Opinion No. 14-15RE: Foreign Equity Limitation

SEC Building, EDSA, Greenhills, Mandaluyong City Securities and Exchange Commission Office of the General Counsel Republic of the Philippines Department of Finance

7 July 2014

Re: Foreign Equity Limitation SEC-OGC Opinion No. 14-15

Legaspi Village, Makati City INFORMATION CAPITAL TECHNOLOGY VENTURES,INC Unit 5-I, 5/F OPL Building 100 C. Palanca corner Dela Rosa and Gil Streets

Attention: Ms. Angeline L. Macasaet Madam:

applicability of foreign equity limits to ICTV. Information Capital Technology Ventures, Inc. (ICTV), requesting for our opinion as to the This is in reply to your letter dated 8 November 2012, written on behalf of

Registration No. A1996-00179. On 24 July 2008, the Commission approved the amendment of Article II (Primary Purpose) of ICTV to read as follows: ICTV is a domestic corporation registered with the Commission, under Company

information technology products and services, such as but not limited to the research. development, production, management, marketing, and operation of the following: telecommunications value added services through companies duly licensed to engage in wired and wireless, fixed and mobile communications; software and hardware technology, business process outsourcing, call center and other information technology applications; digital media and other media except mass media; and to do all activities directly or indirectly connected therewith or incidental thereto.' "To engage in the business of providing telecommunications, media and

Your queries are as follows:

2. .. Whether or not ICTV is subject to foreign equity limit given its current primary If the company is subject to foreign ownership limitation, up to what extent is purpose.

foreign ownership of ICTV's equity allowed?

foreign equity limitations that appear to be relevant are those pertaining to mass media and "telecommunications, media and information technology products and services." The public utilities. As stated in its primary purpose, the business of ICTV is the provision of

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Foreign Investment Negative List' ("FINL-9"),2 "ownership and management of mass media shall be limited to citizens of the Philippines, or to corporations, cooperatives or associations, wholly-owned and managed by such citizens." The term "mass media" in the Constitution refers to any medium of communication designed to reach the masses and that tends to set the standards, ideals and aims of the masses.3 The distinctive feature of any mass media undertaking is the dissemination of information and ideas to the public, or a portion thereof.4 Under Article XVI Section 11 of the 1987 Constitution, and reiterated in the Ninth

a computer-readable format, and can reside on a local device (CD, DVD, hard drive), or remote location (website). Its difference with the other format of media is the ability to be images, text, and other kinds of media in other formats, which may come under the purview the digital media produced and operated by ICTV are as well marketed by it. This marketing constitutes dissemination of information to the public or a portion thereof. marketing, and operation of digital media. Basically, digital media are any media that exist in streamed, downloaded, or stored on media such as CD or DVD.5 This covers audio, video, of mass media. The digital media produced, marketed, and operated by ICTV appears to cover a wide range. As mentioned earlier, it is the dissemination of information and ideas to the public that makes the activity covered within the purview of mass media. It appears that In the case of ICTV; the activities to be undertaken are, among others, production,

services to be digital media and other media except mass media. However, despite this activities. Thus, the foreign equity prohibition on corporations engaged in mass media applies excluding phrase, it is the nature of the activities undertaken by a corporation that will Commission ruled that notwithstanding the clause "but in all cases without however engaging in mass media" in the corporation's primary purpose, the nature of the activities the including post-production services and facilities, fall within the activities contemplated by mass media. Applying the principle to this case, ICTV produces and operates digital media, to ICTV. ultimately determine whether or not it is engaged in mass media. In a previous opinion, the corporation engages in - generally, acting as producer and providing production services thereof. This production and dissemination of media in digital format constitutes mass media and is responsible for marketing the same, i.e., disseminating to the public or a portion The latter part of ICTV's primary purpose enumerates the media products and

reiterated as well in the FINL-9, operation of public utilities are allowed only to Philippine On another note, under Article XII Section 11 of the 1987 Constitution, and

2 Executive Order No. 98, 29 October 2012. 3 Ministry of Justice's (MOJ) Opinion no. 24, series of 1986 citing MOJ Opinion No. 163, series of 4 MOJ Opinion no. 24, s. 1986 citing MOJ Opinion No. 120, series of 1982. 7 Section 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by 8 List A, No. 19. http://www.uoguelph.ca/tss/pdfs/TBDigMedia.pdf . Accessed 19 June 2014. Such citizens; x x x List.A, No. 1. 1973. SEC-OGCOpinion No. 11-08, dated 3 March 2011, addressed to Atty. Nelson Leyco. "DigitalMedia".. TechnologyBrief. Universityof Guelph. September 2006.

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telephone or telegraph service. It implies a public use and service to the public.' telecommunications business is a public utility.' In this jurisdiction, "public utility" refers to a business or service which is engaged in regularly supplying the public with some commodity or service of public consequence, such as electricity, gas, water, transportation or Citizens or domestic corporations or associations, at least sixty per cent (60%) of whose capital is owned by Philippine citizens. The Department of Justice already ruled that

to value added services, allowing ICTV to engage in telecommunications activities. Moreover, we take note of the 2nd Indorsement dated 10 June 2008 issued by the National mentions "telecommunications value added services," the list does not appear to be exhaustive. It should be noted that the phrase "such as but not limited to" is present, which means that the telecommunications products and services ICTV is providing is not restricted 146, or the Public Service Act, which means that the NTC considers ICTV to be engaged in a public utility, and in light of the NTC Indorsement, the foreign equity limits on corporations engaged in operation of public utility applies. Telecommunications Commission (NTC). It is provided therein that any issue or transfer of shares of stocks by the Corporation must be in accordance with the provisions of C.A. No. telecommunications. As ICTV's activities are broad enough to cover telecommunications as Applying to ICTV's case, while the enumeration of the products and services first

Further, we observe the first of the secondary purposes of ICTV. It is stated therein:

lands, buildings, factories and warehouses and machineries, equipment and other business or property acquired by the corporation." business, and to pay in cash, shares of its capital stock, debentures and other evidences of indebtedness, or other securities, as may be deemed expedient, for any personal properties as may be necessary or incidental to the conduct of the corporate "To purchase, acquire, own, lease, sell and convey real properties such as

in the Philippines. This limitation is a reiteration of Article XII Section 7 of the 1987 60 per centum (60%) of whose capital is owned by Philippine citizens may own private lands Constitution. Under List A, No. 18 of the FINL-9, only those corporations or associations at least

by ICTV is ownership of land, which is a partly nationalized activity. In view of the foregoing, besides the equity limits based on the current primary purpose, ICTV is also subject to the foreign equity limits on corporations owning private lands. It is clear that based on the secondary purposes, among the activities to be undertaken

maximum of forty percent (40%), as it is engaged in the operation of public utility, and one activities. Assuming that it is not engaged in mass media, foreign equity is limited to a of its purposes is ownership of land. Therefore, no foreign ownership of ICTV is allowed, as it is engaged in mass media

the facts and circumstances disclosed and relevant solely to the particular issue raised therein It shall be understood, however, that the foregoing opinion is rendered based solely on

1 DOJ Opinion No. 011, s. 1992, dated 28 January 1992. 1b

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cases or upon the courts whether of similar or dissimilar circumstances. If, upon further and shall not be used in the nature of a standing rule binding upon the Commission in other inquiry and investigation, it will be disclosed that the facts relied upon are different, this Opinion shall be rendered void. l

Please be guided accordingly.

Very truly yours,

CMM MCORREA General Counsel

IMPB

I SEC Memorandum Cricular No. 15, Series of 2003.