Subject: [NEXTEL-1] How Nextel mangled our Constitution

From: [email-masked]
Date: Mon, 28 Jul 2003 02:01:41 -0400

How Nextel mangled our Constitution

By Atty. Francisco I. Chavez,
As counsel for Mr. Antonio Urera
Sunday, July 27, 2003

In recent disclosures at the United States Securities and Exchange Commission (US
SEC), certain disturbing activities of Nextel International Inc. (NII) in the
Philippines have been published. These disclosures are available on the US SEC
website, http://www.sec.gov, and may be viewed on the Internet. Pertinent details
of what to look for on the website are outlined at the end of this letter.

The reports enumerate how NII was able to acquire 59.1 percent of Nextel
Communications Philippines Inc. (Nextel Philippines) through layers of companies
owned and controlled by the same NII, circumventing the constitutional 40-percent
limit on foreign ownership in enfranchised corporations.
The reports also describe the way NII is now trying to distance itself from Nextel
Philippines, through a supposed new set of owners, which have been provided by NII
with a huge "slush fund" to cover up its malpractices in our country.

This latest act is to protect the name of Nextel from its wrongdoings in the
Philippines-the circumvention of Philippine constitutional requirements on foreign
ownership limitation-and its possible negative impact on its multibillion-dollar
operations in the United States, Mexico, Brazil, Peru and others.

Background
1. In 1996 Nextel Intl. Inc. bought 30 percent of Infocom Communications Network
Inc. (ICNI) by acquiring Top Mega Enterprises Ltd., a Hong Kong-registered company
owning 30 percent shares in ICNI.

2. The capital structure of ICNI was then:

Top Mega Enterprises Ltd. (NII-owned) -30% (foreign)
Joyce Link
Holdings Inc.        -10% (foreign)
-40% foreign
Jetcom Inc.           -32.3% (Filipino)
Gotesco                -20 % (Filipino)
FoodCamp Ind.
& Mktg. Corp.      -7.7 % (Filipino)
-60% Filipino

3. NII had its eye on the lucrative mobile telecommunications business in the
Philippines. Nextel service incorporated two-way radio functions with the GSM
cellular-phone system. This market was projected to become the largest telecom
sector in the country, outstripping all of PLDT's, Digitel' s, Globe's and
Bayantel's landline business put together.

4. From the very beginning of NII's partnership with local shareholders, it
already controlled the five-member EXCOM of the ICNI board, through a provision in
the company bylaws where the lone American member, an NII representative, had veto
powers on all resolutions of the EXCOM, and quorum could only be achieved if this
lone American member was present, even if all the four Filipino members were
present.
The EXCOM is a board committee charged with the day-to-day management of the
corporation, to whom the CEO reported. This powerful committee controlled the
hiring and assignments of executives in the company, set their salaries and
bonuses, determined and set employee functions, and dictated all the policies and
procedures in the company.

5. A dispute thus developed between NII and the local shareholders over this
provision in the bylaws, which was introduced by NII and which gave its
representative these vast powers in governing the company, for in the view of the
local shareholders, this was anticonstitutional. A TRO was issued by the
Philippine SEC against the use of this provision in the July 13, 1998, meeting of
shareholders and directors.

6. At this point and in order to settle the dispute with the local shareholders,
NII planned a series of steps to move its investments in the Philippines forward,
by acquiring the local shareholdings, through "Filipino" companies it owns and
controls. The target-control of the company and the lucrative mobile market in the
Philippines.

The constitutional violations

7. The First Step: An agreement to acquire 20 percent of ICNI shares from Gotesco
was reached in July 1998. In order to have a qualified "Filipino" corporation buy
the 20-percent shares owned by Gotesco, Gamboa Holdings Inc. was incorporated on
August 10, 1998, and on August 21, 1998, it acquired the 20-percent shares of
Gotesco in ICNI. Gamboa is owned 40 percent by Top Mega Enterprises Ltd./NII, and
60 percent by ACCRA Investment Corp. US$9 million was needed for the purchase, and
Gamboa derived the cash from NII. Further, ACCRA Investment Corp. was guaranteed
to be paid US$ 8 million as its "put" option when NII/Top Mega finally acquires
its shares in Gamboa Holdings Inc.

In the last quarter of 1999, the company changed its name from ICNI to Nextel
Communications Philippines Inc. (NCPI), which is also referred to as Nextel
Philippines.

8. The Second Step: In July 2000 NII acquired Joyce Link, a foreign-registered
company owning 10 percent of Nextel Philippines' shares.  This is a
straightforward move, since a foreign company simply acquires another foreign
company.

9. Simultaneously in July 2000, and still part of the Second Step, NII also
acquired FoodCamp Industries and Marketing and, with it, the 7.7-percent shares
FoodCamp owned in Nextel Philippines. This time, Emerald Investments Inc. was
incorporated in July 2000 to be the "Filipino" buyer of FoodCamp Industries and
Marketing. Emerald's owners are Orient Holdings Ltd., an NII-owned company in Hong
Kong registered in June 2000, and a Filipino corporation, ACCRAIN Holdings Corp.,
an affiliate of ACCRA Investment Corp. that also owned Gamboa.

While Emerald is supposedly a Filipino corporation, its capital stock of P100
million was almost totally funded by Orient/Nil. NIL contributed P98,500,000, and
ACCRAIN only P1,500,000 into its capital stock. This capital amount was in turn
used by Emerald to buy FoodCamp Industries and Marketing. The owner of FoodCamp
testified before a Congressional committee hearing in June 2003 that he sold the
company to Emerald for less than P100 million. Evidently the total purchase price
of this "Filipino" corporation was actually funded, up to 98.5 percent of it, by
the foreigner NII. 

Yet Emerald is classified as a "Filipino corporation."Article XI of our
Constitution mandating that enfranchised corporations should be owned 60 percent
by Filipino citizens and only 40 percent by foreigners must be the world's biggest
joke, and Americans are laughing at us, seeing that NII is able to get away with
this. God forbid that foreigners be allowed to run circles around our
constitutional provision on national patrimony by letting a foreign company
directly own 40 percent of an enfranchised corporation, and this foreign company
establishes and controls "Emerald-type Filipino" companies to also own the 60
percent reserved for Filipino citizens! What a farce!

It is no wonder that in the US SEC reports, NII had included Nextel Communications
Philippines Inc., Emerald Investments Inc. and FoodCamp Industries and Marketing
as subsidiaries under its control, and Nextel Philippines as one of NII's managed
operating companies. NII further reported that the Nextel Philippines' president
and CEO reports to an American president for Asia/Pacific in violation of our
Constitution.
10. The Third Step: In January 2001 Emerald acquired another 20-percent shares in
Nextel Philippines from Jetcom Inc.

At this time, Nextel Philippines' structure was:

A. Top Mega/Joyce Link, foreign companies owned by NII-40%

B. Gamboa Holdings Inc., owned by Top Mega(NII)/ACCRA Investments
Corp.-20%

C. Food Camp Industries and Marketing, Inc., owned by Emerald
Investments, Inc. [Orient (NII) & ACCRAIN]-7.7

D. Emerald Investments Inc., owned by Orient (NII) & ACCRAIN Holdings
Corp.-20% All the above are NI-related ownerships and account for the US SEC-rep
orted 59.1-percent ownership by NI in Nextel Philippines (40 percent directly
owned by NII + 40 percent of 47.7 percent supposedly Filipino-owned shares 59.1
percent).

E. The rest, or 12.3 percent, are shares unrelated to NII, owned by Jetcom Inc.

The cover-up Later in 2001, NII was confronted by the problems it created in
layering Nextel Philippines' corporate structure. Because NII had to fully
disclose to the US SEC that it owned 59.1 percent of Nextel Philippines, and since
the setting up of what was made to appear as Filipino corporations was also
reported in detail, NII and Nextel Philippines were faced with proceedings at the
Regional Trial Court of Pasig City, at the (National Telecommunications
Commission, National Bureau of Investigation and later the Department of Justice,
and now at the Philippine Congress, with possible similar proceedings at the
Philippine Securities and Exchange Commission, and at the Bureau of Immigration
for anticonstitutional wrongdoings and for employing a foreigner without a proper
work permit. This foreigner was appointed to replace a Filipino chief technology
officer and vice president for technical services in Nextel Philippines against
the objection of the president/CEO of the company.

In an effort to save itself from these investigations, NII decided to distance
itself from Nextel Philippines. NII reported to the US SEC that it considered the
Philippine business climate unacceptable, putting the blame on the Philippines and
never on itself. It then booked an impairment write-down of its assets in Nextel
Philippines by as much as US$147.1 million, and paved the way for a "fire sale" of
Nextel Philippines. The idea is to give the company away to a Philippine group
that would save the reputation of Nextel and protect 
NII from the negative impact of the investigations. After all, it has multibillion
businesses in the United States, Mexico, Brazil, Peru and other countries where
any news of such impropriety as circumventing the Philippine Constitution may have
disastrous business and personal consequences to its officers.
Out of nowhere, a group called the "Mel Velarde Group" emerged, backed up by an
influential and controversial law firm supposedly well ensconced in the
administration, and this group now claims ownership of Nextel Philippines. Its
vehicle, according to its own account, is a management/leverage buyout of the
company-a common term to signify that the company was acquired very, very cheap.

Mel Velarde was not a member of Nextel Philippines management before all these.
And why not, NII had already written down its assets in the Philippines through
accounting an Impairment of Asset write-down of US$147.1 million.

This group has just changed the name of Nextel Communications Philippines Inc. to
NextMobile Inc., and the brand name for its service, formerly Nextel, is now
called IMX. The name Nextel has been dropped altogether as planned.

In addition, this group has publicly acknowledged that it is re-capitalizing the
company from the present P400 million to P11 billion, allegedly funded by the new
owners. How this was done should be an interesting subject for everybody to
pursue. There is more to this than meets the eye!

Effectively, NII has created a fat "slush fund" in the Philippines to protect the
name and reputation of Nextel against the issues before the court, the National
Telecommunications Commission, the Department of Justice and the National Bureau
of Investigation, the Philippine Congress, and possibly the Philippine SEC and the
Bureau of Immigration.

Here is how the fat "slush fund" was created:

I. Nextel Philippine Asset was written down-Impairment of Asset charge (US$147.1
million)

II. Nextel Philippines was acquired very, very cheap.

III. Nextel Philippines provides monthly revenues as follows:

A. Number of Nextel mobile units in service-about 45,000 handsets

B. Average revenue per unit-US$35 a month

C. Total monthly revenues-US$1.6 million Considering that NII had already booked
an Asset Impairment charge of US$147.1 million, the company has no burden of
capital expense amortization.  A positive net cash flow from operations of at
least half a million dollars net monthly, or about P25 million monthly, is
generated by this company for its new owners representing a fat "slush fund," to
take care of its problems and issues before the investigating agencies mentioned
above.

In view of the above:

I call for stopping Nextel from getting away with these wrongdoings.  The public
should boycott Nextel, and our lawmakers should pass laws making the control
against circumventing our Constitution strict and effective, in order to catch
illegal layering of corporate structures as early as possible!
We should never allow foreigners to make fun of our Constitution!

http://www.manilatimes.net/national/2003/jul/27/top_stories/20030727top5.html

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