WITH this paper’s headline the other day raising the issue of control of foreign interests in Philippine Long Distance Telephone Co. (PLDT), the country’s dominant telco, the prospect of another bruising corporate battle looms in the horizon.

The Supreme Court decision defining what constitutes control in a company—common share ownership, not common plus preferred shares—has come into focus once again and with it the High Court’s barbed admonition to the Securities and Exchange Commission (SEC) for its failure to crack the whip on PLDT on the foreign-control issue.

Senior SC Associate Justice Antonio T. Carpio even cited the proceedings that attended the crafting of the constitutional provision on the issue of Filipino control in certain nationalized industries. He said they showed why the addition of preferred shares in the computation of whether a company is deemed controlled by Filipinos, is flawed. This could have been the reason for what Sen. Joker Arroyo described as the lopsided 10-3 SC vote on the petition of former Assemblyman Wilson Gamboa against the sale of PLDT’s shares to First Pacific, the major foreign shareholder of PLDT.

Justice Carpio made a clear analogy on why the common shares, not the combined common and preferred shares, should be taken into account when determining who controls a Filipino corporation. The holder of the common shares is the one who dictates on the course of the corporation, not those with the preferred shares. Carpio’s admonition then on the SEC becomes food for thought with the way Globe Telecom is defining the issue when it raised the issue of foreign control in PLDT, a no-no insofar as the telecom industry is concerned.

Under the Constitution, nationalized industries like telecom should be put in the control of Filipinos. And since PLDT, as per that decision of the High Court, is controlled by foreigners, then Smart, a 100-percent subsidiary of PLDT, should divest itself of frequencies awarded by the National Telecommunications Commission (NTC). The line of attack by Globe Telecom shows that it is resorting to the same thrust of PLDT when it raised the issue of the supposed illegal use of the Altimax frequency by the Ayala-controlled telco: A tooth for a tooth, an eye for an eye.

With the new tack of Ayala, the SC decision is spotlighted and with it the reminder of the Supreme Court on the failure of the SEC to implement the constitutional provision. To appreciate fully the decision, the analogy that Justice Carpio spelled out is so clear as to show that PLDT is in the hands of foreigners. “We shall illustrate the glaring anomaly in giving a broad definition to the term ‘capital.’ Let us assume that a corporation has 100 common shares owned by foreigners and 1,000,000 nonvoting preferred shares owned by Filipinos, with both classes of share having a par value of P1 per share. Under the broad definition of the term ‘capital’ such corporation would be considered compliant with the 40-percent constitutional limit on foreign equity of public utilities since the overwhelming majority, or more than 99.99 percent, of the total outstanding capital stock is Filipino-owned.

“This is obviously absurd,” the High Court said as it stressed that under the example cited, only the foreigners holding the common shares have voting rights in the election of directors, even if they hold only 100 shares. “Even with such a minuscule shareholding, the foreigners ‘exercise control’” over the corporation. “This starkly circumvents the intent of the framers of the Constitution, as well as the clear language of the Constitution, to place the control of public utilities in the hands of Filipinos,” the SC said.

The 40-page decision, concurred in by nine other justices, explained fully the intent of the framers of the Constitution which is to ensure “a self-reliant and independent national economy effectively controlled by Filipinos.” And this effective control should be reckoned based on the ownership of common shares and not common plus preferred shares.

“To construe broadly the term ‘capital’ as the total outstanding capital stock, including both common and nonvoting preferred shares, grossly contravenes the intent and letter of the Constitution that accords to Filipinos the control of public utilities and other nationalized industries. A broad definition (which includes even nonvoting preferred shares) unjustifiably disregards who owns the all-important voting stock , which necessarily equates to control of the public utility,” the SC said.

The issue of whether PLDT is foreign-controlled is, however, still the subject of a motion for reconsideration, but the fact that Ayala has managed to put the spotlight on the question of the common stocks and its control over a company means that it has managed to emphasize what the ongoing conflict between the two telcos is all about and it rakes the issue of nationalism. The telco battle bears watching on this point.

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