PDRs
FIRST PERSON - Alex Magno (The Philippine Star) - February 15, 2020 - 12:00am

The sooner the ABS-CBN franchise issue is settled, the better off we will all be.

For some strange reason, the congressmen dragged their feet on the matter of renewing the broadcast giant’s franchise. The franchise expires at the end of March.

The delay caused heightened anxieties, especially in the light of recent controversies over the contracts of the water concessionaires. Broadcast workers feared for their jobs. Advertisers are caught in a lurch. The investment community is even more wary. The political groups have found a new excuse to foment agitation.

The delay was compounded by the filing of a quo warranto petition at the Supreme Court by the Office of the Solicitor General (OSG). ABS-CBN has been given 10 days to reply to the petition. Then government lawyers will likely request for another 10 days to respond. It could take a month for judicial proceedings to conclude.

Meanwhile, the case stymies any movement at the House of Representatives to settle the franchise renewal issue. The OSG has raised a constitutional question in its petition. It might be awkward for the legislators to simply ignore that.

The issue centers on the issuance of Philippine Depositary Receipts (PDRs) by the ABS-CBN Holdings Corp. that, in turn, hold shares in the broadcast company. Foreigners own the questioned PDRs. For their investment, the foreign investors receive a proportional share of the profits made by the media company.

This is not the first time that PDRs in a media company becomes the center of controversy.  The case filed by government lawyers against the online news organization Rappler also involved PDRs. In the Rappler case, however, there is an explicit provision in the financial documentation creating expectation of “consultations” with the investors.

The OSG argues that, by holding PDRs, the broadcast company violates the constitutional ban on foreign ownership of media enterprises. That violation occurs even if the investments are layered by the use of a holdings company.

If the Supreme Court agrees with the petitioner, this will have adverse repercussions on other media enterprises that use PDRs as a source of working capital. According to the grapevine, other media enterprises are frantically buying back the PDRs they sold to the international investment community.

The constitutional ban on foreign ownership of media enterprises is a quaint one. It underscores the many obsolete nationalist provisions written into the basic law. These provisions stand starkly against the realities of borderless communications technologies as well as free-flowing finance technologies. They are fossils from 19th century economic thinking.

Having said that, however, they remain constitutional provisions, stupid they might seem. Even the Supreme Court cannot change the obsolete constitutional provisions. But the Court can relax its interpretation in the face of newfangled financial instruments.

It will at least improve public financial literacy if we have more discussions, led by the Court, on the legal nuances of new finance technologies. These are the hard issues that will likely keep on recurring as antiquated constitutional provisions repeatedly clash with contemporary business realities.

Lawyers for ABS-CBN argue that PDRs do not constitute ownership of media enterprises. They use the analogy of bettors buying tickets for a horse race. While bettors own the tickets, representing their bets, they do not get to own the horse.

There might be a bit of oversimplification here. Foreign holders of PDRs are at least shareholders if not full-fledged owners. They might not directly control content, but they do have an interest in profitability. This might, in turn, drive the media enterprise toward crass commercialism.

Talking about the PDRs and the sustainability of the nationalist provisions of the Constitution will at least help build the financial literacy of our public. It will help build public awareness of the tension between our quaint basic law and modern economic realities.

This will certainly be better than the faux argument that enterprises, no matter if they are legally or financially impaired, ought to be preserved at all costs to save jobs. Keeping workers employed is not an argument against illegality.

I have argued in this space that allocating finite resources belonging to the public domain such as bandwidth are better auctioned off. Going by way of auction will help government revenues, be more transparent and less corrupt.

In Singapore, for instance, the right to own a car is auctioned off. The city-state, earlier on, set a limit on the number of vehicles allowed to use its limited road space. We should do the same with bandwidth.

Those who denounce the OSG’s petition may have a point railing against suppression of press freedom. But the OSG, to be fair, has found a constitutional issue to use as a springboard – even if we grant its final goal is to silence critics.

Sal Panelo insists that Solicitor General Jose Calida acted on his own in filing the petition before the High Court. That claim might be difficult to sustain given President Duterte’s prolonged rant against the broadcast giant.

Calida, we all know, is not Mr. Congeniality. Like a cobra, he seems permanently coiled to strike. It is his job, however, to spot violations of the Constitution and act accordingly.

There is just debate, though, over whether or not he filed this case to intercept positive legislative action on the franchise. He could have brought his objections to the Congress, which is mandated to award franchises. On the other hand, the constitutional issue he raises do require adjudication.

 Then, too, he might have needlessly sparked a political tempest that might harm his principal in the end.

ABS-CBN OFFICE OF THE SOLICITOR GENERA
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