China Telecom as the third telco - Justice Antonio T. Carpio

In “China Telecom as the Third Telco,” Justice Carpio explains the national-security and constitutional concerns arising from the Philippines’ decision to award the country’s third telecommunications franchise to a consortium including China Telecom, a state-owned Chinese company holding up to 40 % of what later became DITO Telecommunity. He notes that because China Telecom is ultimately answerable under Chinese law to the state’s intelligence services, integrating its equipment and infrastructure into the Philippines’ critical communications network—particularly with agreements to install facilities in military camps—could create security vulnerabilities not present with purely Filipino or other foreign-owned carriers. Carpio also warns that allowing a major telecom player with direct ties to the Chinese government introduces a potential source of espionage or undue influence, especially amid ongoing territorial disputes in the West Philippine Sea. While acknowledging the importance of breaking the duopoly of incumbent carriers and improving service, he emphasizes that such objectives must not compromise national security.

On Nov. 21, 2017, Malacañang announced that President Duterte had offered China the “privilege” of operating the third telco in the country. On Nov. 7, 2018, the National Telecommunications Commission disclosed that the Udenna-China Telecom consortium won the bidding for the third telco. Udenna is owned by Davao businessman Dennis Uy, and China Telecom is a state-owned company of China.

On March 10, 2020, the House of Representatives passed House Bill No. 78 amending the Public Service Act to exclude telcos as public utilities which, under the Constitution, must at least be 60 percent Filipino-owned. The amendment will allow foreigners to own 100 percent of telco companies. Apparently, China Telecom wants to come in as a majority, or even 100 percent owner, of the third telco. In a previous column, I explained why House Bill No. 78 is unconstitutional. The framers of our Constitution, in discussing Section 11, Article XII of the Constitution requiring public utilities to be at least 60 percent Filipino-owned, expressly referred to telco companies. Congress has no power to change the clear intent of a provision of the Constitution.

Here, I will explain that another provision of the Constitution, not covered in House Bill No. 78, also requires telcos to be 60 percent Filipino-

owned. Telcos, which cannot operate without utilizing radio frequencies, must comply with Section 2, Article XII of the Constitution, which provides: “All xxx natural resources are owned by the State. xxx The State may directly (exploit such natural resources), or it may enter into co-production, joint venture, or production-sharing agreements with Filipino citizens, or corporations or associations at least sixty per centum of whose capital is owned by such persons.”

Radio frequencies are natural resources owned by the State. Every franchise granted by Congress to utilize radio frequencies contains this provision: “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 xxx.” This is a clear acknowledgement that radio frequencies are natural resources owned by the State, and can be utilized only by a corporation that is 60 percent Filipino-owned.

A corporation that utilizes a natural resource may or may not be a public utility. Mining companies exploit natural resources owned by the State and must be 60 percent Filipino-owned, but they are not public utilities because they do not deal with the public. Radio and TV companies utilize radio frequencies and, as mass media, must be 100 percent Filipino-owned, but they are not public utilities because their audiences do not pay for the broadcasts or telecasts.

A corporation may be a public utility without utilizing a natural resource. A transportation company is a public utility because it provides an essential service to the public for a fee, but it does not utilize any natural resource owned by the State. A transportation company must be 60 percent Filipino-owned.

Telcos like PLDT or Globe utilize radio frequencies and must be 60 percent Filipino-

owned. In addition, telcos are also public utilities because they provide an essential service to the public for a fee. A telco must be 60 percent Filipino-owned for two separate and distinct constitutional requirements: first, a telco utilizes a natural resource owned by the State; and second, a telco is a public utility.

House Bill No. 78 attempts to free telcos from the 60 percent Filipino ownership requirement by redefining telcos as nonpublic utilities under Section 11, Article XII of the Constitution. But telcos obviously continue to utilize a natural resource and must still be 60 percent Filipino-owned under Section 2, Article XII of the Constitution.

For President Duterte to make China Telecom the third telco, House Bill No. 78 must be approved by the Senate. The House must also pass another bill redefining “natural resource” in Section 2, Article XII of the Constitution to exclude the radio spectrum. The Senate must approve such bill.

Will the Supreme Court allow Congress to redefine words and phrases in the Constitution, effectively usurping the primordial duty and power of the Supreme Court to interpret the Constitution? Will the Supreme Court allow an amendment to the Constitution by ordinary legislation, without a constituent assembly or constitutional convention, and without ratification by the people?

acarpio@inquirer.com.ph