Quisumbing Torres

May 14, 2002 SEC OPINION Quisumbing Torres 11th Floor, Pacific Star Bldg., Makati Ave., cor. Sen. Gil J. Puyat Ave., Makati City Gentlemen : This has reference to your letter dated 22 August 2001 requesting confirmation whether digital services rendered to mobile phone owners by a service provider constitute retail trade under Retail Trade Liberalization Act of 2000. Retail Trade Liberalization Act of 2000 defines retail trade as any act, occupation or calling of habitually selling direct to the general public merchandise, commodities or goods for consumption. The Supreme Court clarified the meaning of retail trade in the case of Balmaceda vs. Union Carbide Philippines, Inc. 124 SCRA 893 when said Court clearly and categorically stated: "Thus, in the field of economics, in the area of marketing, the interpretation given by the Government agencies, and by common acceptance, the term retail is associated with and limited to goods for personal, family or household use, consumption utilization. This is also in accord with the ruling of the Supreme Court in the Ichong case regarding the nature and kind of goods retailer handles. Under the situation, the Court is persuaded to hold that the goods for consumption mentioned in the Republic Act 1180 should be construed to refer to the final and end (uses) of a product which directly satisfy human wants and desires and are needed for home and daily life" (Emphasis ours). Attached herewith is a copy of the 2nd Indorsement of National Telecommunications Commission dated 04 April 2002 wherein the Commission opined that the digital service rendered to mobile phone owners by a service provider constitute an activity of content provider. Thus, if the service provider provides only contents then it may not be classified as providing telecommunication services (value added services). However, if the service provider distributes the contents to the consumers, then it may be classified as providing value added services. Consequently, any services performed by the service provider to a telecommunication company in upgrading its equipment, electronic products, parts and components and digital services which include mobile ringing tones, picture message, operator logos and other similar services do not fall within the context of retail trading. It must be deduced that retail trade is confined only within the parameters of habitual selling of merchandise, commodities and goods for consumption. Articles 1458 of the Civil Code explicitly provides that by a contract of sale one of the parties obligates himself to transfer ownership and to deliver a determinate thing, and the other party to pay therefor a price certain in money or its equivalent. Thus, absence of object (determinate) will negate the very essence of retail trading enunciated in our jurisprudence. Accordingly, digital service provided by your client, the service provider, which is not retailed to the mobile phone users directly and which serves solely as an upgrade or enhancement of the digital capacities or functions of the telecommunication company does not constitute retail trading under Retail Trade Liberalization Act of 2000. Very truly yours, (SGD.) JESUS ENRIQUE G. MARTINEZ Commissioner