Bayan Muna Party-List Representatives Neri Colmenares and Carlos Isagani Zarate vs. Digitel Mobile Philippines, Inc., et al.

The NTC cannot order a reduction in SMS retail rates based on an interconnection circular that does not expressly direct such reduction, nor can it invoke its residual powers under Section 17 of Republic Act No. 7925 absent proof of the conditions for their exercise and a timely invocation thereof.

Bayan Muna Party-List Representatives Neri Colmenares and Carlos Isagani Zarate, the National Telecommunications Commission (NTC), and telecommunications providers Digitel Mobile Philippines, Inc., Globe Telecommunications, Inc., and Smart Communications, Inc. are the parties in consolidated petitions concerning the regulation of SMS rates. Republic Act No. 7925, the Public Telecommunications Policy Act of the Philippines, directs the NTC to mandate fair and reasonable interconnection of telecommunications services and authorizes it to establish rates and tariffs, with residual powers to regulate rates when specified adverse conditions exist. NTC Memorandum Circular No. 02-05-2008 classified messaging services, including SMS, as a value-added service and provided that rates for value-added services shall be deregulated. NTC Memorandum Circular No. 02-10-2011, the Interconnection Circular, was issued to reduce SMS interconnection charges and make SMS more affordable.

On October 24, 2011, the National Telecommunications Commission (NTC) issued Memorandum Circular No. 02-10-2011, entitled "Interconnection Charge for Short Messaging Service" (Interconnection Circular), to reduce communications costs, maintain and foster fair competition in the telecommunications industry, and make short messaging service (SMS) more affordable to the public. The circular recited that the SMS retail price consists of the cost of the network sending the text, plus the cost of the network receiving the text, plus the cost of the interconnection facilities. It directed that the interconnection charge for SMS between two separate networks, or off-net SMS, be lowered from PHP 0.35 to not more than PHP 0.15 per SMS, and required public telecommunications entities (PTEs) to amend their respective interconnection agreements to comply. The new interconnection charge took effect on December 1, 2011. In compliance, Digitel Mobile Philippines, Inc. (Digitel), Globe Telecommunications, Inc. (Globe), and Smart Communications, Inc. (Smart) amended their respective interconnection agreements to reduce the interconnection charge for SMS from PHP 0.35 to PHP 0.15.

On December 12, 2011, Engr. Froilan Jamias, Head of the NTC's One-Stop Public Assistance Center, filed a Complaint-Affidavit alleging that from December 5 to 9, 2011 he received complaints from several SMS subscribers that the respondent-PTEs were still charging PHP 1.00 for every SMS sent to a subscriber of a different SMS provider despite the Interconnection Circular. Jamias and his staff then conducted a test using mobile numbers from the respondent-PTEs and confirmed that all those mobile numbers charged PHP 1.00 per SMS sent to other networks. The complaint was docketed as three administrative cases: Adm. Case No. 2011-098 against Globe, Adm. Case No. 2011-099 against Digitel/Sun Cellular, and Adm. Case No. 2011-100 against Smart.

On the same date, the NTC issued separate Show-Cause Orders addressed to the respondent-PTEs, directing them to explain why they failed to lower their regular SMS rates by at least PHP 0.20 as a necessary consequence of the lowering of the interconnection charge from PHP 0.35 to PHP 0.15 pursuant to the Interconnection Circular. The orders also directed the respondent-PTEs to preserve and submit all SMS data sent to other networks of all subscribers charged PHP 1.00 per SMS from December 1, 2011, with details such as Subscriber Identity Module numbers, date, and quantity of SMS per date from 12:01 a.m. of December 1, 2011 until the NTC required, and to submit a weekly report on the total number of SMS charged PHP 1.00 per SMS from December 1, 2011. The respondent-PTEs filed their respective answers, and separate administrative proceedings followed. Trial ensued, and hearings were held where the testimony of Engr. Jamias was presented as evidence. The respondent-PTEs did not present any witness and opted to file their respective memoranda.

The NTC ruled against the respondent-PTEs, concluding that the purpose of the Interconnection Circular was to reduce the SMS interconnection rate for the benefit of the public and that its primary objective was for the PTEs to pass on their savings from the reduced interconnection charges to their subscribers through lower SMS rates. It pointed out that prior to the circular, the prevailing interconnection rate paid by the sending network to the receiving network was PHP 0.35, so that the SMS rate without the interconnection charge was barely PHP 0.65; with the reduction of the interconnection charge to PHP 0.15, the basic SMS charge should be reduced because the interconnection charge is a component of the SMS retail price. The NTC also found that the respondent-PTEs failed to prove their claim that the PHP 1.00 SMS retail rate was exclusive of the PHP 0.35 interconnection charge and the 12% or PHP 0.12 per PHP 1.00 value added tax.

On appeal, the Court of Appeals found that the NTC failed to justify its case in ordering the reduction of the SMS retail rate. The record was devoid of evidence showing whether the PHP 1.00 per text was unreasonable and unjust so as to justify the NTC's interference, and the NTC failed to present concrete evidence to support its conclusion that the conditions for the exercise of its residual powers were present. The NTC also failed to substantiate its claims that the interconnection charge is a component of the SMS retail price and that the SMS retail price is necessarily reduced when the interconnection charge is reduced.

• Bayan Muna — Necessary Consequence: Bayan Muna argued that the reduction of respondent-PTEs' SMS retail rates is a necessary consequence of the reduction of their interconnection charges. It maintained that the Court of Appeals should have given credence to the NTC's pronouncement that interconnection charges form part of SMS retail rates and should have required respondent-PTEs to present evidence to prove otherwise.
• Bayan Muna — SMS as Basic Service: Bayan Muna argued that the NTC has the power to regulate SMS because it is not a value-added service but a basic service ordinarily offered by respondent-PTEs.
• Bayan Muna — Residual Power: Bayan Muna argued that, assuming SMS is a value-added service, the NTC can still exercise its residual power to regulate a value-added service.
• Bayan Muna — Interpretation of Circular: In its Consolidated Reply, Bayan Muna argued that the NTC's act was merely an interpretation and application of the Interconnection Circular, which should be accorded great weight, and that maintaining the PHP 1.00 SMS retail rate would mean an increase in SMS cost.
• NTC — Circular Covers Retail Rates: The NTC argued that the Interconnection Circular directs not only the reduction of the interconnection rates but also the reduction of the SMS retail rates. It relied on the circular's whereas clauses as clear that the reduction of interconnection charges should bring forth the intended reduction of SMS rates for the public benefit.
• NTC — Awareness and Consultation: The NTC argued that respondent-PTEs had been aware from the very start that the circular covered the reduction of SMS retail rates, were apprised of what the circular was about, and were given an opportunity to be heard before it was issued; thus, they feigned ignorance and misled the Court of Appeals that they were not consulted.
• NTC — Authority and Residual Power: The NTC argued that it has authority to regulate SMS retail rates despite the deregulation of SMS as a value-added service, invoking its residual power to regulate rates of services declared exempt from regulation. It also argued that the Interconnection Circular partially modified the NTC's previous classification of SMS as a value-added service, reflecting a shift in regulatory treatment, and that respondent-PTEs failed to show why or how the reduction of interconnection charges does not necessarily result in the reduction of SMS retail cost.
• NTC — Bucket Rates and Promotions: In its Reply, the NTC countered that the bucket rates and promotions offered by respondent-PTEs are special deals where subscribers must first register and are subject to change or limited duration; the intent of the circular was for subscribers to enjoy lower SMS retail rates without conditions imposed by respondent-PTEs.

• Digitel and Smart — No Automatic Reduction: Digitel and Smart argued that the reduction of interconnection charges does not automatically or necessarily result in the reduction of SMS retail rates.
• Digitel and Smart — Circular Scope: They argued that the Interconnection Circular merely directed the reduction of interconnection charges, not SMS retail rates.
• Digitel and Smart — Due Process: They argued that the NTC's directive to reduce SMS retail rates violates their right to due process because it was not in issue during the proceedings.
• Digitel and Smart — Deregulated Service: They argued that the rates of SMS, a deregulated service, are outside the regulatory powers of the NTC because its rate-fixing power extends only to regulated services, except under certain conditions not present in this case.
• Digitel and Smart — Residual Power: They argued that the NTC's invocation of its residual power lacks factual and legal basis.
• Digitel and Smart — Promotions: They argued that their various bucket and unlimited promotions to the public led to the low SMS retail rate of PHP 0.20.
• Globe — Circular Scope and Compliance: Globe argued that the Interconnection Circular only required PTEs to reduce their interconnection charge to each other, did not require them to reduce their SMS retail rate to subscribers from PHP 1.00 to PHP 0.80, and that they complied with the circular; thus, there is no basis to penalize them for an inexistent requirement.
• Globe — VAS Classification and Residual Power: Globe argued that the NTC is bound by its own rule classifying SMS as a value-added service; none of the exempting situations exists to warrant the exercise of residual power; and the NTC admitted that it did not invoke the same when it called for public hearing prior to the issuance of the circular.
• Globe — Cost and Evidence: Globe argued that a reduction in the SMS interconnection charge does not automatically translate to a reduction in the SMS retail rate; interconnection charges are not the only component in PTEs' operating expense, and the NTC disregarded their billions of dollars of investments to upgrade or transform their networks on a continuing basis.
• Globe — Records Production: Globe argued that the NTC's order to produce records of SMS transactions is void for prejudging the PTEs and forcing them to furnish evidence against themselves.

• Interconnection Circular — SMS Retail Rate Reduction: Whether the Interconnection Circular also directs the reduction of the SMS retail rates from PHP 1.00 to PHP 0.80.
• Automatic Reduction — Interconnection Charge and Retail Rate: Whether the reduction of the interconnection charge for SMS automatically or necessarily results in the reduction of the SMS retail rates.
• Residual Powers — Section 17, RA 7925: Whether the NTC can exercise its residual powers under Section 17 of Republic Act No. 7925 to order the reduction of SMS retail rates in this case.

• Interconnection Circular — SMS Retail Rate Reduction: No. The circular's plain text directs only the reduction of the interconnection charge for off-net SMS from PHP 0.35 to PHP 0.15 and the amendment of interconnection agreements; it contains no directive on SMS retail rates.
• Automatic Reduction — Interconnection Charge and Retail Rate: No. The NTC and Engr. Jamias, as complainants, failed to prove that the interconnection charge is a component of the SMS retail price or that its reduction necessarily lowers SMS retail rates.
• Residual Powers — Section 17, RA 7925: No. The NTC did not invoke its residual powers when it issued the circular or during the administrative proceedings, and it failed to prove the extraordinary conditions required under Section 17 of Republic Act No. 7925.

• Interconnection Circular — SMS Retail Rate Reduction: The Interconnection Circular is an administrative issuance implementing Republic Act No. 7925 and has the force and effect of law. Under the plain-meaning rule or verba legis, when the law is clear and free from doubt or ambiguity, there is no room for construction or interpretation; it must be given its literal meaning and applied. A plain reading shows that the circular only directs the reduction of the interconnection charge for off-net SMS from PHP 0.35 to PHP 0.15 and the corresponding amendment of the PTEs' interconnection agreements. The records show respondent-PTEs reduced their interconnection rates and amended their agreements before December 1, 2011, so they complied. No directive or requirement in the circular concerns SMS retail rates. A meaning not appearing in or intended by the language of the statute cannot be placed therein by construction. The NTC cannot rely on the whereas clauses because a preamble is not an essential part of an act and is not part of the operative language; it cannot be used as a basis for giving a meaning not apparent on the face of the circular. Whereas clauses may be resorted to only for clarification in cases of doubt, and since the circular is clear and unambiguous, there is no room to interpret or construe its intent. The NTC's administrative interpretation, while generally entitled to great weight, is not binding where it is clearly erroneous, where there is no ambiguity in the law interpreted, or where the language used is clear and plain. The Court cannot judicially supply an omission in the circular even if that was the NTC's intention.

• Automatic Reduction — Interconnection Charge and Retail Rate: Whoever alleges a fact has the burden of proving it; a mere allegation is not evidence. The ancient rule ei incumbit probatio qui dicit, non qui negat applies, and even the State is not excused from providing evidence to support its allegations. The complainants were the NTC and Engr. Jamias. They alleged that respondent-PTEs violated the Interconnection Circular by continuing to charge PHP 1.00 per off-net SMS despite the mandated reduction of the interconnection charge, and claimed that SMS retail rates should be rationally reduced because the interconnection charge is a component of the SMS retail price. They failed to substantiate these claims. They presented no evidence that the interconnection charge is a component of the SMS retail price, that the SMS retail price is necessarily reduced when the interconnection charge is reduced, or that the PHP 1.00 per off-net SMS amounted to overcharging. When the NTC rendered its Decisions, no proof or evidence from the administrative records supported its conclusions, in violation of the cardinal primary rights of interested parties before administrative tribunals. During trial before the Court of Appeals, the NTC still failed to substantiate its allegations. The Court of Appeals found that the NTC failed to justify its case, that the record was devoid of evidence showing whether PHP 1.00 per text was unreasonable and unjust, and that the NTC merely passed the burden of proof to respondent-PTEs. Since the NTC failed to substantiate its claims, respondent-PTEs were under no obligation to prove their defense. The conclusion that the reduction of the interconnection charge necessarily results in the reduction of SMS retail rates cannot be sustained.

• Residual Powers — Section 17, RA 7925: Under NTC Memorandum Circular No. 02-05-2008, messaging services, including SMS, are classified as a value-added service, and the rates for value-added services are deregulated. Deregulation means the reduction of government regulation of business to permit freer markets and competition. The NTC's authority to deregulate rates for value-added services is found in Section 17 of Republic Act No. 7925. When the NTC deregulates or exempts a service from rate regulation, it retains residual powers to regulate rates or tariffs, but this residual power is not the general norm; it is the high exception and a contingent power that remains dormant until certain extraordinary circumstances trigger its exercise. As held in Globe Telecom, Inc. and Innove Communications, Inc. vs. National Telecommunications Commission, the power arises when conditions adverse to both public interest and economy are present, including ruinous competition, monopoly, cartel, or combination thereof, coupled with either a distortion of rates or tariffs or their inability to function freely. The burden of proof lies heavily on the NTC to demonstrate with empirical data and evidence that these specific adverse circumstances are present. The NTC did not invoke its residual powers when it issued the Interconnection Circular, nor during the administrative proceedings, even when it rendered its decisions ordering the reduction of SMS retail rates. It invoked residual powers only for the first time on appeal, particularly in its Comments on the Rule 43 Petitions before the Court of Appeals. Points of law, theories, issues, and arguments not brought to the attention of the trial court adequately and on time need not be, and ordinarily will not be, considered by a reviewing court, and parties are forbidden from changing the theory of their case on appeal; allowing this would offend fair play, justice, and due process. The Court of Appeals correctly noted that respondent-PTEs were denied the opportunity to refute the NTC's invocation of residual powers. Even if the NTC were allowed to invoke residual powers, it failed to prove the conditions. The Court of Appeals found that the NTC failed to present concrete evidence to support its conclusion that the required conditions were present, and the NTC did not cite from the records any proof of such conditions or conduct and present an extensive study of the current market. The Court is not a trier of facts and will not disturb the Court of Appeals' factual determination. Bayan Muna's citation of news articles cannot support the existence of the conditions because the articles were not presented as evidence and news articles are hearsay evidence, twice removed, and without probative value unless offered for a purpose other than proving the truth of the matter asserted. Accordingly, the NTC cannot invoke its residual powers under Section 17 of Republic Act No. 7925. Consequently, respondent-PTEs cannot be held liable or penalized for violation of the circular when they did not reduce their SMS retail rates.

• Plain meaning rule (verba legis) — When a law is clear and free from doubt or ambiguity, there is no room for construction or interpretation; it must be given its literal meaning and applied. Applied to the Interconnection Circular, whose plain text directed only the reduction of the interconnection charge, not SMS retail rates.
• Preamble or whereas clauses — A preamble is not an essential part of an act and is not part of the operative language; it cannot be used as a basis for giving a meaning not apparent on the face of the law. It may be resorted to only for clarification in cases of doubt. Applied: the NTC could not rely on the circular's whereas clauses to infer a retail-rate reduction because the circular was clear.
• Administrative interpretation — An administrative agency's construction of a law it implements is entitled to great weight and respect, but not when the interpretation is clearly erroneous, when there is no ambiguity in the law interpreted, or when the language used is clear and plain. Applied: the NTC's interpretation that the circular covered retail rates could not bind the Court.
• Burden of proof (ei incumbit probatio qui dicit, non qui negat) — Whoever alleges a fact has the burden of proving it; a mere allegation is not evidence. The rule applies even to the State. Applied: the NTC and Engr. Jamias, as complainants, failed to prove that the interconnection charge is a component of SMS retail price or that reducing it necessarily lowers retail rates.
• Substantial evidence and cardinal primary rights in administrative proceedings — Administrative findings must be supported by substantial evidence contained in the record; interested parties have cardinal primary rights before administrative tribunals. Applied: the NTC's conclusions lacked evidentiary support in the administrative record and during the Court of Appeals trial.
• Residual powers under Section 17, Republic Act No. 7925 — When the NTC deregulates or exempts a service from rate regulation, it retains residual powers to regulate rates or tariffs, but this power is a high exception and contingent, arising only when conditions adverse to public interest and economy are present: ruinous competition, monopoly, cartel, or combination, coupled with distorted rates or inability to function freely. The NTC bears a heavy burden to prove these conditions with empirical data and evidence. Applied: the NTC failed to prove the conditions and invoked the power only on appeal.
• Timeliness of issues and theories on appeal — Points of law, theories, issues, and arguments not brought to the attention of the trial court adequately and on time need not be, and ordinarily will not be, considered by a reviewing court; parties are forbidden from changing their theory on appeal. Applied: the NTC first invoked residual powers on appeal, violating fair play, justice, and due process.
• Hearsay news articles — News articles are hearsay evidence, twice removed, and are without probative value unless offered for a purpose other than proving the truth of the matter asserted. Applied: Bayan Muna's news articles could not prove the conditions for the NTC's residual powers.
• Deregulation — Deregulation means the reduction of government regulation of business to permit freer markets and competition. Applied: SMS, as a value-added service, had deregulated rates, limiting the NTC's interference.

• "A plain reading of the circular would confirm that the Interconnection Circular only directs the reduction of the interconnection charge for off-net SMS from PHP 0.35 to PHP 0.15, and the corresponding amendment of the PTEs' respective interconnection agreements to effect such reduction." — This states the ratio for the first issue: the circular's text does not include a retail-rate reduction.
• "It is elementary that 'whoever alleges a fact has the burden of proving it because a mere allegation is not evidence.'" — This anchors the ruling that the NTC and Engr. Jamias, as complainants, bore the burden of proving that interconnection charges are a component of SMS retail rates and that reducing them necessarily lowers retail rates.
• "The NTC's residual power to regulate the rates of deregulated telecommunications services is not the general norm but the high exception. It is a contingent power that remains dormant until certain extraordinary circumstances trigger its exercise." — This defines the Court's controlling formulation of the NTC's residual rate-regulation power under Section 17 of Republic Act No. 7925.
• "Necessarily, respondent-PTEs cannot be held liable or be penalized for violation of the circular when they did not reduce their SMS retail rates despite the issuance of the Interconnection Circular." — This is the dispositive consequence of the Court's findings that the circular did not require retail-rate reduction and that the NTC could not invoke residual powers.

• Globe Telecom, Inc. and Innove Communications, Inc. vs. National Telecommunications Commission, 935 Phil. 837 (2023) — The Court relied on this case for the two-fold nature of the NTC's powers under Section 17 of Republic Act No. 7925 and for the rule that residual rate-regulation power is a high exception, contingent on extraordinary adverse market conditions.
• Commissioner of Internal Revenue vs. Taganito Mining Corp., 918-A Phil. 613 (2021) — Cited for the principle that an administrative circular implementing a law has the force and effect of law.
• Tumabini vs. People, 871 Phil. 289 (2020) — Cited for the plain-meaning rule or verba legis: when the law is clear and unambiguous, it must be applied literally without attempted interpretation.
• Philippine International Trading Corp. vs. Commission on Audit, 635 Phil. 447 (2010) — Cited for the rule that a meaning not appearing in or intended by the language of a statute cannot be placed therein by construction.
• Risos-Vidal vs. Commission on Elections, 751 Phil. 479 (2015) — Cited for the rule that whereas clauses do not form part of the operative language of a statute.
• People vs. Garcia, 85 Phil. 651 (1950) — Cited for the rule that a preamble cannot be used as a basis for giving a law a meaning not apparent on its face, and may be resorted to only for clarification in cases of doubt.
• National Food Authority vs. Masada Security Agency Inc., 493 Phil. 241 (2005) — Cited for the rule that an administrative agency's interpretation is not binding when clearly erroneous, when there is no ambiguity in the law, or when the language is clear and plain.
• Kida vs. Senate of the Philippines, 683 Phil. 198 (2012) — Cited for the rule that a court cannot judicially supply an omission in a law or issuance.
• BJDC Construction vs. Lanuzo, 730 Phil. 240 (2014) — Cited for the rule that whoever alleges a fact has the burden of proving it because a mere allegation is not evidence.
• Castilex Industrial Corp. vs. Vasquez, Jr., 378 Phil. 1009 (1999) — Cited for the ancient rule ei incumbit probatio qui dicit, non qui negat.
• Republic vs. Spouses Noval, 818 Phil. 298 (2017) — Cited for the rule that the State is not excused from providing evidence to support its allegations.
• Globe Telecom Inc. vs. National Telecommunications Commission, 479 Phil. 1 (2004) — Cited for the cardinal primary rights of interested parties before administrative tribunals and the requirement of substantial evidence.
• Spouses Hipolito, Jr. vs. Cinco, 677 Phil. 331 (2011) — Cited for the rule that issues not raised adequately and on time before the trial court ordinarily will not be considered on appeal.
• Bote vs. Spouses Veloso, 700 Phil. 78 (2012) — Cited for the rule that parties are forbidden from changing their theory of the case on appeal.
• Maglana Rice and Corn Mill, Inc. vs. Spouses Tan, 673 Phil. 532 (2011) — Cited for the rule that the Court is not a trier of facts and that lower court factual findings are binding.
• Lagman vs. Medialdea, 812 Phil. 179 (2017) — Cited for the rule that news articles are hearsay evidence, twice removed, and without probative value unless offered for another purpose.
• Batangas CATV, Inc. vs. Court of Appeals, 482 Phil. 544 (2004) — Cited for the definition of deregulation as the reduction of government regulation of business to permit freer markets and competition.

• Section 5(c), Republic Act No. 7925 — Directs the NTC to mandate fair and reasonable interconnection of facilities of authorized public network operators and other providers of telecommunications services through appropriate modalities and at reasonable and fair charges. Cited as the statutory basis for the Interconnection Circular.
• Section 3(k), Republic Act No. 7925 — Defines interconnection as the linkage, by wire, radio, satellite, or other means, of two or more existing telecommunications carriers or operators with one another for the purpose of allowing or enabling subscribers of one carrier or operator to access or reach subscribers of the other carriers or operators.
• Section 17, Republic Act No. 7925 — Provides that the NTC shall establish fair and reasonable rates and tariffs; may exempt any specific telecommunications service from rate or tariff regulations if the service has sufficient competition; and retains residual powers to regulate rates or tariffs when ruinous competition results or when a monopoly, cartel, or combination in restraint of free competition exists and rates or tariffs are distorted or unable to function freely and the public is adversely affected. Applied: the NTC's residual powers were not properly invoked and the required conditions were not proven.
• Section 5, Republic Act No. 7925 — Cited for the NTC's enforcement role under the law, supporting the conclusion that the Interconnection Circular has the force and effect of law.
• NTC Memorandum Circular No. 02-10-2011, Sections 1 and 4 — Section 1 provides that the interconnection charge for SMS between two separate networks shall not be higher than PHP 0.15 per SMS; Section 4 requires PTEs to amend their respective interconnection agreements to comply. Applied: the circular directed only interconnection-charge reduction, not retail-rate reduction.
• NTC Memorandum Circular No. 02-05-2008, Section 9 — Classifies messaging services, including SMS, as a value-added service and provides that rates for value-added services shall be deregulated. Applied: SMS retail rates were deregulated, limiting the NTC's regulatory interference.
• Executive Order No. 546, series of 1979 — Cited in the Interconnection Circular as part of the issuance basis for the NTC's guidelines.
• Rule 43, Rules of Court — The respondent-PTEs filed their petitions for review with the Court of Appeals under Rule 43. Applied as the procedural route by which the NTC's administrative decisions were elevated to the Court of Appeals.

Gesmundo, C.J. (Chairperson), Hernando, Rosario, and Marquez, JJ., concurred.