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Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.
AT A GLANCE:
The Prior Operator Rule means that before permitting a new operator to invade the territory of another operator, the prior operator must first be given the opportunity to extend its service in order to meet public needs.
However, where public interest would be better served by admitting a new operator, as when the prior operator has failed to render adequate, sufficient, and satisfactory service, the “prior operator rule” shall not apply. (LTFRB Memorandum Circular No. 2014-010 (1)(f))
The Rationale of the Prior Operator Rule
As a general principle, public utility operators must be protected from ruinous competition, such that before permitting a new operator to serve in a territory already served by another operator, the latter should first be given an opportunity to improve his equipment and service. (Fortunato Halili vs. Ruperto Cruz, G.R. No. L-21061, June 27, 1968)
As reiterated in the case of Mandbusco Inc. vs. Pablo Francisco (G.R. No. L-23688, April 30, 1970):
Public operators must be shielded from ruinous competition by giving the prior operator the opportunity to improve his equipment and services before allowing a new operator to serve in the same territory.
The Prior Operator Rule exists to protect businesses providing public services, like transportation or utilities, from harmful competition. Imagine you have a favorite ice cream stand in your neighborhood. The rule is like saying, before allowing a new ice cream stand to open right next to your favorite one, the owner of your favorite stand should first get a chance to upgrade their ice cream flavors and improve their service.
This protection is compared to a legal principle. In a court case from a long time ago, the judges said that public service providers, like those who run buses or water utilities, should be safeguarded from really tough competition. They should be given the chance to make their services better and upgrade their equipment before a new provider is allowed to offer the same services in the same area. This way, the quality of the services you enjoy doesn’t get harmed by unnecessary competition.
What does the existing franchise operator need to establish according to the prior operator rule?
The prior operator rule grants a current franchise operator the privilege of asserting a priority right to provide public services in the designated area, given that they fulfill their duties in a satisfactory and cost-effective manner. Therefore, if an operator already holds a franchise to offer certain services in a specific location, they have the first dibs or precedence in continuing to provide those services in that area, as long as they do it well and efficiently.
Exceptions to the Prior Operator Rule
- Where public interest would be better served by the new operator;
- Where the old operator failed to make an offer to meet the increase in traffic;
- Where the CPC granted to the new operator is a maiden certificate; and,
- When the application of the rule would be conducive to monopoly.
Let’s break down these exceptions with practical examples.
Public Interest Override: Imagine a small town where the only existing bus service is struggling to meet the growing demand. If a new bus operator can provide better services and more routes to benefit the community, the authorities may allow them to start their services despite the Prior Operator Rule.
Failure to Adapt to Demand: If a taxi company has been operating in a city and refuses to increase the number of taxis or improve their services despite a significant increase in people needing rides, authorities might allow a new operator to enter the market and meet the unmet demand.
Maiden Certificate: If a brand-new transportation company applies for a franchise to operate a bus route that has never been served before, they may be granted the franchise even if there’s an existing operator in a nearby area. This is because the existing operator hasn’t been providing services in the specific location covered by the new franchise.
Preventing Monopoly: If one company already controls all public transportation services in a region and applying the Prior Operator Rule would lead to a complete monopoly, authorities might allow a new operator to introduce competition and prevent a single company from having too much control.
In light of the foregoing, the exceptions to the Prior Operator Rule are situations where the usual practice of giving the existing service provider the first chance to continue may not apply. These exceptions aim to balance the need for healthy competition, improved services, and the overall benefit to the public interest against the protection of existing operators.
Why is the concept of a prior operator significant?
This rule is crucial for maintaining consistency and efficiency in public services. By giving priority to the current operator who has a proven track record of meeting service standards and operating economically, it ensures that the community continues to receive reliable and satisfactory services. This practice avoids unnecessary disruptions that might occur if a new operator were to take over without a demonstrated ability to meet the established service standards. Overall, the prior operator rule is designed to prioritize well-established and effective service providers, promoting stability and quality in public services.
Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries regarding taxation and taxpayer’s remedies, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.
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