IDC: Despite Continued ICT Upswing, Philippines Still Experiences Internet Woes

Manila, August 27, 2015 – Although IDC expects the ICT industry in the Philippines to be in a continued upswing in 2015, the country continues to lag behind its neighbors when it comes to Internet connectivity. Recent rankings on broadband Internet in Asia show the Philippines at the tail end of the list — only ahead of Afghanistan.

One of the factors that sets the country back from getting better Internet services is its archipelagic nature. As the country is composed of 7,107 islands, it is more challenging for ISPs to build infrastructure and provide customers unfailing Internet connection. The country’s geographic makeup impedes the expansion of telecom networks to rural areas.

“Building of Internet infrastructure in many provinces remains a work in progress because from a telco standpoint, it can be costly and is a kind of investment that may not necessarily prove to be lucrative, considering the lower number of data users in some areas,” said Alon Anthony Rejano, associate market analyst, IDC Philippines.

To reach out and bring connectivity to far-flung locations, TV white space (TVWS) is being eyed as one of the solutions. TVWS is a wireless data communications standard technology that uses vacant frequencies located between broadcast TV channels to provide wireless data connectivity to remote communities in the country. The Information and Communications Technology Office (ICTO) announced its plans to deploy this wireless data communications standard technology, and pilot tests are currently being conducted.

In another move to address the country’s slow Internet, the National Telecommunications Commission (NTC) signed a memorandum last August 13, setting the minimum broadband speed at 256Kbps. The NTC also compelled service providers to disclose to the public their average data rates per location. Much has already been discussed about how this new regulation may affect the consumers. However, it is also important to look at its implications on the commercial space.

No organization in today's cutthroat environment is immune from the disruption brought about by the ever-changing customer demands and the rise of the 3rd Platform technologies. As the industry moves toward the digital era, companies are requiring higher amounts of bandwidth more than ever. For companies to enjoy the full benefits of these new technologies, good Internet connection is an important factor. IDC believes that an improved Internet connection can make way for more bullish growth in the commercial ICT sector.

In the commercial space, the new regulation on minimum Internet speed may affect small offices and home offices (SOHOs) but is not likely to have any significant impact on medium-sized businesses and enterprises (large and very large businesses). Internet subscriptions of

medium-sized businesses and enterprises would typically involve a committed information rate (CIR), which already serves as the minimum speed that an ISP is compelled to provide them based on the service-level agreement (SLA) between the two parties. SOHOs, on the other hand, would usually opt for consumer-targeted Internet subscriptions that do not involve CIR and SLA. Therefore, they are the ones that are most likely to be affected by the minimum Internet speed. While there are some backlash on the minimum speed set from technology lobbyists who argue that a minimum speed of 256Kbps is still too low, IDC believes that this is already a good move toward effecting change in the country’s telecommunications industry.

“Setting a new minimum Internet speed is a step toward the right direction as it provides users a safety net. In an instance that ISPs fail to provide the minimum speed of 256Kbps 80% of the time, they can now be held liable as sanctions can be imposed on them by the state,” said Jerome Dominguez, market analyst, IDC Philippines.

PH Internet, also one of the most expensive in the world

Another concern raised by the recent Ookla rankings is the Internet cost, in which the Philippines ranked as one of the most expensive in the region, averaging at US$18 (Php840)/Mbps compared with the worldwide average of only US$5 (Php230)/Mbps. While the high cost of the Internet in the country may be hurting consumers’ pockets, on the commercial side, IDC believes that this may have minimal impact on potential foreign investors.

“For foreign investors looking to set up businesses in the country, the cost of Internet services can be a factor to consider, although they are unlikely to decide against investing in the country just because of it, unless the company’s core business would run on the Internet,” said Karen Rondon-Garcia, research manager, IDC Asia/Pacific.

“Other factors such as manpower availability, labor cost, infrastructure cost, government regulations, political stability, security, and cost of raw materials (for manufacturing firms) would usually still take precedence over the cost of Internet in an investment decision,” Rondon-Garcia added.

For Internet-dependent companies, the role of Internet is to enable business growth for business automation as a competitive tool. This is important to provide quality customer experience and have a competitive edge in innovation. However, if the connection is slow and unsteady, it may mean loss of productivity and money for the enterprise.

IDC Essential Guidance

Internet is key in a progressive economy. Therefore, it is important for the government to study closely the existing laws and regulations that should be strictly implemented and identify what additional regulations are required. Right now, the government is addressing Internet- or infrastructure-related issues in silos, but it should focus on the entire picture as far as addressing the Internet situation in the country is concerned. The efforts of the government, with the help of the private sector, in championing the country's campaign to improve availability, quality, and affordability of Internet services would be the key. This includes finally putting in place a comprehensive national broadband program that would not only interconnect government agencies but more importantly prove the government's commitment to an improved connectivity in the country.

One of the main reasons the cost of Internet in the country is more expensive than other countries is because we only have two major players. The lack of competition is keeping the prices high. A market disruption would typically help resolve the issue. Such could come in the form of additional players to stir competition and help drive prices down and improve the services. The market could also be disrupted by intense competition between the two main players, such as when one introduces a new service or product strategy that could be a game changer.

Connectivity between countries and economies is intensifying across a number of parameters. In particular, infrastructure is a primary component of regional connectivity, particularly in the electricity, telecommunications, transportation, and water industries. As we enter a new era of the digital age, investments in virtual infrastructure should be given the same priority and focus as investments in physical infrastructure to improve the exchange of goods and services and pave the way for a healthier ICT industry.

For further information on the findings contained in this report, please contact Rodalyn Quimora at +63-2-478-7260 ext. 406 or [email protected].

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