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Corporate Securities Info

Questionable Mislatel franchise

/ 05:02 AM February 05, 2019

The government’s choice of Mindanao Islamic Telephone Co. (Mislatel) as the third telco operator in the country faces serious legal challenges.

The points raised by Sen. Franklin Drilon questioning the validity of Mislatel’s legislative franchise rest on solid ground. He said the franchise was ipso facto (by its own act) revoked when the firm failed to comply with some conditions.

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Bear in mind that a legislative franchise is not your ordinary business permit, license to operate, and certificate of public convenience that are routinely issued by local government units.

The Supreme Court has said a franchise “… is a privilege of public concern which cannot be exercised at will and pleasure, but should be reserved for public control and administration … under such conditions and regulations as the government may impose.

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“A franchise thus emanates from a sovereign power and the grant is inherently a legislative power.”

Under its franchise (Republic Act 8627), Mislatel was authorized to engage in the telco business for 25 years counted from the day its enabling law was enacted in 1998, unless sooner revoked or cancelled.

That authority shall be deemed revoked ipso facto in case it fails to do any of the following: (a) commence operations within one year from the approval of its permit by the National Telecommunications Commission (NTC); (b) operate continuously for two years; and (c) commence operations within three years from the effectivity of that law.

The same conditions are imposed on similarly situated telco companies to make sure the grantees live up to their commitment to provide the service they applied for as soon as possible.

The time frames are also meant to deter the grantees from holding on to their franchise until they can sell them to parties who have the financial resources to engage in the telco business.

Mislatel has admitted it has not complied with the conditions mentioned. It claimed the poor peace and order situation in their franchise areas prevented them from commencing the business within the prescribed periods.

Assuming that statement to be true, it did not present proof it notified the NTC of that circumstance beforehand to justify its failure to secure a permit from it.

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There are no ifs and buts in the conditions imposed by Congress.

The franchise is clear: If any of those conditions are not met, it shall automatically and without need for any antecedent proceedings be considered revoked or cancelled.

Had Congress intended to excuse or allow delays in compliance with any of those conditions for any reason whatsoever, it would have said so. The absence of such extenuating circumstances shows the lawmakers’ intent to make those conditions ironclad.

In an effort to minimize the adverse impact of the “ipso facto” provision, Mislatel said it should not be considered as self-executory and that a quo warranto action (testing the legal right to the franchise) in court is required to validate the revocation.

This argument insinuates that the lawmakers either did not know the meaning of the “ipso factor” provision or should not be taken seriously when they included it in Mislatel’s franchise.

In fairness to the lawmakers, despite criticisms about their work ethic, it is reasonable to assume they knew what they meant when they put the “ipso facto” provision in Mislatel’s franchise.

Besides, the validity of that provision has not been questioned in court, much less declared as unconstitutional by the Supreme Court. Until then, it should be respected and given full effect if the conditions stated are not complied with.

Aside from its legal implications, the issue over the validity of Mislatel’s franchise is bound to adversely affect its credit standing. No bank or lending institution worth its salt would lend money to a company whose right to exist and operate is under question.

Of course, if the consortium behind Mislatel is oozing with money and need not have to tap other sources to meet its financial requirements, that would be the least of its worries.

The problem is, they are reportedly highly leveraged already.

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