Respondents Consolidated Broadcasting System, Inc.

(CBS) and People’s

Broadcasting Service, Inc. (PBS) were incorporated in 1961 and 1965, respectively.
Both are involved in the operation of radio broadcasting services in the Philippines,
they being the grantees of legislative franchises by virtue of two laws, Republic Act
(R.A.) No. 7477 and R.A. No. 7582. R.A. No. 7477, enacted on 5 May 1992, granted
PBS a legislative franchise to construct, install, maintain and operate radio and
television stations within the Philippines for a period of 25 years. R.A. No. 7582,
enacted on 27 May 1992, extended CBS’s previous legislative franchise 1 to operate
radio stations for another 25 years. The CBS and PBS radio networks are two of the
three networks that comprise the well-known "Bombo Radyo Philippines."2

SEC. 9. 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 (3) 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.4

It further appears that following the enactment of these franchise laws, the NTC
issued four (4) Provisional Authorities to PBS and six (6) Provisional Authorities to
CBS, allowing them to install, operate and maintain various AM and FM broadcast
stations in various locations throughout the nation.5 These Provisional Authorities
were issued between 1993 to 1998, or after the enactment of R.A. No. 7477 and R.A.
No. 7582.

Petitioner Santiago C. Divinagracia6 filed two complaints both dated 1 March 1999
with the NTC, respectively lodged against PBS7 and CBS.8 He alleged that he was
"the actual and beneficial owner of Twelve percent (12%) of the shares of stock" of
PBS and CBS separately,9 and that despite the provisions in R.A. No. 7477 and R.A.
No. 7582 mandating the public offering of at least 30% of the common stocks of PBS
and CBS, both entities had failed to make such offering. Thus, Divinagracia
commonly argued in his complaints that the failure on the part of PBS and CBS "to
comply with the mandate of their legislative franchise is a misuse of the franchise
conferred upon it by law and it continues to exercise its franchise in contravention of
the law to the detriment of the general public and of complainant who are unable to
enjoy the benefits being offered by a publicly listed company." 10 He thus prayed for
the cancellation of all the Provisional Authorities or CPCs of PBS and CBS on
account of the alleged violation of the conditions set therein, as well as in its
legislative franchises.11

NTC issued a consolidated decision dismissing both complaints it held that the
complaints actually constituted collateral attacks on the legislative franchises of PBS
and CBS since the sole issue for determination was whether the franchisees had
violated the mandate to democratize ownership in their respective legislative
franchises. The NTC ruled that it was not competent to render a ruling on that issue,
the same being more properly the subject of an action for quo warranto to be
commenced by the Solicitor General in the name of the Republic of the Philippines,
pursuant to Rule 66 of the Rules of Court.14
Respondents Consolidated Broadcasting System, Inc. (CBS) and People’s
Broadcasting Service, Inc. (PBS) are radio networks both involved in the operation of
radio broadcasting services in the Philippines, they being the grantees of legislative
franchises. Following the enactment of these franchise laws, NTC issued Provisional
Authorities allowing them to install, operate and maintain various AM and FM
broadcast stations in various locations throughout the nation. Petitioner Santiago C.
Divinagracia, alleging that he was a stockholder of respondent companies, filed two
complaints with the NTC alleging that despite the provisions of the law mandating the
public offering of at least 30% of the common stocks of Respondents, both entities
had failed to make such offering. Petitioner prayed for the cancellation of all the
Provisional Authorities or CPCs of Respondents. The NTC dismissed both
complaints, positing that although it had full jurisdiction to revoke or cancel a
Provisional Authority or CPC for violations or infractions of the terms and conditions,
it refrained from exercising the same.

Hence this petition, which submits as the principal issue, whether the NTC, with its
retinue of regulatory powers, is powerless to cancel Provisional Authorities and
Certificates of Public Convenience it issued to legislative franchise-holders. That
central issue devolves into several narrower arguments, some of which hinge on the
authority of the NTC to cancel the very Provisional Authorities and CPCs which it is
empowered to issue, as distinguished from the legislative franchise itself, the
cancellation of which Divinagracia points out was not the relief he had sought from
the NTC. Questions are raised as to whether the complaints did actually constitute a
collateral attack on the legislative franchises.

Yet this case ultimately rests to a large degree on fundamentals. Divinagracia’s case
rotates on the singular thesis that the NTC has the power to cancel Provisional
Authorities and CPCs, or in effect, the power to cancel the licenses that allow
broadcast stations to operate. The NTC, in its assailed Decision, expressly admits that
it has such power even as it refrained from exercising the same. 18 The Court has yet to
engage in a deep inquiry into the question of whether the NTC has the power to
cancel the operating licenses of entities to whom Congress has issued franchises to
operate broadcast stations, especially on account of an alleged violation of the terms
of their franchises. This is the opportune time to examine the issue.

To fully understand the scope and dimensions of the regulatory realm of the NTC, it is
essential to review the legal background of the regulation process. As operative fact,
any person or enterprise which wishes to operate a broadcast radio or television
station in the Philippines has to secure a legislative franchise in the form of a law
passed by Congress, and thereafter a license to operate from the NTC.

The franchise requirement traces its genesis to Act No. 3846, otherwise known as the
Radio Control Act, enacted in 1931.19 Section 1 thereof provided that "[n]o person,
firm, company, association or corporation shall construct, install, establish, or operate
x x x a radio broadcasting station, without having first obtained a franchise therefor
from the National Assembly x x x" 20 Section 2 of the law prohibited the construction
or installation of any station without a permit granted by the Secretary of Public
Works and Communication, and the operation of such station without a license issued
by the same Department Secretary.21 The law likewise empowered the Secretary of
Public Works and Communication "to regulate the establishment, use, and operation
of all radio stations and of all forms of radio communications and transmissions
within the Philippine Islands and to issue such rules and regulations as may be
necessary."22

The absence of government regulation in that market had led to the emergence of
hundreds of radio broadcasting stations, each using frequencies of their choice and
changing frequencies at will, leading to literal chaos on the airwaves.

This pre-regulation history of radio broadcast stations illustrates the continuing

necessity of a government role in overseeing the broadcast media industry, as opposed
to other industries such as print media and the Internet.24 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.25 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.

Still, the dominant jurisprudential rationale for state regulation of broadcast media is
more sophisticated than a mere recognition of a need for the orderly administration of
the airwaves. After all, a united broadcast industry can theoretically achieve that goal
through determined self-regulation. The key basis for regulation is rooted in
empiricism – "that broadcast frequencies are a scarce resource whose use could be
regulated and rationalized only by the Government."

By the same token, as far as the First Amendment is concerned those who are licensed
stand no better than those to whom licenses are refused. A license permits
broadcasting, but the licensee 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 the 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 otherwise, by necessity, be barred
from the airwaves.28

In analyzing the compelling government interest that may justify the investiture of
authority on the NTC advocated by petitioner, we cannot ignore the interest of the
State as expressed in the respective legislative franchises of the petitioner, R.A. No.
7477 and R. A. Act No. 7582. Since legislative franchises are extended through
statutes, they should receive recognition as the ultimate expression of State policy.
What the legislative franchises of respondents express is that the Congress, after due
debate and deliberation, declares it as State policy that respondents should have the
right to operate broadcast stations. The President of the Philippines, by affixing his
signature to the law, concurs in such State policy.

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
respondents’ legislative franchises.

If we examine the particular franchises of respondents, it is readily apparent that

Congress has especially invested the NTC with certain powers with respect to their
broadcast operations. Both R.A. No. 7477 59 and R.A. No. 758260 require the grantee
"to secure from the [NTC] the appropriate permits and licenses for its stations,"
barring the private respondents from "using any frequency in the radio spectrum
without having been authorized by the [NTC]." At the same time, both laws provided
that "[the NTC], however, shall not unreasonably withhold or delay the grant of any
such authority."

An important proviso is stipulated in the legislative franchises, particularly under

Section 5 of R.A. No. 7477 and Section 3 of R.A. No. 7582, in relation to Section 11
of R.A. No. 3902.

Section 5. Right of Government. ― A special right is hereby reserved to the President

of the Philippines, in times of rebellion, public peril, calamity, emergency, disaster or
disturbance of peace and order, to temporarily take over and operate the stations of
the grantee, temporarily suspend the operation of any stations in the interest of public
safety, security and public welfare, or authorize the temporary use and operation
thereof by any agency of the Government, upon due compensation to the grantee, for
the use of said stations during the period when they shall be so operated.

The provision authorizes the President of the Philippines to exercise considerable

infringements on the right of the franchisees to operate their enterprises and the right
to free expression. Such authority finds corollary constitutional justification as well
under Section 17, Article XII, which allows the State "in times of national emergency,
when the public interest so requires x x x during the emergency and under reasonable
terms prescribed by it, temporarily take over or direct the operation of any privately-
owned public utility or business affected with public interest." We do not doubt that
the President or the State can exercise such authority through the NTC, which remains
an agency within the executive branch of government, but such can be exercised only
under limited and rather drastic circumstances. They still do not vest in the NTC the
broad authority to cancel licenses and permits.

These provisions granting special rights to the President in times of emergency are
incorporated in our understanding of the legislated state policy with respect to the
operation by private respondents of their legislative franchises. There are restrictions
to the operation of such franchises, and when these restrictions are indeed exercised
there still may be cause for the courts to review whether said limitations are justified
despite Section 3, Article I of the Constitution. At the same time, the state policy as
embodied in these franchises is to restrict the government’s ability to impair the
freedom to broadcast of the stations only upon the occurrence of national emergencies
or events that compromise the national security.

It should be further noted that even the aforequoted provision does not authorize the
President or the government to cancel the licenses of the respondents. The temporary
nature of the takeover or closure of the station is emphasized in the provision. That
fact further disengages the provision from any sense that such delegated authority can
be the source of a broad ruling affirming the right of the NTC to cancel the licenses of
franchisees.

With the legislated state policy strongly favoring the unimpeded operation of the
franchisee’s stations, it becomes even more difficult to discern what compelling State
interest may be fulfilled in ceding to the NTC the general power to cancel the
franchisee’s CPC’s or licenses absent explicit statutory authorization. This absence of
a compelling state interest strongly disfavors petitioner’s cause.

.Issue: Whether the NTC has the power to cancel Provisional Authorities and
Certificates of Public Convenience it issued to legislative franchise-holders.

Held:NO. Since legislative franchises are extended through statutes, they should
receive recognition as the ultimate expression of State policy.

What the legislative franchises of respondents express is that the Congress, after
due debate and deliberation, declares it as State policy that respondents should
have the right to operate broadcast stations.

The President of the Philippines, by affixing his signature to the law, concurs in such
State policy.
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 respondents’
legislative franchises.
If we examine the particular franchises of respondents, it is readily apparent that
Congress has especially invested the NTC with certain powers with respect to their
broadcast operations. Both R.A. No. 747759 and R.A. No. 758260 require
the grantee"to secure from the [NTC] the appropriate permits and licenses for its
stations,"barring the private respondents from "using any frequency in the radio
spectrumwithout having been authorized by the [NTC]." At the same time, both laws
provided that "[the NTC], however, shall not unreasonably withhold or delay the
grant of any such authority."It should be further noted that even the aforequoted
provision does not authorize the President or the government to cancel the licenses of
the respondents. The temporary nature of the takeover or closure of the station is
emphasized in the provision. That fact further disengages the provision from any
sense that such delegated authority can be the source of a broad ruling affirming the
right of the NTC to cancel the licenses of franchisee.

WHEREFORE, the instant petition is DENIED. No pronouncement as to costs.