulation through the administrative agencies. [Association Communicaitons Wireless Services v. NTC]
What are the requisites for the grant of a franchise/certificate of public convenience and necessity?
The requisites before a CPC may be granted:
o the applicant must be a citizen of the Philippines, or a corporation or co-partnership, association or joint stock company constituted and organized under the laws of the Philippines, 60 per centum at least of the stock or paid-up capital of which belong entirely to citizens of the Philippines;
o the applicant must be financially capable of undertaking the proposed service and meeting the responsibilities incident to its operations; and
o the applicant must prove that the operation of the public service proposed and the authorization to do business will promote the public interest in a proper and suitable manner. [Vda de Lat v. Public Service Commission (1988)] [Sec. 16(a) of the Public Service Act]
In KMU v. Garcia, why was it invalid for the LTFRB to issue a memorandum stating that “the presumption of public need for a service shall be deemed in favor of the applicant, while the burden of proving that there is no need for the proposed service shall be the oppositor’s”?
It is contrary to law. Sec. 16(c)(iii) of the Public Service Act which requires that before a CPC will be issued, the applicant must prove by proper notice and hearing that the operation of hte public service proposed will promote public interest in a proper and suitable manner.
The existence or non-existence of public convenience and necessity is a question of fact that must be established by evidence, real and/or testimonial; empirical data; statistics and such other means necessary, in a public hearing conducted for that purpose. The object and purpose of such procedure, among other things, is to look out for, and protect, the interests of both the publlic and the existing transport operators.
It also encroaches on the authortiy of the Supreme Court as it would in effect amend the Rules of Court by adding another disputable presumption in the enumeration of presumptions under the Rules of Court. [KMU v. Garcia, 1994]
What are the twin requirements of brodcast and television stations before it can commence operations?
Legislative franchise and certificate of public convenience
In ABS CBN v. NTC (2020):
- Section 6 of PD 576-A imposed an additional requirement of an authority from the Board of Communications and the Secretary of Public Works and Communications or their successors (NTC) before a radio or television station could operate.
- Divinagracia v. Consolidated Broadcasting System, Inc.: Broadcast and television stations are required to obtain a legislative franchise, a requirement imposed by the Radio Control Act and affirmed by our ruling in Associated Broadcasting. After securing their legislative franchises, stations are required to obtain CPCs from the NTC before they can operate their radio or television broadcasting systems.
- Congress has the sole authority to grant and renew legislative franchises for broadcasting entities, such as ABS-CBN, to legally broadcast their programs through allocated frequencies for the purpose.
What is the proper action to determine whether the right to enjoy the privilege of exercising a franchise has been forfeited by a non-user?
Quo Warranto.
A franchise is a property right and cannot be revoked or forfeited without due process of law. The determination of the right to the exercise of a franchise, or whether the right to enjoy such privilege has been forfeited by non-user, is more properly the subject of the prerogative writ of quo warranto, the right to asswer which, as a rule, belongs to the State.
The reaosn being that the abuse of a franchise is a public wrong and not a private injury. A forfeiture of a franchise will have to be declared in a direct proceeding for the purpose brought by the State because a franchise is granted by law and its unlawful exercise is primarily a concern of Government. [PLDT v. NTC, 1990]
May the NTC cancel the Provisional Authorities and the Certificates of Public Convenience it issued to legislative franchis holders?
No. In Divinagracia v. Consolidated Broadcasting System (2009):
While the NTC has been expressly provided to be granted the authority to issue CPC, it however, has no authority to cancel such CPCs, as well as being unauthorized to prevent duly registered franchises from operating their stations.
Quo warranto exists as an available and appropriate remedy against the wrong imputed on private respondents. If the courts conclude that private respondents have violated the terms of their franchise and thus issue the writs of quo warranto against them, then the NTC is obliged to cancel any existing licenses and CPCs since these permits draw strength from the possession of a valid franchise.
The NTC cannot, without clear and proper delegation by Congress, prevent the exercise of a legislative franchise by withholding or canceling the licenses of the franchisee.
The licensing power of the NTC arises from the necessary delegation by Congress of legislative power geared towards the orderly exercise by franchisees of the rights granted them by Congress. While Section 3(m) of the Radio Control Act of 1931 granted the power of revocation of licenses to the Secretary of Public Works and Communications, the same was not transferred to the BOC. Such power was noticeably missing from the enumerated functions of BOC. The same pattern followed when BOC was abolished by EO 546 to create NTC. E.O. 546 withheld the said authority upon the creation of the NTC, despite being authorized to issue CPCs to radio operators.
What is the limitation on Congress’s power to revoke a franchise?
Congress’s power to revoke a franchise is limited by the due process clause.
In MIPTI v. PPA (2021):
While the power to repeal a franchise is broad and plenary, it cannot be exerised arbitrarily or at whim. The Constitution expressly limits such power in that its exercise must be necessitated by “common good” or “public interest.”
The exercise of this pwoer is further limited by the due process clause of the Constitution. A franchise cannot be revoked or forfeited without due process of law.
A franchise is a property right.
