Whether the 90-Calendar Day Period Prescribed under Section 10.1 of Memorandum Circular No. 09-09-2018 May Be Extended

DOJ OPINION NO. 004, s. 2019 January 23, 2019 Commissioner Gamaliel L. Cordoba National Telecommunications Commission BIR Road, East Triangle, Diliman, Quezon City Dear Commissioner Cordoba : We write in response to your letter dated 11 December 2018 wherein you requested our opinion on whether the 90-calendar day period prescribed under Section 10.1 of Memorandum Circular (MC) No. 09-09-2018 1 may be extended. This query arose due to the concerns raised by Udenna Corporation (Udenna) before the National Telecommunications Commission (NTC) basically stating that it may not be able to obtain a congressional approval of sale or transfer of capital stock vesting controlling interest in another person or entity within the aforementioned 90-calendar day period. The said congressional approval is one of the requirements imposed under the MC before the NTC may issue a Certificate of Public Convenience and Necessity (CPCN). Udenna argues that it initiated the process of congressional approval but may not timely obtain the same due to the forthcoming congressional recess. We understand that this matter was previously raised before and invariably answered in the negative by the NTC through its Clarificatory/Amendatory Bulletin No. 1 dated 11 October 2018, Clarificatory Bulletin No. 4 dated 23 October 2018 and Clarificatory Bulletin No. 5 dated 29 October 2018, as can be gleaned from the tables below: Clarificatory/Amendatory Bulletin No. 1 Queries/Issues Clarification 19. Please consider converting the 90-day period to submit requirements to the NTC's issuance of the CPCN as "a period necessary to comply with all requirements" The NTC Memorandum Circular No. 09-09-2018 was published on 21 September 2018 in the Philippine Star and took effect on 06 October 2018. It is deemed an effective rule and any substantive amendments will require an amendatory circular which requires publication, hearing on the draft and publication of amendments to be effective 20. Will NTC extend the 90-day period to comply with Section 10.1 if delay in securing Congressional approval is due to causes outside the control of the NMP? No, except in cases of force majeure . Clarificatory Bulletin No. 4 Queries/Issues Clarifications 28. Re: Force Majeure and Performance Security, can we request the NTC to commit that if critical regulations (National Domestic Roaming, Open Access Regulations and Share Tower Regulations) are not issued and implemented, this will constitute an event of Force Majeure and the Performance Security will not be forfeited in the event that the NMP is unable to meet its commitments due to the absence of such critical regulations? Force majeure in law refers to natural calamities. The issue on pending regulations is not within the competence or authority of the Selection Committee to respond to. In any event, every Participant has undertaken in its Omnibus Sworn Statement that it has done its due diligence on the laws, rules and regulations, prevailing market environments, regulatory processes and timelines of the relevant government agencies relating to the telecommunications industry. Moreover, we emphasize that failure of the NMP to comply with its Commitments in any year within the Commitment Period is one of the grounds for forfeiture of Performance Security. Clarificatory Bulletin No. 5 Queries/Issues Clarifications 23. Re: Congressional Franchise Extension If Congressional approval is not obtained within 90-day requirement post bid as a result of delay in the approval process, despite successfully lodging an application with Congress as soon as the declaration of the NMP was made, what is the effect on the following: a) The requirement to infuse the P10 billion paid in capital into franchise holder, considering that there remains a risk that Congress will not approve the change in control of the franchise holder until such approval has been actually granted, and that the grant of the CPCN therefore the commencement of the operations of the third telecom is conditioned on the approval of Congress? b) If the Congress has not yet approved the change of control of the Congressional Franchise holder, how can the consortium members infuse the P10 billion capital into the franchise holder if the infusion by committed investors will result in a change in control, therefore it may viewed as a violation of the franchise? c) Can the 90-day period be extended until the grant of congressional approval and only after the congressional approval will parties infuse at least P10 billion to comply with the requirements to obtain CPCN? Please refer to Clarificatory/Amendatory Bulletin No. 1, Item No. 20. However, note that congressional approval shall be required under circumstances provided in their respective congressional franchise of the participant (e.g., Sale, Lease, Transfer, Usufruct, or Assignment of Franchise. The grantee shall not sell, lease, transfer, grant the usufruct of, nor assign this franchise or the rights and privileges acquired thereunder to any person, firm, company, corporation nor other commercial or legal entity, nor shall transfer the controlling interest of the grantee, whether as a whole or in part, and whether simultaneously or contemporaneously, to any person, firm, company, corporation, or entity without the prior approval of the Congress of the Philippines and compliance with the legal requirements stipulated in other statutes: Provided, That any person or entity to which this franchise is validly sold, transferred, or assigned shall be subject to the same conditions, terms, restrictions and limitations of this Act.) Hence, it is the NMP's sole responsibility to timely secure such a congressional approval, if necessary. 25. Re: Extension of 90-day Period through Amendatory Bulletins : The NTC stated: The NTC Mem orandum Circu lar 09-09-2018 was published on 21 September 2018 in the Philippine Star and took effect on 06 October 2018. It is deemed an effective rule and any substantive amendments will require an amendatory circular which requires publication, hearing on the draft and publication of amendments to be effective. We request circulation of this position since Section 7.2 of the M C itself states that Amendatory Bulletins are effectively only upon posting at the NTC Website. Further, we are particularly concerned that the 90-day period is insufficient to secure Congressional Approval of the sale or transfer of the capital stock vesting controlling equity interests in the CF Holder since the process requires plenary approval of both the House of Representatives and the Senate. The time of the NMP Selection Process will likely coincide as well with the adjournment of Congress. Moreover, said Congressional Approval is necessary (especially with the Participation of foreign investors) before the Participant is authorized under its legislative franchise to increase its paid-in capital to Php10 Billion. Amendatory Bulletins cannot be inconsistent with the M C . As found in the Omnibus Sworn Statement, a prospective Participant, acknowledges, among others, that it has done its due diligence on the laws, rules and regulations, prevailing market environments, regulatory processes and timelines of the relevant government agencies relating to the telecommunications industry. 26. Re: Extension of 90-day Period, Congressional Approval in Controlling Interest The NTC stated: "It is the NMP's sole responsibility to secure an approval for its change in controlling interest." We request reconsideration of the position of the NTC considering that its expertise and recommendation to the Congress may facilitate approval of the transfer of controlling interest. In the alternative, please consider incorporating additional provisions in the Subject Circular which authorize the extension of the 90-day period to comply with Section 10.1 if the delay in securing the Congressional approval is due to causes outside the control of the Participant. Amendatory Bulletins cannot be inconsistent with the M C . As found in the Omnibus Sworn Statement, a prospective Participant, acknowledges, among others, that it has done its due diligence on the laws, rules and regulations, prevailing market environments, regulatory processes and timelines of the relevant government agencies relating to the telecommunications industry. 27. Re: Forfeiture of Participation Security The NTC answered Yes to the query: If the Participant is unable to secure all Conditions Precedent for the issuance of a CPCN, its Participation Security will be forfeited . We request reconsideration on the response to the query since the inability to secure Conditions Precedent may be due to causes outside of its control. Moreover, it is not stated in the M C or the ITP that the failure to secure Conditions Precedent is considered as "refusal to do any or all acts necessary." Under Clarificatory/Amendatory Bulletin No. 1, Item No 13, if the inability to secure all conditions precedent for the issuance of the CPCN is attributable to the grounds provided in M C Section 6.2 (i) (4), the Participation Security shall be forfeited in favor of the NTC. However, if the inability to secure all conditions precedent is through causes arising without any fault whatsoever on the part of the Participant, then that may constitute a defense in the forfeiture proceedings on the Participation Security. 28. Re: Amendatory Bid Bulletin stating that the extension of 90 days is only allowed in cases of force majeure Please consider including Material Adverse Government Actions ( i.e. , an act or omission of the government or any of its agencies which prevent the provisional NMP from complying with the conditions precedent for the issuance of the CPCN) . We note that the concept of MAGA is usually incorporated in PPP Contracts and the said ground is basis to seek relief or an extension in complying with an undertaking or obligations. The 90-day extension as referred to in Re Amendatory Bid Bulletin relates only to force majeure situations. As for other situations, kindly refer to the Omnibus Sworn Statement wherein a prospective Participant, acknowledges, among others, that it has done its due diligence on the laws, rules and regulations, prevailing market environments, regulatory processes and timelines of the relevant government agencies relating to the telecommunications industry. At the outset, it is worth mentioning that the issues raised in the instant request necessarily affect the substantive rights of a private party, that of Udenna, upon whom the opinion of the Secretary of Justice has no binding effect and would, in all probability, contest the same in court if the opinion turns out to be adverse to its interests. As a matter of policy, therefore, this Office does not render an opinion or give legal advice on matters which are justiciable in nature or those which may be the subject of a judicial controversy. 2 Thus, we would like to emphasize that this letter is intended to be treated as a matter for the NTC's advice only. We find nothing in the MC which allows the extension of the 90-calendar day period prescribed within which to submit the documents required under Section 10 of the MC. This is consistent with the aforementioned Clarificatory/Amendatory Bulletins 3 that were issued by NTC which is the principal manner by which the Selection Committee communicates with the prospective participants and the public at large regarding modification/amendments, clarifications, or supplements to the Instructions to Bidders and the NMP Selection Process Calendar of Activities. We need not stress that the NTC consistently answered in the negative as to the extension of the 90-day period and that only force majeure can be an exception and that it is the NMP's sole responsibility to timely secure such congressional approval, if necessary. This is in pursuance of the NMP's Omnibus Sworn Statement that it has done its due diligence on the laws, rules and regulations, prevailing market environments, regulatory processes and timelines of the relevant government agencies relating to the telecommunications industry. Be that as it may, we find it necessary to bring to your attention Section 15.3 of the MC which provides that the "Provisions and procedures specified in the MC shall be construed in favor of achieving the intended purpose of this selection process." Considering the relevant Whereas clauses of the MC that "the entry of a new major player in the telecommunications market is a matter of paramount national interest which shall redound to the benefit of the public by ensuring genuine competition in the country's telecommunications industry," and that "President Rodrigo R. Duterte directed the NTC and the DICT to ensure the entry of a New Major Player (NMP) in the telecommunications industry that will provide the best possible services at reasonably accessible prices," we believe that the NTC should take into consideration the avowed policy of the government to facilitate the entry of a NMP in determining whether or not to extend the aforementioned period and the means by which to achieve the same. Please be guided accordingly. Very truly yours, (SGD.) MENARDO I. GUEVARRA Secretary Footnotes 1. Rules and Regulations on the Selection Process for a New Major Player in the Philippine Telecommunications Market. 2. Secretary of Justice Opinion No. 2, S. 1997; and No. 46, S. 1981. 3. Section 7.2 of NTC MC No. 09-09-2018.