MANILA, Philippines (Update 3; 10:58 a.m.
) — Solicitor General Jose Calida has
asked the Supreme Court to revoke the legislative franchise of broadcast giant ABS-
CBN, which has been at the receiving end of many of President Rodrigo Duterte’s
tirades.
ABS-CBN reported that Calida on Monday filed a quo warranto petition against ABS-
CBN Corportation and ABS-CBN Convergence Inc., a subsidiary of the network giant.
In the plea, Calida accused the broadcasting giant of “unlawfully exercising their
legislative franchises under Republic Act No. 7966 and Republic Act No. 8332.”
RA 7966 pertains to the Act granting ABS-CBN Corporation franchise to operate while
RA 8332 meanwhile is the Act Granting Multi-Media Telephony, Incorporated, a
Franchise to Construct, Establish, Operate and Maintain Radio Paging System in the
Philippines.
Multi-Media Technology, Inc. is also known as ABS-CBN Convergence, Inc. and is the
network's communications arm.
Calida declined almost all questions from reporters after filing, but he said that “there is
no politics” involved in the filing.
In a statement, Calida said: “We want to put an end to what we discovered to be highly
abusive practices of ABS-CBN benefitting a greedy few at the expense of millions of its
loyal subscribers. These practices have gone unnoticed or were disregarded for years.”
Rule 66 of the Rules of Court provides that the solicitor general can file a quo warranto
(Latin for "by what authority") against “a person who usurps, intrudes into, or unlawfully
holds or exercises a public office, position or franchise.”
The petition may also be filed against “an association which acts as a corporation within
the Philippines without being legally incorporated or without lawful authority so to act.”
ABS-CBN’s legislative franchise will expire by the end of March but bills calling for its
renewal remain pending before Congress.
House members: Encroachment on congressional
power
Rep. Rufus Rodriguez (Cagayan de Oro), author of one of nearly a dozen bills to renew
ABS-CBN's franchise, said in a phone patch interview on the ABS-CBN News Channel,
that the move "is an encroachment on the right of Congress to grant and revoke
franchises."
Rep. Johnny Pimentel (Surigao del Sur), deputy House speaker, said in a separate
phone patch interview that the move is "questionable and alarming."
"It is only Congress that has the power to grant or cancel franchises," he said, adding
"we have not even started hearings on the renewal."
Nonoy Espina, chairperson of the National Union of Journalists of the Philippines said
the move was "more or less expected" although the timing of the filing—with the
network's franchise expiring in less than two months—is "weird."
"If they can't stop Congress from acting on the bills, then the quo warranto petition is the
way to go, at least to stop it," he said.
He said that said that aside from the business implications for ABS-CBN as a network,
thousands of media workers could lose their jobs, adding the petition is "really a direct
attack on the freedom of the press and freedom of expression."
He added: "The ball is in Congress, especially in the committee of congressional
franchises. They can start the ball rolling, it's not too late."
NUJP launched last month a signature campaign to urge lawmakers to act on the
renewal of ABS-CBN's franchise.
"[T]o not act on the bill is to prove that they are nothing but lapdogs of this
administration," Espina said.
ABS-CBN has yet to issue an official statement on the latest development in its bid to
extend its franchise.
Solgen alleges foreign ownership in ABS-CBN
A copy of the full petition has yet to be made public, but in the statement provided to
media, the OSG accused ABS-CBN of allowing foreigners to invest in its ownership.
The 1987 Constitution holds that mass media ownership and management should be
limited to Filipino citizens.
"Like Rappler, ABS-CBN issued Philippine Deposit Receipts through ABS-CBN
Holdings Corporation to foreigners, in violation of the foreign ownership restriction on
mass media in the Constitution," the statement read.
PDRs are instruments that give foreign investors a passive economic interest in a
Philippine company.
Rappler, another media entity that has earned the ire of the president, faced a closure
order from the Securities and Exchange Commission due to PDRs.
The Court of Appeals sent the case back to the SEC after investor Omidyar
Network later donated its PDRs to Rappler executives. The appeals court told the
SEC to look into the legal effect of the donation,
'Moves without Congressional approval'
Calida also accused ABS-CBN of “abusing the privilege” given by the State when it
launched pay-per-view channel in ABS-CBN TV Plus, KBO Channel without permit from
the National Telecommunications Commission.
He also said that ABS-CBN Convergence “resorted to an ingenious corporate layering
scheme in order to transfer its franchise without the necessary Congressional approval.”
The solicitor general said that the subsidiary did not publicly offer its outstanding capital
stock to any securities exchange within five years since its operation started, “which is
an indispensable condition in its franchise.”
In 2018, Calida filed a quo warranto petition against former Chief Justice Maria Lourdes
Sereno that eventually led to her ouster.
Sereno, whom Duterte had branded as his enemy, was booted out of the SC after her
colleagues voted 8-6 to grant Calida's quo warranto petition against her. They decided
that she had never been appointed chief justice and that her appointment was invalid
from the very beginning.
Calida accused the ABS-CBN of the following violations:
That ABS-CBN launched its pay-per-view channel in ABS-CBN TVPlus, KBO
Channel, without permit from the National Telecommunications Commission.
As of February 2019, despite the absence of any permit from NTC and guidelines
on conditional access, the KBO Channel inveigled 1.2 million unique TV Plus
consumers to register in the service,” the petition read.
That ABS-CBN issued Philippine Deposit Receipts to foreigners through ABS-
CBN Holdings Corporation, which violates the foreign ownership restriction on
mass media in the Constitution.
That ABS-CBN Convergence usage of Multi-Media Telephony’s franchise without
approval from the Congress. Calida also said that the subsidiary has yet to
publicly offer its outstanding capital stock, which violates Section 21 of RA 7295
“Since ABS-CBN Corporation, without the requisite authority from NTC, has been
continuously operating from KBO Channel, and illegally deriving profit from this
unauthorized enterprise, the State can ask the Court to enjoin such operation,” Calida
told the SC.
The solicitor general said that this is in violation of Republic Act 7966, or the law that
granted ABS-CBN its franchise.
But ABS-CBN said its broadcast offerings, including KBO, “have received the necessary
government and regulatory approvals and are not prohibited by our franchise.”
What Calida alleged against ABS-CBN
ABS-CBN offers the public to buy, in one-time payment, TVPlus, a digital set-up box
that allows access to some of its channels such as MYX. Owners of TVPlus may opt to
pay an additional P30 or P99 to subscribe to its KBO Channel and watch movies.
Calida said that under RA 7966, the network should first secure authority from the
National Telecommunications Commission “before it uses any frequency in the
television or radio spectrum.”
“ABS-CBN Corporation is using the free-to-air frequency granted to it by the State for its
operations of a Conditional Access System (CAS), particularly its KBO Channel,” he
said.
Calida noted that on April 1, 2015, the broadcasting network informed the National
Telecommunications Commission that it would offer those who purchased its TV Plus a
pay-per-view option on Digital Terrestrial TV (DTT) for the Pacquiao-Mayweather
match.
NTC replied on April 29, 2015 and told the network to “refrain from offering any pay
television service it [its] DTT trials until such time that the Commission has come up with
appropriate guidelines for the same.”
Calida also cited the DICT Framework that held that “the operation of CAS is subject to
prior approval or authorization by the government.”
Part of the DICT Framework read: “[T]he policy and rules and regulations for the
introduction of Pay TV Services for DTTB has yet to be formulated, developed and
issued should the regulator allow such operation.”
On May 14, 2019, Calida said that the NTC reiterated its order to ABS-CBN Corp. He
said: “The NTC did not authorize ABS-CBN Corporation to operative a Conditional
Access System (CAS) when it granted provision authority” to the network.
What is a CAS?
The Department of Information and Communications Technology defines CAS as “a
technology used in digital TV systems that involves satisfying qualified criteria prior to
granting access to content.” The definition was published on DICT’s Digital Terrestrial
Television Broadcasting Migration Plan, October 2017.
The NTC also told the network that “[t]he use of Conditional Access System on DTTB
Service shall be subject to such Conditional Access Guidelines that the Commission or
any other relevant government agency may hereafter issue.”
Calida noted that the NTC or any government agency has yet to issue the said
Conditional Access guidelines.
He told the SC that ABS-CBN started offering paid live viewing and pay-per-view of
some shows on April 2016 until February 2019, even without NTC permit on conditional
access.
“In the absence of any permit from NTC and guidelines on conditional access, ABS-
CBN Corporation has no authority to offer the KBO Channel,” it said.
What ABS-CBN said
ABS-CBN in a statement released Monday said that they have “necessary government
and regulatory approvals” for KBO.
“KBO remains one of the cheapest forms of entertainment that we can provide to the
public,” it said.
The broadcast giant reiterated that they did not violate any laws and Calida's allegations
are without merit.
"ABS-CBN complies with all pertinent laws governing its franchise and has secured all
necessary government and regulatory approvals for its business operations," it said.
What a legal opinion from Justice Secretary Guevarra
said
The NTC, in 2018, asked Justice Secretary Menardo Guevarra for a legal opinion on
whether TV broadcasters are allowed to engage in Conditional Access or Conditional
Access System, and offer TV pay-per-view services.
The legal opinion was posted by Internet and ICT rights advocacy
organization Democracy.net.ph. Guevarra has confirmed portions of the opinion sent to
him for verification.
In an interview with ANC’s "Early Edition" Wednesday, Lim, a senior partner at ACCRA
Law, explained that PDRs give their holders “the right to own a share, but that right is
subjected to law.”
“If you are a foreigner, you cannot convert it into a share for example into a share of
ABS-CBN Corporation because you’re disqualified from owning shares of ABS-CBN
Corporation,” he added.
The Constitution prohibits foreign ownership of mass media.
Section 11, Article XVI of the 1987 Constitution provides: “The ownership and
management of mass media shall be limited to citizens of the Philippines, or to
corporations, cooperatives or associations, wholly-owned and managed by such
citizens.”
Lim, a former president of the Philippine Stock Exchange, also said that PDRs merely
gives their owners “the right to receive dividends from the issuer.”
He likened ownership of PDRs into betting on a horse: “[You] buy a ticket to bet on a
horse. You don’t own the horse, if that horse wins, you have a share in the winning.”
Calida's allegations
Calida, in his quo warranto plea, argued that the ABS-CBN’s issuance of PDRs to
foreigners is “a scheme employed making it appear that the shares remain with the
Filipino corporation while granting influence over the mass media enterprise to foreign
investors.”
“This scheme is not only prohibited by the 1987 Constitution but criminal liability is also
imposed on those who violate foreign equity restrictions and evade nationalization laws
of the Philippines though various modes of proxy arrangement, making appear as legal,
but the entirety of the arrangement is to accomplish transaction not allowed under
Philippines laws,” he added.
Calida argued that foreigners who are PDR holders of ABS-CBN have “beneficial
ownership” of the company because they receive dividends.
He pointed to 2015 Implementing Rules and Regulations of the Securities Regulation
Code that holds:
Beneficial owner or beneficial ownership means any person who, directly or indirectly,
through any contract, arrangement, understanding, relationship or otherwise, has or
shares voting (which includes the power to vote or direct the voting of such security)
and/or investment returns or power (which includes the power to dispose of, or direct
the disposition of such security)
Calida said that by the IRR, a person may be directly or indirectly the beneficial owner
of any equity security with respect to which he has voting power or “investment power,
which includes the power to dispose of, or to direct the disposition of such security.”
Lim: ABS-CBN's PDR holders cannot vote, are not
stockholders
According to Lim, the PDRs issued by ABS-CBN do not even come from the corporation
itself, but from ABS-CBN Holdings, which own shares in the network together with other
stockholders.
The PDR “gives the holder to receive dividends from ABS-CBN Holdings if it receives
dividends from ABS-CBN Corporation,” it said.
“PDR holder is neither stockholder of ABS-CBN Corporation or stockholder of ABS-CBN
Holdings,” he added.
Lim also stressed that PDR holders do not have the power to vote at all. They may
convert it to share, if qualified and without violating restrictions.
In ABS-CBN’s case, holders of PDRs cannot be shareholders, following the constitution.
Rappler case 'essentially the same'
Lim, who represented Rappler in one of its cases, said that the SEC case of Rappler
may be considered “essentially the same.”
In 2018, the SEC revoked the incorporation papers of Rappler saying the news site
violated the constitutional prohibition of foreign ownership of mass media. Central to the
case is Rappler’s issuance of PDRs to Omidyar Network.
Lim explained in Rappler’s case “there is a clause there which says that the PDR holder
shall be consulted in case there are amendments in the articles.”
He said that the SEC cited the “special provision” in Rappler’s SEC case.
Meanwhile, ABS-CBN’s PDRs, according to an ABS-CBN "World Tonight" report,
include a clause that: “the Issuer has agreed to cause the Company [n]ot to alter,
modify, or otherwise change its Articles of Incorporation or By-Laws or take any other
action so as to materially prejudice the Right in relation to the PDRs.”
Omidyar has since donated its PDRs to the staff and employees of Rappler. The SEC,
upon order of the Court of Appeals, is reviewing the legal effects of Omidyar’s donation.
Quo warranto as the proper remedy for ABS-CBN
franchise woes
What Calida said:
The franchises of ABS-CBN Corporation and ABS-CBN Convergence have to be
revoked for the gross violations they have committed. A forfeiture of a franchise will
have to be declared in a direct proceeding for the purpose brought by he State because
a franchise is granted by law and its unlawful exercise is primarily a concern of the
Government. Quo warranto is specifically available as a remedy if it is thought that a
corporation has offended against its corporate charted or misused its franchise.
What ABS-CBN said:
Rule 66 of the 1997 Rules of Civil Procedure is now limited to quo warranto actions for
usurpation of public office, position or franchise. Accordingly, nothing in Rule 66 of the
1997 Rules of Civil Procedure pertains to misuse of abuse of such public office, position
or franchise.
Congress has the power to grant, amend, alter and repeal a franchise, as provided by
Section 11, Article XII of the Constitution.
The case is of ‘transcendental importance’
What Calida said:
The present petition involves a matter of transcendental importance, and is a case of
first impression, which are some of the exceptions to the doctrine of hierarchy of courts
cited above.
This case is of transcendental importance because ABS-CBN’s franchise mandates it to
serve the public by its broadcast operations. ABS-CBN Corporation in fact earned the
distinction of being the largest media conglomerate in the country, reaching millions of
viewers in all corners of the country.
What ABS-CBN said:
[T]hese are not ‘special and important’ reasons which would justify a direct resort to this
Honorable Court. The issues involved, not the nature of the parties’ businesses and
their size, determine whether a case is of transcendental importance.
The Honorable Court is not a trier of fact.
EXPLAINER: Calida cites 'transcendental importance' in case vs ABS-CBN: What is it?
Operation of pay-per-view channel through free-to-air
signals
What Calida said:
It bears stressing that NTC found [Broadcast Service Division’s] report that “No
Encryption nor Conditional Access of programming content shall be allowed” to be in
order. Accordingly, the NTC imposed a condition on ABS-CBN Corporation that “[t]he
use of Conditional Access System (CAS) on DTTB service shall be subject to
Conditional Access Guidelines that the Commission or any other relevant government
agency may hereafter issue.” At present, there are no Conditional Access Guidelines
yet issued by NTC or any other government agency. In the absence of any permit from
NTC and guidelines on conditional access, ABS-CBN Corporation has no authority to
offer the KBO Channel.
ABS-CBN Corporation cannot deny that it has no permit or authority from the
government, specifically [National Telecommunications Commission], before it launched
its [Kapamilya Box Office] Channel. Despite being aware of the absence of such a
permit or authority, ABS-CBN remains undeterred and continuously operates the KBO
Channel in violation of its franchise, the NTC directive and Order, and the [Department
of Information and Communications Technology] Framework.
What ABS-CBN said:
Convergence was registered with the NTC to provide value-added services... KBO was
therefore a Convergence service. In fact, before the launch of all its KBO offerings,
Convergence sought and obtained NTC approvals.
That the Broadcast Service Division recommended that “[n]o Encryption of Conditional
Access of programming content shall be allowed” is beside the point. The NTC did not
adopt such recommendation in its Order and did not state that “no CAS shall be
allowed.” Rather, it imposed among the conditions that ABS-CBN should comply with
future guidelines which government may impose.
EXPLAINER: Calida says ABS-CBN's KBO service illegal, but network says it has
permits
On the transfer of Multi-Media Telephony's franchise
to Convergence
What Calida said:
ABS-CBN Convergence violated Section 15 of R.A. 7907, as amended by R.A. 8332,
when the controlling interest in Multi-Media Telephony, the grantee, was transferred to
ABS-CBN. As explained above, the majority of the shares of ABS-CBN Convergence
was acquired by ABS-CBN Corporation or Sapientis through [Columbus Technology
Inc.], and this transfer of the legislative franchise or the rights and privileges thereunder
was made without Congressional approval. The web of corporate layering employed by
Respondents is plainly intended to go around the congressional approval requirement in
the subject legislative franchise.
What ABS-CBN said:
First, there was never any transfer of shares in the grantee, MTI. The controlling interest
in MTI has always been, and still remains with Columbus, even after Sapientis
subscribed to 70% of Columbus’ increased capital stock in 2011.
The Main and SME Board Listing Rules adopted by the Philippine Stock Exchange and
approved by the Securities and Exchange Commission...require that the applicant must
have a ‘cumulative consolidated earnings before interest, taxes, depreciation and
amortization..” ... Convergence has incurred losses in every fiscal year from 1997 to
present... Since Convergence cannot comply with the requirements under PSE’s Main
and SME Board Listing Rules, it cannot list and offer its shares to the public.
On foreign ownership of the company
What Calida said:
The figures above show that the number of ABS-CBN Corporation shares were
transferred to ABS Holdings and subsequently, ABS Holdings issued financial securities
in the form of [Philippine Depositary Receipts], which are then issued to both Filipino
and non-Filipino nationals.
ABS-CBN Corporation’s issuance of PDRs to non-Filipino citizens is therefore a
contravention of Section11, Section XVI of the Constitution which provides that
ownership and management of mass media shall be limited to citizens of the
Philippines, or to corporations, cooperatives or associations, wholly-owned and
managed by such citizens.
ABS Holding’s issuance of PDRs to non-Filipino citizens is a scheme employed making
it appear that the shares remain with the Filipino corporation while granting influence
over the mass media enterprise to foreign investors. A foreign investor in this case may
validly profit from a mass media corporation with a foreign equity restriction.
What ABS-CBN said:
ABS-CBN PDRs were issued subsequently and these PDRs were also registered with,
and approved by the SEC in 2014.
The PDR holders’ rights are not equivalent to the full beneficial ownership rights of the
shareholders of ABS-CBN... The PDRs do not grant any of the foregoing rights to PDR
Holders as against ABS-CBN.
Since the voting power of the ABS-CBN shares remains with Philippine stockholders,
dividends accruing to investors, of whatever nationality, is [sic] irrelevant. Hence even
assuming that the PDRs are shares (they are not), and that what PDR holders receive
are dividends from ABS-CBN this right to receive dividends is not per se determinative
of that stocks’ full ‘beneficial ownership.’
EXPLAINER: Legal points
in Calida's quo warranto vs
ABS-CBN
Is the Supreme Court the proper venue? What does this mean for PDRs? And what is
the effect on House deliberations?
MANILA, Philippines – Solicitor General Jose Calida will once again try his quo warranto luck as
he tries to revoke ABS-CBN's franchise through the Supreme Court, filing a 63-page
petition before the High Court on Monday, February 10.
The petition accuses ABS-CBN of unlawfully exercising its franchise, by allegedly
offering paid broadcast without government approval, and by allegedly allowing foreign
ownership of the corporation.
Section 1(c), Rule 66 of the Rules of Court says a quo warranto petition can be filed
against "an association which acts as a corporation within the Philippines without being
legally incorporated or without lawful authority so to act."
Is Supreme Court the proper venue?
Time and time again, the Supreme Court has reiterated that it is not a trier of facts,
dismissing big cases on grounds that it violated the hierarchy of courts.
In the landmark ruling Gios-Samar vs DOTC in March 2019, the Supreme Court said it
would no longer tolerate cases that invoke "transcendental importance."
"Direct resort to the Honorable Court is justified as this case is of transcendental
importance and of first impression," Calida said in the petition.
Law Professor Ted Te said Calida cannot go straight to the Supreme Court for the ABS-
CBN case, citing the Gios Samar decision, particularly the part where the High Court
said:
"When a question before the Court involves determinaion of a factual issue
indispensable to the resolution of the legal issue, the Court will refuse to resolve the
question....Such question must first be brought before the proper trial courts or the
Court of Appeals, both of which are specially equipped to try and resolve factual
questions."
One of the factual issues in the petition is whether ABS-CBN violated its franchise terms
when it sold its product ABS-CBN TV Plus, under which subscribers can pay another
fee on top to be able to watch movies for a week through the Kapamilya Box Office
(KBO) channel.
Calida said ABS-CBN did not secure the necessary permits from the National
Telecommunications Commission (NTC), citing an order from the NTC in 2019 that
supposedly orders the network to "refrain from offering any pay television service."
ABS-CBN, in a statement, said "all our broadcast offerings, including KBO, have
received the necessary government and regulatory approvals and are not prohibited by
our franchise."
Te said that to resolve this, Calida could have gone to the NTC and launched an
administrative action against ABS-CBN.
It's similar to what Calida did when he initiated an investigation against Rappler before
the Securities and Exchange Commission (SEC), which is a quasi-judicial body.
Calida cited the 2009 Supreme Court decision Divinagracia vs Consolidated
Broadcasting System (CBS), where the petitioner asked the NTC to revoke the license
of CBS.
The Supreme Court ruled in that case that there is no law that allows an administrative
agency such as the NTC to take away CBS' legislative franchise. The ruling
contemplated a quo warranto petition as an alternative mode.
What does this mean for PDRs?
Calida also hit ABS-CBN for alleged foreign ownership, comparing the case to Rappler
which is facing an SEC shutdown order because of its Philippine Depositary Receipts
(PDRs).
PDRs are financial instruments used by media entities to allow foreign investments
without violating the constitutional rule that media companies should be 100% Filipino-
owned. PDRs are a common, lawful practice, and their legality has been upheld by the
SC. (READ: Misconceptions on PDRs)
But unlike Rappler, Calida seems to be implying that the mere issuance of a PDR to a
foreign company is illegal.
"I think that is his working theory," said Te.
In the Rappler case, the SEC found questionable the terms that Rappler entered into
with foreign investor Omidyar, particularly the provision where Rappler commits to
having a prior good faith discussion before changing anything in its articles of
incorporation.
In ABS-CBN's case, Calida's petition makes no mention of such similar terms.
Calida just listed the foreign companies that have been issued PDRs by ABS-CBN,
saying the scheme has allowed "foreigners to influence and participate in the mass
media enterprise of the Philippines through the PDRs."
"This scheme is not only prohibited by the 1987 Constitution but criminal liability is also
imposed on those who violate foreign equity restrictions and evade nationalization laws
of the Philippines through various modes of proxy arrangement, making it appear as
legal, but the entirety of the arrangement is to accomplish a transaction not allowed
under Philippine laws," said the petition.
Calida's holistic attack on ABS-CBN's PDR may have implications on the mechanism of
PDRs in general, especially since other broadcast companies issue the same to raise
capital.
"ABS-CBN Holdings’ Philippine Deposit Receipts or PDRs were evaluated and
approved by the Securities and Exchange Commission and the Philippine Stock
Exchange prior to its public offering," said ABS-CBN.
Constitutional law professor Tony La Viña said this theory implies "that all PDRs are not
constitutional for industries that have nationality requirements."
"If accepted by the Supreme Court, the economic implications not only to media
companies but to many other industries are enormous. Capital will quickly dry up and
foreign direct investment will go down dramatically," said La Viña.
What will happen now?
Section 8 of Rule 66 allows the court to reduce the normal period for resolving the case
and says quo warranto actions "may be given precedence over any other civil matter
pending in the court."
Meanwhile, ABS-CBN's franchise is set to expire on March 30.
Te said the quo warranto petition cannot stop the House of Representatives from
deliberating on the bills to renew ABS-CBN's franchise.
"If franchise is granted the petition is moot. If Calida airs his arguments in Congress, if
summoned, it will be moot because he has now shown that there is a viable forum
outside the Supreme Court," said Te.
"If the SC grants the quo warranto petition before the Congress renews the franchise,
Congress can still grant the franchise because it’s a separate power in itself," said Te.
Justice Secretary Menardo Guevarra said as much.
"The filing of the petition for quo warranto seeking the forfeiture of ABS-CBN's franchise
is independent of and separate from the legislative process of granting the renewal of
the said franchise upon expiration of its term in March," said Guevarra. – Rappler.com
