Philippine Long Distance Telephone Company

May 19, 2003 SEC OPINION NO. 24-03 Philippine Long Distance Telephone Company Ramon Cojuangco Building Makati Avenue, Makati City Attention: Mr. Florentino D. Mabasa, Jr. Vice-President Legal Center Gentlemen : This refers to your letter, dated May 13, 2003, reiterating your request for our formal confirmation of your opinion that the proposed sale and distribution by Philippine Long Distance Company ("PLDT") of wire-based telephone handsets, accessories, and other related telecommunications equipment through its various business offices nationwide are necessary and incidental to and form an integral component of providing telecommunications services within the Philippines, consistent with the opinions rendered by the Securities and Exchange Commission on May 31, 2001 and November 13, 2002. PLDT is a public utility engaged in telecommunications services, at least 60% of the capital stock of which is owned by Philippine nationals. As part of its expansion program and in its effort to enhance its services to the public, PLDT intends to sell wire-based telephone handsets, accessories and other related telecommunications equipment to the public. The proposed sale and distribution by PLDT of wire-based telephone handsets, accessories, and other related telecommunications equipment to the public is within PLDT's corporate powers under the second article of its amended Articles of Incorporation. Thus: "Second. That the purposes for which said corporation is formed are to install, maintain, and operate plants, lines, instruments, cables, stations, exchanges apparatus, and any and all kinds of equipment, or contrivances for communications, and the transmission of messages, pictures, impressions, and signals, or any other means which may hereafter be used for communications in their stead; to install, maintain, operate, or lease, in whole, or in part, telephone lines and systems and all other systems and lines of communications and to purchase, sell, and deal in all kinds of apparatus and objects and products which may be advantageously combined with the building, installing and operation of those systems and lines and in general, to engage in any and all acts and business which may be necessary, or convenient, in the furtherance of such lines of communication and business ." (Emphasis supplied) "It is a familiar doctrine that every express grant of power to a corporation carries with it all the powers that may be implied from or which are incidental or necessary, or expedient to those expressly conferred, and the corporation may do whatever is necessary or expedient to their exercise." (Fletcher Cyclopedia Corporations, Vol. 6, Sec. 2486) Moreover, the sale and distribution of handsets, accessories, and other related telecommunications equipment are likewise within the powers granted to PLDT by its legislative franchise, Republic Act 7082, Section 1 of which provides that PLDT is: "granted the right, privilege, and authority to carry on the business of providing basic, and enhanced telecommunications services in and between provinces, cities, and municipalities in the Philippines and between the Philippines and other countries and territories ." (Emphasis supplied) and for such purpose, "to establish, operate, manage, lease, maintain, and purchase telecommunication systems, including mobile, cellular and wired or wireless telecommunications systems, fiber optics, multi-channel transmission distribution systems, satellite transmit and receive systems, satellite transmit and receive systems, and other telecommunication systems and their value-added services such as but not limited to transmission of voice, data, facsimile, control signals, audio and video, information service bureau and all other telecommunications systems technologies as are at present available or be made available through technical advances or innovations in the future, ..." ADTEaI That PLDT has the power to sell and distribute telephone handsets, accessories, and other related telecommunications equipment to the public is likewise expressly recognized under Section 36(7) and (11) of the Corporation Code, to wit: "Section 36. Corporate Powers and Capacity . Every corporation incorporated under this Code has the power and capacity: xxx xxx xxx 7. To purchase, receive, take, or grant, hold, convey, sell, lease, pledge, mortgage, and otherwise deal with such real and personal property ,including securities and bonds of other corporations, as the transaction of the lawful business of the corporation may reasonably and necessarily require ,subject to the limitations required by law and the Constitution; xxx xxx xxx 11. To exercise such powers as may be necessary to carry out its purpose or purposes as stated in its articles of incorporation." (Emphasis supplied) The term, "implied power" of the corporation has been defined as one which the law will regard as existing by implication; such power must be one in a sense necessary; that is needful; suitable and proper to accomplish the object of the grant one that is directly and immediately appropriate for the execution of the specific powers; and not one that has slight, indirect or remote relation to the specific purpose granted." 1 The test to be applied is whether the act in question is in direct and immediate furtherance of the corporation's business fairly incident to the express powers and reasonably necessary to their existence." 2 In a similar instance involving Globe Telecommunications Company, the Securities and Exchange Commission (SEC) has previously opined that such activity "may be treated as reasonable and necessary activities to be engaged in by a telecommunications operator considering that by providing the necessary equipment to transmit the same, the conveyance of communication is thus assured and the availment by the subscribers or clients of the communication services offered by the firm is thus enhanced." ( SEC Opinion dated May 31, 2001, Attys. Nisce and Guinto ) The sale and distribution by PLDT of telephone handsets, accessories, and other related telecommunications equipment to the public may be treated as reasonable and necessary to its primary business considering that by providing the cellular phone units and related devices or accessories, the provision of telecommunications services is actually carried out and the availment by the subscribing public of such telecommunications services is actually realized. On the basis of the foregoing, it is clear that the sale and distribution by PLDT of telephone handsets, accessories, and other related telecommunications equipment to the public are necessary, suitable, and proper to accomplish its primary object of providing telecommunications services. Very truly yours, (SGD.) VERNETTE G. UMALI-PACO General Counsel Footnotes 1. Ballantine Law Dictionary, p. 614; SEC Opinion dated May 31, 2001 addressed to Attys. Rosanno P. Nisce and Bob L. Guinto. 2. Supra , SEC Opinion dated May 31, 2001 citing Montelibano vs. Bacolod Murcia Milling Co., Inc .,G.R. No. L-15092, dated May 18, 1962.