10 - Regulatory Reforms in the Philippines

Summary

As the experience of most countries attest, re-regulation was necessary immediately after the introduction of competition to ensure that the market works. This is all the more true in the provision of public utilities like telecommunications.

This chapter focuses on regulatory reforms in the Philippines. The first two parts review the pre-liberalisation regulatory structure. A third looks at the regulator's failed attempts at liberalisation under the Aquino government. A fourth focuses on regulatory problems, specifically the weakness of the regulatory body, its lack of independence and resources, and its capture by the regulated. Next, the role of the regulator during liberalisation under the Ramos administration is considered as well as the regulatory impact of RA 7925. A sixth part looks into the problem of introducing regulatory reform and the role of a group of consultants in pushing for them. A seventh section summarises the chapter's discussion and arguments. Finally, the experience of the Philippine telecommunications reforms is summarised.

THE PUBLIC SERVICES COMMISSION

The Philippine Legislature passed Commonwealth Act 146 (CA 146) on 7 November 1936 creating the Public Services Commission (PSC) and empowering it to regulate the operation of public utilities such as telephone systems for the promotion of public welfare. CA 146 stated that a legislative franchise from Congress and a Certificate of Public Convenience and Necessity (CPCN) from the PSC were required for the operation of a public utility. The law also provided that permission to operate public utilities would only be granted to Philippine or US citizens, or to companies organised under Philippine laws that were at least 60 per cent owned by Filipino or US citizens.

Aside from controlling entry into the industry via the issuance of a CPCN, the PSC was vested with the authority to: (1) fix and determine “just and reasonable” rates; (2) require any public service company to construct, maintain, and operate any reasonable extension of its existing facilities; (3) require any public service to keep its books and to furnish the PSC with annual reports of finances and operations; and (4) penalise any company that violated or failed to comply with its CPCN. Because the law did not quantify what was “just and reasonable rate,” the Supreme Court established a 12 per cent rate of return on investments and assets as a fair level of profit.