20 August 2018

Department of Transportation Formally Places

Transport Network Companies and Transportation
Network Vehicle Services Under the Full Authority of
the Land Transportation Franchising and Regulatory
Board
https://www.bakermckenzie.com/en/insight/publications/2018/08/department-of-transportation-formally-
places

Recent developments
The Department of Transportation recently issued Department Order No. 2018-012
dated 11 June 2018 (Department Order) which (a) expressly classified Transport
Network Companies (TNC) and Transportation Network Vehicle Service (TNVS) as
public utilities; and (b) confirmed the full regulation and supervision of the Land
Transportation Franchising and Regulatory Board (LTFRB) over TNCs and TNVS.

You may access the Department Order using this link.

What the Department Order Says

1. Effective 11 June 2018, TNCs and TNVS are now expressly considered public
utilities  

Previously TNVS was already considered a common carrier, [1] while TNCs were not
expressly considered public utilities but defined as "an organization whether a
corporation, partnership, sole proprietor, that provides pre-arranged transportation
services for compensation using an internet-based technology application or digital
platform technology to connect passengers with drivers using their personal
vehicles".[2]
  
Under the Department Order, TNCS and TNVS are now both expressly considered
as common carriers and classified as public utilities. 

2. TNCs and TNVS are subject to full regulation and supervision by the LTFRB
 TNC's and TNVS are now expressly subject to full regulation and supervision by
the LTFRB including, but not limited to, the following:
      
a. Approval/denial of the franchise application
b. Setting of fares, routes and operating conditions
c. Imposition of fines, suspension and cancellation of franchise.
 
3. The Department Order affirms the LTFRB's power to issue a Certificate of Public
Convenience (CPC) for both TNCs and their accredited TNVS.
   
Previously, only TNVS are required to secure a CPC from the LTFRB. [3] TNCs were
only required to secure a Certificate of Accreditation with the LTFRB. [4] 

Now, the Department Order expressly conferred LTFRB with the power to issue a
CPC to both TNVS and TNC upon full compliance with jurisdictional requirements,
publication and hearing, as may be determined by the LTFRB. 

Consequently, there is no longer any distinction on the type of authority needed

from the LTFRB before either a TNC or TNVS can operate. Both will require a CPC
from the LTFRB. 
 
4. The LTFRB is now expressly authorized to determine the fare for TNVS, after
public hearing or in consultation with the TNCs and TNVS.
  
This is a departure from Department Order No. 2015-011 which allowed TNCs to
set their own fare scheme subject to oversight / supervision of the LTFRB. This
settles a previously unclear issue as the LTFRB had taken the position that it has
the authority to determine fares for TNVS notwithstanding Department Order No.
2015-011.
    

Implications for TNCs and TNVS

TNCs and TNVS are now expressly considered public utilities subject to foreign equity
and management restrictions. Notably, foreign equity of operators of public utilities is
limited to only 40%.

LTFRB's full regulation and supervision over TNCs and TNVS had been affirmed with
respect to, among others, (a) application and renewal of their franchise / issuance of
CPC; (b) determination of fares, and approval of any change to a fare scheme; (c)
change in routes; (d) any other change in operating conditions; and (e) imposition of
fines, suspension and cancellation of franchise.
Actions to consider
TNCS and TNVS should ensure compliance with: (a) foreign equity restrictions and
limitations on participation of foreign management (i.e. foreign equity should be limited
to only 40%); and (b) jurisdictional requirements, publication and hearings, as
determined by the LTFRB, when applying for a CPC.

They should also take into account and comply with the rules and regulations of the
LTFRB with respect to fares / fare schemes, and operating conditions, among others, in
order to avoid penalties (i.e. fine, suspension and cancellation of franchise).

[1]
 LTFRB Memorandum Circular No. 2015-018-A. 
[2] 
DOT Department Order No. 2015-011. 
[3]
 LTFRB Memorandum Circular No. 2015-018. 
[4]
 LTFRB Memorandum Circular No. 2015-015.