Telecommunications Franchise Does Not Guarantee Radio Frequency Allocation

NOW TELECOM COMPANY, INC., PETITIONER, VS. NATIONAL TELECOMMUNICATIONS COMMISSION, RESPONDENT. G.R. No. 260434, January 31, 2024

Imagine a company investing heavily in a telecommunications franchise, believing it secures the right to specific radio frequencies. This case serves as a stark reminder that possessing a legislative franchise doesn’t automatically entitle a company to those frequencies. The Supreme Court clarified that the National Telecommunications Commission (NTC) retains the authority to allocate and regulate radio frequencies, emphasizing that their use is a privilege, not a guaranteed right. This decision impacts how telecommunication companies plan their investments and navigate regulatory landscapes.

Understanding the Legal Landscape of Telecommunications Franchises

In the Philippines, operating a telecommunications service requires a legislative franchise, a grant from Congress allowing a company to provide these services. However, securing a franchise is only the first step. The use of radio frequencies, essential for telecommunications, is governed by the NTC. The Public Telecommunications Policy Act of the Philippines (Republic Act No. 7925) empowers the NTC to allocate and assign these frequencies.

A crucial distinction lies between the franchise itself and the right to use specific frequencies. Section 7 of Republic Act No. 10972 explicitly states: “[t]he radio spectrum is a finite resource that is part of the national patrimony and the use thereof is a privilege conferred upon the grantee by the State and may be withdrawn at any time after due process.” This means that even with a franchise, a company must still obtain authorization from the NTC to use particular frequencies, and this authorization is subject to regulatory conditions.

For example, a company might secure a franchise to operate a mobile network. However, it cannot begin operations until the NTC assigns it specific radio frequencies. The NTC’s decision will depend on factors like the efficient use of spectrum, the promotion of competition, and the ability of the company to meet public demand. This regulatory oversight ensures that the limited radio spectrum is used in the best interest of the public.

The Case of NOW Telecom vs. NTC: A Fight for Frequency Rights

NOW Telecom, holding both a legislative and administrative franchise, sought to prevent the NTC from implementing specific provisions of Memorandum Circular No. 09-09-2018, which governed the selection of a New Major Player (NMP) in the telecommunications market. NOW Telecom argued that certain provisions of the circular—specifically those related to participation security, performance security, appeal fees, and the assignment of frequencies—were excessive, confiscatory, and violated its vested right to radio frequencies.

The company filed a complaint with an application for a preliminary injunction against the NTC to restrain the implementation of the circular. The Regional Trial Court (RTC) denied the application, a decision upheld by the Court of Appeals (CA). The case then reached the Supreme Court.

Here’s a breakdown of the key events:

• October 8, 2018: NOW Telecom filed a Complaint for Injunction against the NTC, challenging specific provisions of the NTC’s memorandum circular.
• November 5, 2018: The RTC denied NOW Telecom’s prayer for a writ of preliminary injunction, stating NOW Telecom has no clear or vested right over the radio frequencies.
• May 24, 2021: The Court of Appeals denied NOW Telecom’s petition for certiorari and affirmed the RTC’s Order.
• January 31, 2024: The Supreme Court denied NOW Telecom’s petition, affirming the decisions of the lower courts.

The Supreme Court emphasized two key points. First, the selection process for the NMP had already concluded, rendering NOW Telecom’s request for injunctive relief moot. Second, lower courts are generally prohibited from issuing injunctions against the government in projects of national importance, like the entry of a new telecommunications player. More importantly, the Court reiterated the crucial point that a franchise alone does not guarantee a right to specific radio frequencies. As the Supreme Court stated:

“The radio spectrum is a finite resource that is part of the national patrimony and the use thereof is a privilege conferred upon the grantee by the State and may be withdrawn at any time after due process.”

Furthermore, the Court highlighted that NOW Telecom had not yet complied with the requirements of the NTC circular, such as forming a consortium with the required capital. Therefore, it could not claim a clear and existing right to the frequencies.

“NOW Telecom was a mere prospective bidder at the time of its application for the issuance of a WPI… There was even no showing that NOW Telecom participated in the selection process to prove that it is the best qualified to become the NMP.”

Practical Implications for Telecommunications Companies

This ruling underscores the importance of understanding the regulatory framework surrounding telecommunications franchises. Companies must recognize that securing a franchise is not a guarantee of access to radio frequencies. They need to actively engage with the NTC, comply with all relevant regulations, and demonstrate their ability to efficiently and effectively utilize the spectrum.

Consider a hypothetical scenario: A new telecommunications company secures a legislative franchise with ambitious plans to launch 5G services nationwide. Based on this case, the company should not assume it will automatically receive the necessary 5G radio frequencies. Instead, it must prepare a detailed plan demonstrating its technical capabilities, financial resources, and commitment to serving the public interest. The company must also navigate the NTC’s regulatory processes, participate in any bidding or selection processes, and address any concerns raised by the commission.

Key Lessons:

• Franchise is not enough: A legislative franchise grants permission to operate, but not an automatic right to radio frequencies.
• Compliance is crucial: Telecommunications companies must comply with all NTC rules and regulations regarding frequency allocation.
• Demonstrate capabilities: Companies must demonstrate their technical and financial capabilities to effectively utilize radio frequencies.

Frequently Asked Questions

Q: Does a telecommunications franchise guarantee access to radio frequencies?

A: No. A franchise grants permission to operate a telecommunications service, but the use of radio frequencies requires separate authorization from the NTC.

Q: What factors does the NTC consider when allocating radio frequencies?

A: The NTC considers factors such as the efficient use of spectrum, the promotion of competition, and the ability of the company to meet public demand.

Q: What is a writ of preliminary injunction?

A: A writ of preliminary injunction is a court order that temporarily prohibits a party from taking a certain action, pending the outcome of a lawsuit.

Q: Why was NOW Telecom’s application for an injunction denied?

A: The Supreme Court ruled that NOW Telecom did not have a clear and existing right to the radio frequencies and that the selection process for the New Major Player had already concluded, rendering the request moot.

Q: What should telecommunications companies do to secure access to radio frequencies?

A: They should actively engage with the NTC, comply with all relevant regulations, and demonstrate their ability to efficiently and effectively utilize the spectrum.

Q: Is the use of radio frequencies a right or a privilege?

A: According to Philippine law, the use of radio frequencies is a privilege granted by the state, not a guaranteed right.

Q: What is the role of Republic Act No. 8975 in cases like this?

A: Republic Act No. 8975 generally prohibits lower courts from issuing injunctions against government projects of national importance, such as the selection of a new telecommunications player.

ASG Law specializes in telecommunications law and regulatory compliance. Contact us or email hello@asglawpartners.com to schedule a consultation.