GR 64888; (November, 1996) (Digest)
G.R. No. 64888 November 28, 1996
Republic of the Philippines (Bureau of Telecommunications), et al. vs. Republic Telephone Company, Inc. (now PLDT) and the Intermediate Appellate Court
FACTS
Respondent Republic Telephone Company, Inc. (RETELCO, now PLDT) held a valid municipal and later a legislative franchise to operate a local telephone system in Malolos, Bulacan. It commenced operations in 1960. In 1969, petitioner Bureau of Telecommunications (BUTELCO), a government agency, began operating its own telephone exchange in the same area. RETELCO alleged that BUTELCO’s operations constituted unfair and ruinous competition, causing a drastic decline in its subscribers and revenue. RETELCO filed an injunction suit in the Court of First Instance to restrain BUTELCO from operating and soliciting subscribers in Malolos.
The trial court issued a preliminary injunction, later made permanent, in favor of RETELCO. The Intermediate Appellate Court affirmed this decision. The appellate court reasoned that BUTELCO, under Section 79(b) of Executive Order No. 94, was required to negotiate with and secure the consent of existing franchise holders before establishing a competing service. Since no such agreement was reached, BUTELCO’s operations were illegal. BUTELCO elevated the case to the Supreme Court.
ISSUE
Whether BUTELCO, a government entity, can legally operate a telephone system in an area already served by a private franchise holder without the latter’s consent, or whether such operation constitutes unfair competition warranting injunctive relief.
RULING
The Supreme Court REVERSED the appellate court’s decision and dissolved the permanent injunction. The Court held that BUTELCO’s operation did not constitute unfair competition and was legally permissible. The legal logic centered on the interpretation of Section 79(b) of Executive Order No. 94. The Court ruled that this provision merely encouraged government agencies to avoid duplication by negotiating with existing operators, but it did not impose a mandatory prohibition or require consent as a condition precedent. A contrary interpretation would grant a monopoly to existing franchise holders, which is contrary to constitutional and policy considerations.
The Court emphasized that franchises are not exclusive and that the state, through its instrumentalities, retains the right to engage in public utility operations to serve the public interest. Promoting free competition in the telecommunications industry was deemed beneficial for public service, technological improvement, and national development. Therefore, RETELCO’s franchise did not confer an exclusive right to operate, and BUTELCO’s competing service, being a lawful government function, could not be enjoined as unfair competition. The injunction was issued without legal basis.