Philippines - Information and Communications TechnologyPhilippines - Information Technology
Overview
The Philippine Government has identified better connectivity and promoting ease of doing business among its priorities. President Rodrigo Duterte has repeatedly reminded Government officials and the private sector about improving their services. He instructed the search for a third telecom operator to address the duopoly between the Philippine Long-Distance Telephone Company (PLDT) and Globe Telecom. On May 2018, President Duterte signed Republic Act (RA) No. 11032 or the Ease of Doing Business and Efficient Government Service Delivery Act. This law aims to streamline government procedures and services and solve what President Duterte calls “the perennial problem of red tape”. RA 11032 was crafted to attract more foreign investments to the Philippines and to fast-track the establishment of new businesses. These developments are expected to boost investments in information technology products and services and capital expenditure for telecommunications networks.
Information Technology (IT)
The Philippines IT spending is forecasted to reach US$5.1 billion in 2019 and US$8.1 by 2023, with an estimated 12.1 percent annual growth rate during this period. These figures from Business Monitor International (BMI) breaks down the IT industry into three segments: computer hardware sales, software sales, and IT services.
Estimated 2019 hardware sales for the Philippines is at US$1.9 billion, with annual growth rate of 5.8 percent to reach US$2.4 billion in 2023. The 5.8 percent annual growth rate is slower than originally expected and this is because the Philippine consumer is more inclined to invest on a smartphone first as opposed to a PC. Growth of tablets is slower because they are considered as comparable to a smartphone in functionality, but higher in cost. Acer, Lenovo and Asus are the top PC brands in the Philippines for 2018. They are more affordable compared to U.S. brands Dell and HP. Apple is a popular premium brand but market share for Mac desktop and notebook remains low due to the price sensitivity of the market. Printer and copier demand are on a downward trend given the reliance on smartphones and movement away from paper-based processes. A more positive trend is expected for servers and storage as small and medium enterprises are projected to automate, and larger companies to modernize their systems and expand their computing capacity.
There is a growing demand for automation across sectors and this will lead to robust opportunities for software and services. Software sales for 2019 is estimated at US$694 million, with an 18.2 percent annual growth to reach US$1.4 billion by 2023. Efforts to modernize from both the private and public sectors will spur demand for software. IT services such as training, customization, consulting, and maintenance is expected to hit US$2.8 billion in 2019 and expand by 14.4 percent per annum to reach US$4.8 billion in 2023. Migration to cloud services and cybersecurity solutions are technology trends that are expected to have the most positive impact on IT services.
The Philippines growing middle class and young population are important drivers of IT demand because their spending levels on technology products are on an upward trajectory and it is benefitting premium brands. Infrastructure investments in the Philippines is seen as another source of opportunity. The road, railway, airport, bridge, and port systems that are being built will require, at a minimum, design software, building information modeling (BIM) for better project management, and file sharing applications. These will drive demand for hardware, software and services.
The Philippine Government, the business process outsourcing (BPO) industry, the financial sector, and the telecommunications industry are key vertical markets for IT. The Philippine Government showed its strong support for the industry by establishing its own Department of Information and Communications Technology (DICT) in 2016. Details on the DICT’s projects are listed under “Opportunities”. The BPO industry currently employs 1.8 million and has large companies like Citi, JP Morgan, HSBC, and Accenture with offices in the Philippines. The BPO industry is not only a large employer but is also a major consumer of hardware, software and services. The financial services industry is a major customer for automation and security services to support its online services. All the Philippines’ universal banks provide online services and transactions. The telecom industry is dependent on IT hardware, software and services to operate networks and to interface with customers. A discussion on the Philippines telecommunications industry is provided below.
Telecommunications
The Philippines telecommunications industry is at a significant point in its history since its deregulation in the late 90’s. The industry saw mergers and acquisitions in the early 2000’s that resulted to the duopoly of the Philippine Long-Distance Telephone Company (PLDT) and Globe Telecom. Below is a table showing the breakdown of mobile and broadband subscribers from Globe and PLDT, as of December 2018:
The Philippines information communications technology (ICT) industry has significant growth potential given increased public and private investments, upward consumer spending, and demand for better services that can be addressed through improved infrastructure and automation.
| GLOBE TELECOM[1] | PLDT[2] | |
| Mobile Subscribers | 74.1 million (71.5 million pre-paid / 2.6 million postpaid) | 60.5 million (58.2 million pre-paid / 2.3 million postpaid) |
| Broadband Subscribers | 1.6 million | 2.1 million |
Apart from consolidation, the early 2000’s also saw the rise of Chinese telecommunications equipment providers. The DICT has indicated that the Philippine telecommunications network is about 80 percent reliant on Chinese telecom equipment led by Huawei and ZTE. U.S. telecom equipment providers found it difficult to compete against the aggressive financing packages of their Chinese competitors.
President Duterte highlighted the need for better telecom services in 2016 and mentioned that he would like a third telecom carrier to operate in the country. The President blamed the duopoly for the country’s poor telecom services, and slow internet speed. The DICT published Memorandum Circular 09-09-2018, the Terms of Reference for the Bidding for the Third Major
Telecommunications Provider on September 21, 2018, and the opening of bids took place on November 7, 2018. The highest committed level of service (HCLoS) selection model was adopted for the bidding with three selection criteria: national population coverage (40 percent), minimum average broadband speed (25 percent) and annual capital and operational expenditures (35 percent).
Three companies submitted bids:
1. MISLATEL: A consortiuim of Udenna Corporation, Chelsea Logistics, Mindanao Islamic Telephone Co., Inc. (MISLATEL) and Chinese state-owned China Telecom. MISLATEL is the franchise holder (granted in 1998) but it did not actively roll-out its services.
2. Sear Telecom: A consortium of TierOne Communications and LCS Holdings of Chavit Singson (a politician from Northern Luzon). They are supported by Fuhjian Torch Electron Technology of China, Miller Pte. Ltd of Singapore, and Southeast Asia Telecom of Cambodia.
3. Philippine Telephone and Telegraph (PT&T): A telecom company established in 1962 and was a major competitor of PLDT in the 1980’s through the 1990’s. It filed bankruptcy in 2004 and officially exited court-assisted rehabilitation in December 2018. Menlo Capital Corp. acquired substantial shares in PT&T in August 2017.
MISLATEL was named as the “provisional new player” on November 7, 2018 when the two other companies were found to have incomplete or insufficient documents. MISLATEL is waiting for its “Certificate of Public Convenience and Necessity (CPCN)” from the National Telecommunications Commission (NTC), and the award of frequency bands of 700 megahertz (MHz), 2100 MHz, 2000 MHz, 2.5 gigahertz (GHz), 3.3 GHz and 3.5 GHz.
Leading Sub-Sectors
- Fiber Optic Network – given the new investments in broadband
- Cyber Security – significant cyber investments for both the public and private sectors
- Cloud Services – there is a policy shift towards cloud services, but further market education is needed to address misconceptions and better understand how it may be procured.
- Networking equipment – continuous upgrades for telecom companies and for enterprise customers
- Storage and servers – to support automation and continuous upgrades
- Smartphones – the preferred connectivity device of Filipino consumers
Opportunities
Globe has announced US$1.2 billion capital expenditure in 2019, while PLDT will invest US$1.5 billion . MISLATEL is expected to invest US$800 million in the next five years as part of its commitment as the new major telecommunications player. Apart from MISLATEL, companies like Converge ICT Services, NOW Corporation and PT&T are investing in telecom infrastructure. Converge ICT has announced a US$1.5 billion, five-year expansion of its fixed broadband capabilities. Converge has committed to lay its own fiber optic network and domestic sub-sea cable. PT&T plans to upgrade its core network, expand its fiber footprint, and build cyber security, IoT, and Smart City opportunities.PLDT and Globe have announced 5G partnerships; Globe with Huawei and PLDT with Nokia for 5G in universities , and with Cisco “help transform its fiber transport network in to a fully automated, software-defined 5G-ready IP transport network over the next three years.” Globe is preparing to launch 5G for the home (home broadband service) in June 2019 .
The DICT launched the “National Broadband Plan” in 2017 with the goal to connect government offices nationwide, provide internet access to far-flung areas that are either un-served or underserved by the private sector, and stimulate economic growth through the digital empowerment of the people. The plan is divided into five components:
1. International Gateway – Facebook, DICT, and the Bases Conversion Development Authority (BCDA) entered into a partnership to build the “Luzon Bypass Infrastructure”, a high-speed broadband infrastructure that includes two cable landing stations connected by a 250-km long cable network corridor. Facebook, DICT and BCDA signed the Strategic Engagement and Collaboration to Undertake a Reliable and Efficient Government Internet (SECURE GovNet) project agreement on November 2017.
Facebook will build and operate a submarine cable system that will land on Baler, Aurora on the east coast of the Philippines. BCDA and DICT will construct the 250-km bypass cable network from Baler to Poro Point, La Union on the west coast. Facebook will continue the cable system as it exits from Poro Point. According to DICT Secretary Rio, this cable system will provide direct connections from Luzon to internet hubs in the U.S. and Asia. Facebook has agreed to provide the Philippine Government with broadband capacity of at least two million MPBS in exchange for using the bypass cable network.
2. Domestic Backbone – DICT entered into a tri-partite agreement with the National Grid Corporation of the Philippines (NGCP), and Transnational Corporation (Transco) to use NGCP’s fiber optic network to provide broadband to areas that are underserved or unserved by the two telecom providers.
3. Accelerated Tower Build – This focuses on new telecom tower build-up efforts and facilitating tower-sharing between networks. The Philippines only has 20,000 telecom towers, the goal is to increase this to 60,000 by 2022. The DICT released its common tower policy on May 24, 2019.
4. Accelerated Fiber Build for the Last Mile – The DICT wants to increase Fiber-to-the-Home (FTTH) connectivity. The plan is to offer subsidies to telecom companies to lay fiber in strategic areas that are not commercially viable.
5. Satellite Overlay – The Philippines is an archipelago and there are numerous isolated areas that are best served by satellite services. The DICT is interested to receive technical assistance to help them determine the scope of satellite service that meets the country’s needs. There is interest to potentially launch its own satellite, but these are all in very early stages of discussion.
In May 2017, the DICT released the “National Cybersecurity Plan 2022” (NCSP) with the goal of increasing the security and resilience of critical infrastructure in the Philippines. The first component of the NCSP is the “National Cyber Intelligence Platform Project” (NCIP). The NCIP Phase I is valued at US$10 million and it will establish a National Computer Emergency Team (NCERT) and a Security Operations Center (SOC) for threat intelligence and analysis. The NCERT and the SOC will identify, monitor and respond to cybersecurity threats and provide the basis for further implementation of the NCSP through subsequent project phases. Phase I will include provision to connect 10 other Government agencies. DICT awarded Phase 1 to a consortium led by Israel company, Verint.
NCIP Phases II and III will include a rollout of cybersecurity infrastructure and capacity building for up to 50 Government agencies. The budget for Phase II implementation is approximately US$40 million.
Web Resources
Dept. of Information and Communications Technology: http://www.dict.gov.ph/Converge ICT Solutions: https://www.convergeict.com/
Globe Telecom: https://www.globe.com.ph/about-us/investor-relations.html; https://www.globe.com.ph/content/dam/globe/brie/About-us/sustainability/documents/GLO-Integrated-Report-2018-Final-1.pdf
PLDT: https://pldthome.com/about-us;
http://pldt.com/docs/default-source/presentations/2018/fy18-results-presentation_final.pdf?sfvrsn=0
PT&T: https://www.ptt.com.ph/
SMART Communications: https://smart.com.ph/About/profile/