Economic Update

Published 29 Aug 2016

Improving connectivity in the Philippines via a high-speed broadband network looks set to be a priority for the new administration, as broader efforts to boost productivity and GDP take shape.

President Rodrigo Duterte used his first state of the nation address on July 25 to set out an agenda for a smarter and faster Philippines.

In his speech, the president said he had tasked the newly-formed Department of Information and Communication Technology (DICT) with drawing up a plan for the deployment of a nationwide network of fibre-optic cables and wireless technology.

Improved connectivity is expected to help narrow the digital gap that separates the Philippines from its regional neighbours and boost the country’s growing business process outsourcing (BPO) industry.

Addressing the challenges

The Philippines ranks 21st out of 22 countries in Asia for internet download speeds, according to data released by internet metrics provider Ookla.

Average internet speeds in the Philippines have inched up by just 1.0 Mbps in the past two years from 2.5 Mbps to 3.5 Mbps, trailing those of its peer, Vietnam, which raised its average speed from 2.9 Mbps to 5.0 Mbps over the same period, according to the “Q1 2016 State of the Internet” report issued by Akamai Technologies, a content and cloud services provider. Neighbouring Indonesia and Thailand, meanwhile, improved their speeds by over 50% to 4.5 Mbps and 10.8 Mbps, respectively.

While the digital divide remains significant, the Philippines can expect to reap economic benefits from even a modest increase in broadband penetration. Studies carried out by the World Bank found that national GDP expanded by 1.38% for every 10% increase in broadband penetration.

However, affordability remains an issue. At present, broadband penetration rates stand at around 11% as a proportion of the Philippines’ population, with pricing cited as one of the main factors contributing to low take-up. Tariff structures mean that monthly internet charges exceed $18 per month, which is significantly higher than the global average of $5.20.

Details of how the national broadband project will be rolled out and pricing have yet to be announced.

However, in mid-July Benjamin E Diokno, secretary of the budget, said he was keen to make greater use of the public-private partnership model to help the government achieve its aim of lifting infrastructure investment to 7% of GDP per annum by 2022.

Potential gains for BPO segment

Industries set to benefit directly from improved connectivity and broadband speed include the Philippines’ BPO segment.

The sector generated estimated revenue of $22bn in 2015, with the former administration predicting the figure would reach $25bn this year. The central bank expects the combined revenue of the IT-BPO sector to edge income from remittances by 2017, making it one of the largest earners of foreign currency in the Philippine economy.

A stronger infrastructure backbone will help sustain a growth surge while also allowing BPO hubs to develop away from the main urban centres, where they are currently located.

Melanie Ng, president of the Cebu Chamber of Commerce and Industry, is confident that improved communications technology will boost productivity and increase industry potential.

“It is by way of maximising the use of technology present today that we can fast track processes and improve the ease of doing business,” Ng told local media in Cebu, a developing BPO hub, in late July.

Improvements already under way

Both the public and private sectors are already moving to speed up internet services and expand broadband reach.

In a bid to support deployment, the DICT is considering recalling frequencies already allocated to private sector operators but that have yet to be put into service, Rodolfo Salalima, secretary of the DICT, told media in July. Such a move will allow the additional spectrum to be used for broadband rather than other telecommunications options.

In late July, Smart Communications – a subsidiary of local telecommunications giant PLDT – announced plans to expand high-speed internet service coverage to 95% of the country by 2018.

As part of its 4G roll-out, the company said it intended to extend its LTE coverage to 40% of the Philippines’ municipalities by the end of 2016. Further investment would allow it to increase its reach over the coming two years, the provider added.

Oxford Business Group is now on Instagram. Follow us here for news and stunning imagery from the more than 30 markets we cover.