PLDT-Smart brands draft NTC-IP peering policy as unconstitutional

MANILA, Philippines - Philippine Long Distance Telephone Co. (PLDT) and subsidiary Smart Communications have branded the proposed circular of the National Telecommunications Commission (NTC) on domestic IP peering as unconstitutional.

Peering has been defined as the voluntary interconnection of administratively separate Internet networks for the purpose of changing traffic between the customers of each network.

PLDT said the proposed NTC circular is an invalid exercise of police power, adding that the requirements for valid exercise of police power by the state – that public interest, not of a particular class only, requires the interference of the State; and that the means employed are reasonably necessary to attain the objective sought to be accomplished – in this case are not present.

The NTC circular orders all Internet Service Providers (ISPs) with direct connection to a foreign ISP to provide, at their own expense, their own links to the Department of Science and Technology-Advanced Science and Technology Institute (DOST-ASTI).

PLDT pointed out in a position paper submitted to the NTC that the proposed circular would only benefit a few ISPs which are private entities and that PLDT-Smart will not derive any value from peering with DOST-ASTI Internet exchange. In addition, the means employed by the NTC are unreasonable and unnecessary since there are already five existing Internet exchanges in the country and that even without the DOST-ASTI IP Exchange, the NTC can still achieve its objective.

It also said the proposal amounts to unlawful taking and an invalid exercise of the State’s power of eminent domain and that ISPs must be paid just compensation. “By ordering ISPs to shoulder the operation and maintenance of their links to DOST-ASTI, and directing them to allow their facilities to be burdened by the traffic of others ISPs free of charge, the NTC is unlawfully taking the property of private entities, and is tantamount to being confiscatory. Peering is fundamentally a barter relationship, thus there should essentially be an equal exchange of value. But in this case, PLDT and Smart will not derive any value from peering with DOST-ASTI Internet exchange,” the PLDT Group said.

The group said there is clearly “taking” by the State (as an element of eminent domain) under the proposed circular since it directs all ISPs to provide and maintain, at their own expense, their own links to the DOST-ASTI IP Exchange and to allow their infrastructure to deliver and receive traffic through the exchange.

To constitute a valid exercise of the State’s power of eminent domain, PLDT said there must be just compensation. “But the circular does not provide for the payment of just compensation. By ordering ISPs to shoulder the operation and maintenance of their links to DOST-ASTI, and directing them to allow their facilities to be burdened by the traffic of other ISPs free of charge, the NTC is unlawfully taking the property of private entities and is tantamount to being confiscatory,” it noted.

PLDT-Smart likewise stressed that the proposed circular violates the constitutional prohibition on non-impairment of contracts.

It said that by entering into a multilateral peering agreement with the DOST-ASTI Internet Exchange and other ISPs, other entities will have access to data that originates from PLDT and Smart and which are required to pass through the DOST-ASTI Exchange. “In the absence of well-defined security features, this mandated IP peering will result in a violation of the confidentiality agreements validly entered into by PLDT and Smart with their customers. And since there is no valid exercise of police power here which would otherwise allow an impairment of obligations of contract, the NTC cannot validly promulgate the proposed circular which will effectively impair the existing contracts of the ISPs,” it added.

The group also pointed out that the proposed circular is anti-competition. “Mandating all ISPs to interconnect with the DOST-ASTI IP Exchange will enable some ISPs to use the capacity of other ISPs for free and receive maximum profit therefrom at the expense of the ISP who heavily invested capital for its facilities. Due to this unfair setup, ISPs lose the incentive to further invest in upgrading, improving, and expanding their respective infrastructures. ISPs will inevitably try to avoid being the one to provide the majority of the capacity needed,” PLDT and Smart added.

It noted that one study found that in forced peering agreements, consumers would benefit from reduced prices in the short term but would eventually suffer from poor, congested infrastructure due to low levels of investment.

It likewise emphasized that the proposed circular is an invalid exercise by the NTC of its rule-making authority since its provisions contravene Republic Act 7925 or the Public Telecommunications Act, and is a circumvention of the bilateral nature of interconnection agreements.

“Peering through bilateral agreements, as opposed to mandatory peering, still proves to be the ideal and more effective means to improve and reduce the cost of internet services. Parties entering into this type of agreement can easily impose and enforce service level agreements (SLAs) upon each others... On the contrary, DOST-ASTI, being a government entity, cannot be held accountable or liable if it fails to perform its obligations under the peering agreement....DOST-ASTI confirmed that it cannot impose SLAs upon ISPs interconnecting with its since it is not charging any fees on them,” it added.

PLDT-Smart likewise pointed out that Internet is a value-added service and therefore should not be strictly regulated.