Laudable, but not enough

We just got word that the Securities and Exchange Commission (SEC) has just approved the application of Transpacific Broadcast Group International Inc. (TBGI) for the registration and sale of 76.6 million common shares for its initial public offering.

The approval is however subject to the company’s submission of an amended articles of incorporation to reflect a change in its corporate name and an amendment of its primary purpose by deleting the word ‘broadcast’ from it.

While the SEC should be lauded for its action (TBGI does not have the franchise to engage in broadcasting services and to allow it to use the word broadcast would only mislead the public), the commission’s action still falls short of what is necessary to really protect the investing public.

For one, more than half of TBGI’s valuation as well as its business plan rest on its being able to offer MMDS (multi-channel microwave distribution system) also known as wireless cable in Metro Manila.

According to the study prepared by TBGI on the proposed MMDS in Metro Manila, it intends to provide a solution to the challenges of digital broadcasting through the installation, operation, and maintenance of MMDS. It notes that the potential for digital broadcasting in the Philippines has not yet reached its peak but it is expected to grow significantly once a trendsetter has effectively implemented MMDS.

The problem with its application to offer MMDS is still pending with the National Telecommunications Commission (NTC) and assuming that the NTC does its homework, it will find out that it has already previously granted the frequency for MMDS in Metro Manila to another company. Also, the NTC can only grant authority to engage in MMDS only to those which have a broadcast franchise, which unfortunately TBGI does not have.

Sources from the NTC revealed that in order to skirt the real issue, TBGI is amending its application with the commission to say that MMDS not only applies to cable but also to telecommunications.

It is very clear in TBGI’s congressional franchise that the firm is not authorized to offer any broadcasting service like MMDS and instead limits its business to telecommunications services. As the members of the House committee on transportation and communications put it, companies should not make a mockery out of franchises by engaging in businesses which their franchise does not authorize them to go into. As Rep. Prospero Nograles aptly emphasized in one of the recent committee hearings involving another company, the solution is to apply for another franchise.

If the SEC really wants to protect the interest of the investing public, it should really study the business plan of TBGI and find out whether it is giving the public too optimistic a picture of its business operations. Otherwise, the public may be left holding an empty bag.

TBGI by the way has nine shareholders of record, with Unipage Management Inc. having beneficial ownership interest of 93.83 percent prior to the offer.

What Is The Bottom Line?

I have high regards for former Solicitor General Frank Chavez. But when he allows his client, probably through his advice, to use Congress as a collection agent, I am forced to think twice.

Chavez’s client, former Nextel Communications Phils. Inc. (NCPI) president and CEO Antonio Urera, earlier submitted a complaint against his own company for alleged violation of anti-dummy law which served as basis for Rep. Nograles to file a resolution calling for an investigation into NCPI.

During the recent hearing, Next Mobile (formerly NCPI) president Mel Velarde said what Urera was really after the collection of $5 million as additional compensation for his having been removed as CEO.

A letter signed by no less than Chavez dated Feb. 14, 2003 addressed to William Conway, chairman of US-based Nextel Communications, Inc. proves Velarde’s point beyond reasonable doubt.

Here’s a portion of Chavez letter: "Formal demand is hereby made that your company pay Mr. Antonio M. Urera the sum of not less than $5 million as reasonable compensation for his unlawful termination, within 10 days from receipt thereof. Should you fail to do, we shall be constrained to institute the necessary actions to protect our client’s interests and seek vindication for the wrong that has been inflicted upon him, which actions may include, but not limited to, initiating the proper congressional inquiry (before both the Senate and the House of Representatives of the Republic of the Philippines) into your company’s brazen violations of our anti-dummy law and constitutional proscription against foreign control over public utilities in our country."

Chavez adds: "Our client will not hesitate to testify before any investigating body, including the US Justice Department, the US SEC, and to go on record with his knowledge of your company’s violations not only of Philippine laws but also of your own country’s foreign corrupt practices act."

The former Solicitor General likewise noted that his client’s stellar performance as CEO/president of NCPI would not have been unblemished had it not been for his refusal to abide by company policies that were in clear violation of the laws of the Republic of the Philippines, particularly with respect to the proscription provided for in the Philippine Constitution against foreigners controlling the management of a public utility.

What? Ask anybody who worked with Urera at Nextel and they will tell you the real reason. It’s not for me to tell – lest I be charged with libel, but I’m telling you, Urera is not that nationalistic. Tip, ask Nextel marketing people, particularly the agents and they will tell.

Had the American company which used to have shares in NCPI paid the $5 million, would Urera and counsel have gone to Congress? The Americans refused to pay more than what he is entitled to, so Urera made good his threat.

I hope that Rep. Nograles will live up to what he said that he will not allow himself nor Congress to be used as a collection agent The Department of Justice, in a recent decision, has emphasized that under the ‘control test’ which has replaced the ‘grandfather rule’ and which has been incorporated in the Foreign Investments Act, NCPI has not violated any law and has met the 40 percent foreign ownership limitation.

Why pick on Nextel when several other telecom companies like PLDT and Globe similarly have foreign ownership? PLDT’s equity structure is so complicated and probably would involve a hundred companies. But whether there are only two firms owning a telecom company or a thousand, what is important is that each of these investing firms meet the 60-40 equity rule.

I know that Atty. Chavez hates receiving lectures from non-lawyers, but isn’t it a principle of law that he who comes to court should come with clean hands? It was when Urera was president of NCPI that the alleged violations of the foreign equity rule took place. We empathize with Urera but threatening NCPI or its successors (Next Mobile including) is not the way to do it.

Hidden Agenda can be reached at [email protected]