University of the Philippines College of Law

[Digest maker’s initials] D2022

Case Name DIVINAGRACIA v. CONSOLIDATED BROADCASTING SYSTEM
Topic REGULATION OF PUBLIC UTILITIES
Case No. | Date G.R. 162272 | April 7, 2009
Ponente TINGA, J.
Divinagracia seeks the NTC to cancel the CPC of PBS and CBS for failing to offer in public offering
30% of its common stocks, in violation of its legislative franchise. The Court ruled that the
appropriate proceeding is quo warranto as it questions the compliance with law – while NTC issues
Case Summary
said licenses, it is not empowered by law to revoke the same and to revoke the same is to prevent
the implementation of the legislative franchise. The regulatory power of the NTC is to administer
the airwaves and not to prevent the operation of entities given legislative franchises by Congress.
By allowing the NTC to countermand State policy by revoking respondent’s vested legal
right to operate broadcast stations unduly gives to a mere administrative agency veto
Doctrine
power over the implementation of the law and the enforcement of especially vested legal
rights.

RELEVANT FACTS

• Consolidated Broadcasting System (Inc. 1961) and People’s Broadcasting Service (Inc. 1965) operated radio
broadcasting services in the Philippines by virtue of RA 7582 (extending the legislative franchise of CBS) and by
RA 7477 (granting PBS a legislative franchise) – May 5, 1992. Both networks comprise part of Bombo Radyo
Philippines.
o Common provision: Democratization of ownership – In compliance with the constitutional mandate to
democratize ownership of public utilities, the herein grantee shall make public offering through the stock
exchanges of at least thirty percent (30%) of its common stocks within a period of three years from the date
of effectivity of this Act. Provided, That no single person or entity shall be allowed to own more than five
percent (5%) of the stock offerings.
• NTC issued to PBS 4 provisional authorities and to CBS 6 provisional authorities to install, operate and maintain
various AM and FM broadcast stations in various locations throughout the nation, issued between 1993 to 1998.
• Santiago Divinagracia in 1999 filed two complaints with the NTC, alleging he was the actual and beneficial owner
of 12% of shares of stock of PBS and CBS separately and that both entities have failed to comply with the common
provision to make a public offering of 30% of its common stocks; he argued that the failure of the entities to comply
with the mandate of the legislative franchise is a misuse of the franchise and its continued exercise is in
contravention of law and to the detriment of the general public and the complainant who are unable to enjoy the
benefits being offered by a publicly listed company. He prayed for the cancellation of all the Provisional Authorities
or CPCs of PBS and CBS on account of the alleged violation
o NTC dismissed complaints: while it had jurisdiction to grant the prayer of the complainant, the complaints
were collateral attacks on the legislative franchise which must be subject on an action for quo warranto
pursuant to Rule 66.
o CA upheld the NTC

RATIO DECIDENDI
W/N the NTC, with its regulatory powers, is powerless to cancel Provisional Authorities and Certificates of
Public Convenience it issued to legislative franchise holders - YES
Any entity that wishes to operate a broadcast radio or television station in the Philippines has to obtain a legislative
franchise in the form of a law passed by Congress, and thereafter a license to operate from the NTC – Act No 3846
(Radio Control Act) puts this requirement for all entities wishing to broadcast.

Radio Control Act was enacted shortly after the enactment of the US Radio Act of 1927 regulating the industry,
brought about by the emergence of hundreds of radio stations using frequencies of their choice and changing
frequencies at will, leading to chaos, hence the move to license them. It illustrates the necessity of government in
overseeing the broadcast media industry, as opposed to print media and the internet.
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Without regulation, the result would be a free-for-all market with rival broadcasters able with impunity to
sabotage the use by others of the airwaves. Moreover, the airwaves themselves the very medium utilized by
broadcast – are by their very nature not susceptible to appropriation, much less be the object of any claim
of private or exclusive ownership. No private individual or enterprise has the physical means, acting alone
to actualize exclusive ownership and use of a particular frequency. That end, desirable as it is among
broadcasters, can only be accomplished if the industry itself is subjected to a regime of government
regulation whereby broadcasters receive entitlement to exclusive use of their respective or particular
frequencies, with the State correspondingly able by force of law to confine all broadcasters to the use of the
frequencies assigned to them.

Red Lion v. Federal Communications Commission – the US Supreme Court ruled that it became apparent that
broadcast frequencies constituted a scarce resource whose use could be regulated and rationalized only by the
Government…without government control, the medium would be of little use because of the cacophony of competing
voices, none of which could be clearly and predictably heard; it has been the consistent view of the Court that
Congress has unquestionably the power to grant and deny licenses and to eliminate existing stations. No one has a
First Amendment right to a license or to monopolize a radio frequency; to deny a station license because “the public
interest” requires it “is not denial of free speech”. A license permits broadcasting, but the license has no constitutional
right to be the one who holds the license or to monopolize a radio frequency to the exclusion of his fellow citizens.
There is nothing in the First Amendment which prevents Government from requiring a licensee to share his frequency
with others and to conduct himself as a proxy or fiduciary with obligations to present those views and voices which
are representative of his community and which would otherqise, by necessity, be barred from the airwaves.

As made clear in Red Lion, the scarcity of radio frequencies made it necessary for the government to step in and
allocate frequencies to competing broadcasters. In undertaking that function, the government is impelled to adjudge
which of the competing applicants are worthy of frequency allocation. It is through that role that it becomes legally
viable for the government to impose its own values and goals through a regulatory regime that extends beyond the
assignation of frequencies, notwithstanding the free expression guarantees enjoyed by broadcasters. As the
government is put in a position to determine who should be worthy to be accorded the privilege to broadcast from a
finite and limited spectrum, it may impose regulations to see to it that broadcasters promote the public good deemed
important by the State, and to withdraw that privilege from those who fall short of the standards set in favor of other
worthy applicants.

The Radio Control Act specifically required the obtention of a legislative franchise. When the Public Service
Commission was created, it was vested with jurisdiction over public services – however, radio companies were
beyond its regulatory reach except for fixing of rates. Administrative regulation remained with the Secretary of Public
Works and Communications – PD 1 of Marcos allocated the authority to issue CPCs to the Board of Communications.
Subsequently, PD 576-A was enacted, entitled “Regulating the Ownership and Operation of RADIO AND Television
stations and for other Purposes.

Section 6. All franchises, grants, licenses, permits, certificates or other forms of authority to operate radio or television
broadcasting systems shall terminate on December 31, 1981. Thereafter, irrespective of any franchise, grants,
license, permit, certificate or other forms of authority to operate granted by any office, agency or person, no radio or
television station shall be authorized to operated without the authority of the Board of Communications and the
Secretary of Public Works and Communications or their successors who have the right and authority to assign to
qualified parties frequencies, channels or other means of identifying broadcasting systems; Provided, however, that
any conflict over, or disagreement with a decision of the aforementioned authorities may be appealed finally to the
Office of the President within fifteen days from the date the decision is received by the party in interest.

EO 546 was promulgated establishing the NTC:

Section 15. Functions of the Commission.― The Commission shall exercise the following functions:
a. Issue Certificate of Public Convenience for the operation of communications utilities and services, radio
communications systems, wire or wireless telephone or telegraph systems, radio and television
broadcasting system and other similar public utilities;
b. Establish, prescribe and regulate areas of operation of particular operators of public service
communications; and determine and prescribe charges or rates pertinent to the operation of such public
utility facilities and services except in cases where charges or rates are established by international bodies
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or associations of which the Philippines is a participating member or by bodies recognized by the Philippine
Government as the proper arbiter of such charges or rates;
c. Grant permits for the use of radio frequencies for wireless telephone and telegraph systems and radio
communication systems including amateur radio stations and radio and television broadcasting systems;
d. Sub-allocate series of frequencies of bands allocated by the International Telecommunications Union to
the specific services;
e. Establish and prescribe rules, regulations, standards, specifications in all cases related to the issued
Certificate of Public Convenience and administer and enforce the same;
f. Coordinate and cooperate with government agencies and other entities concerned with any aspect
involving communications with a view to continuously improve the communications service in the country;
g. Promulgate such rules and regulations, as public safety and interest may require, to encourage a larger
and more effective use of communications, radio and television broadcasting facilities, and to maintain
effective competition among private entities in these activities whenever the Commission finds it
reasonably feasible;
h. Supervise and inspect the operation of radio stations and telecommunications facilities;
i. Undertake the examination and licensing of radio operators;
j. Undertake, whenever necessary, the registration of radio transmitters and transceivers; and
k. Perform such other functions as may be prescribed by law.

Operators of broadcast stations in the Philippines must secure a legislative franchise, a requirement imposed by the
Radio Control Act of 1931 and accommodated under the 1987 Constitution. A CPC is also required for operation, to
be issued by the NTC – the Radio Contral Act obliged radio broadcast stations to secure a permit from the Secretary
of Commerce and Industry prior to construction or installation of any station – the secretary was empowered to
regulate the establishment, use, and operation of all radio stations and of all forms of radio communications and
transmission within the Philippines. The NTC, upon its creation, became empowered to issue certificates of public
convenience for the operation of radio and television broadcasting systems.

The dual franchise/license requirement must be understood within the context of separation of powers – law requires
a legislative franchise, while the executive department exercises its function to oversee the administration of the
bandwidths to be utilized to allow the operation of those issued legislative franchises. The licensing power of the
NTC thus arises from the necessary delegation by Congress of legislative power geared towards the orderly
exercise by franchisees of the rights granted them by Congress.

Petitioner fails to point any provision authorizing NTC to cancel licenses, nor are there any provision in PD 1, or the
Radio Control Act. While he relies on the provision authorizing the Public Service Commission to revoke CPCs
issued, it has been ruled that radio companies do not fall under the PSC and that its jurisdiction was limited to rate
fixing. The EO creating the NTC provides no explicit basis to assert that the NTC can cancel licenses or CPCs it has
issued.

By allowing the NTC to countermand State policy by revoking respondent’s vested legal right to operate
broadcast stations unduly gives to a mere administrative agency veto power over the implementation of the
law and the enforcement of especially vested legal rights. That concern would not arise if Congress had
similarly empowered the NTC with the power to revoke a franchisee’s right to operate broadcast stations.
But as earlier stated, there is no such expression in the law, and by presuming such right the Court will be
acting contrary to the stated State interest as expressed in the legislative franchises.

The Court of Appeals was correct in asserting that a quo warranto was the appropriate remedy to take in this case.
While Divinagracia asserts what he prays for is the cancellation of the provisional authority and CPC, not the
legislative franchise; to cancel the CPC is in effect to cancel the franchise – by law, the NTC is incapacitated to
frustrate such mandate by unduly withholding or canceling the provisional authority or CPC for reasons other than
orderly administration of frequencies in the radio spectrum.

RULING

Denied.