The Philippine authorities have worked to develop the digital economy in recent years, prioritising strengthened internet service provision and a more competitive telecoms market. This proved to be fruitful after the onset of the Covid-19 pandemic in early 2020, which saw an increased reliance on online services and digital technologies during the country’s extended lockdown period. The pandemic also added greater impetus for players across the value chain to strengthen ICT infrastructure, fast track the digitalisation of business processes and prepare to upskill the workforce for the demands of the new normal.
Meanwhile, the versatility of the business process outsourcing (BPO) industry during the quarantine period, alongside an expanding start-up ecosystem and the entry of a third player in 2021, signals potential for the digital economy to enhance the post-pandemic recovery. While it will take time to overcome the incumbent challenges, measures to accelerate the development of the digital segment look set to improve the ease of doing business, create a more attractive destination for investment, and ultimately facilitate more inclusive and sustainable economic growth.
The Department of Information and Communications Technology (DICT) is responsible for the implementation of national ICT and digital economy policies. The National Telecommunications Commission (NTC) is under the supervision of the DICT and was formed in 2016 by the merger of five state departments. The NTC manages spectrum, enforces laws, and issues licences and permits. The DICT also oversees the Cybercrime Investigation and Coordination Centre (CICC), and the National Privacy Commission.
The Philippines’ long-term development programme, AmBisyon Natin 2040, identifies connectivity – in terms of both communications and transport – as one of eight national priorities. Underscoring the need for progress, a report from the World Economic Forum in 2016 – the year AmBisyon Natin 2040 was launched – ranked the Philippines lowest in ASEAN in terms of the affordability of internet access and below the regional average for both speed and availability.
The DICT unveiled the National Cybersecurity Plan 2022 in May 2017 and delegated its implementation to the CICC. The plan aims to facilitate the continuous operation of essential information infrastructures, as well as government and military networks; enhance the response to cyber threats; coordinate with law enforcement agencies to ensure compliance; and educate individuals and businesses about the importance of strong cybersecurity measures.
More recently, in March 2019 the DICT signed an agreement with the UN Development Programme to accelerate the rollout of its Free Wi-Fi for All initiative. Announced in 2015, Free Wi-Fi for All aims to bridge the digital divide by securing free, open and high-quality internet access in over 18,000 public places such as health centres, parks and schools. Local internet provider Converge ICT was awarded 186 sites in key areas across Manila, Pasay and Quezon City, and was the first provider to announce the completion of infrastructure installation works for the project in March 2020.
Meanwhile, in June 2019 the DICT launched the E-Government Masterplan (EGMP) 2022, which aims to streamline public services and improve inter-governmental coordination to strengthen efficiency and cost effectiveness. EGMP’s 2020 priorities include the National Government Portal, a platform that allows external clients, employees and various agencies to access services online. Also supported under the masterplan is the ongoing rollout of the National Broadband Programme to expand bandwidth allocation and facilitate high-speed, low-cost internet provision across the country – particularly in geographically isolated and disadvantaged areas that may offer a less appealing return on investment to private players.
The ongoing development of technological infrastructure and processes supporting consumer protection, data privacy and online security will continue to play an important role in efforts to facilitate the digital transformation and encourage investment as part of the post-pandemic economic recovery. “The Covid-19 crisis raised awareness on a national level of the opportunities presented by innovative digital technologies,” Leo Urbiztondo, officer-in-charge director for the Government Digital Transformation Bureau of the DICT, told OBG. “To further encourage investment in the segment, it will be important that we continue to update ICT policy and focus on improving the ease of doing business by streamlining bureaucratic procedures and ensuring openness to investors.”
The need to make the internet more accessible was highlighted by a report published in late 2018 by the Asia Foundation and Better Broadband Alliance, which found that the cost of fixed broadband in the Philippines was equivalent to 7.1% of monthly per capita GNI, above the 5% threshold recommended by the UN’s International Telecommunication Union. The speed of fixed broadband is also suboptimal, with the country ranking 106 out of 174 countries in Ookla’s Speedtest Global Index in September 2020. That month the Philippines had download speeds of 23.08 Mbps, compared to a global average of 85.73 Mbps. The same index placed the country in 119th place out of 139 countries in terms of mobile download speeds, at 16.89 Mbps, compared to a global average of 35.96 Mbps.
Even so, Internet World Stats placed the Philippines above the regional average for internet penetration as of May 2020, at 72%, compared to an ASEAN mean of 66%. Similarly, the latest audit from Opensignal in the second quarter of 2020 recorded a 20% expansion of 4G coverage from PLDT and Globe Telecom – the country’s two telcos – since its previous review in the fourth quarter of 2017. The mobile analytics company reported a rise in 4G availability for PLDT subscribers from 59.1% to 86.9% between the two audits, with a 4.3 Mbps increase in download speeds. Globe Telecom customers saw an increase from 66.4% to 81% in 4G availability over the same period, with a 3.5 Mbps improvement in download speeds.
Despite the country’s relatively poor performance in terms of download speeds, Filipinos are avid users of social media. According to a July 2020 report from creative agency We Are Social and social media management platform Hootsuite, Filipinos were the top consumers of social media worldwide – at three hours and 50 minutes per day – compared to a global average of two hours and 22 minutes. The country also led in terms of increased social media use during the pandemic, with 64% of Filipino respondents aged 16 to 64 saying they spent more time on social media because of the pandemic – above the global average of 41%.
ICT enjoyed record-high investment inflows in 2019, with a total of P308.8bn ($6.1bn) by end-August of that year, up from P340m ($6.8m) in all of 2018, according to the Board of Investments (BOI). The expected entrance of a third telco to the market fostered competition between the two incumbent providers as they worked to maintain their market share and invest in their networks. Indeed, investment in ICT accounted for more than half of all investments approved by the BOI in the first eight months of 2019.
Increasing competition in telecommunications was one of President Rodrigo Duterte’s campaign promises in 2016, with hopes that this would improve service provision and drive down prices. It became one of the administration’s priorities, with three consortia submitting bids to be the third provider by 2018. However, two were rejected due to a failure to meet submission requests.
The winning consortium was Dito Telecommunity, formerly known as Mislatel. China Telecom holds the maximum 40% equity stake permitted for foreign investors in public utilities, with local players Udenna and Chelsea Logistics holding 35% and 25% stakes, respectively. Dito Telecommunity is set to launch services in 2021. The third player has committed to covering 37% of the population and providing 27 Mbps minimum average internet speed in its first year of operation. This will rise to 84% of the population and a minimum average speed of 55 Mbps after five years.
There was some public concern regarding privacy and security given the level of involvement from China and the use of technology from Chinese giant Huawei. Nevertheless, as of June 2020 Dito Telecommunity had 300 operational cell towers and was reportedly targeting the completion of 2000 towers in total by the end of the year, despite challenges to the installation of new infrastructure posed by movement restrictions and supply chain disruptions during the lockdown period. Indeed, the DICT confirmed in July 2020 that Dito Telecommunity remained on track for a March 2021 commercial launch, and in August 2020 the House of Representatives approved a second franchise for the incoming player for a span of 25 years.
Meanwhile, in the first quarter of 2020 the incumbent duo announced plans to increase investment levels to improve their service provision in light of the new competition. Globe Telecom announced in February 2020 that it expected to spend P63bn ($1.3bn) over the course of the year, up 23.5% from a record high of P51bn ($1bn) in 2019. Meanwhile, PLDT’s projected spending totalled P83bn ($1.7bn), rising 5.8% from a high of P78.4bn ($1.6bn) a year earlier. However, as the economic climate worsened during the second quarter, both firms signalled that they would reduce expenditure due to project delays. Globe Telecom forecast a reduction to P50.3bn ($2bn) in 2020 and PLDT estimated that expenditure could be trimmed to P60bn ($1.2bn).
Hopes of a fourth player were sparked in September 2020 by an extension of the provisional authority for local firm NOW Telecom to install, operate and maintain a nationwide mobile telecommunications system, subject to certain NTC conditions such as the accelerated installation of broadband in suburban and rural areas.
One hurdle to affordable, reliable coverage is the Philippines’ low cell tower density – which was the lowest in the region as of January 2019, with 16,000 towers to service approximately 67m users. In response, that month the DICT announced its ambition to install an additional 50,000 towers within five years, as well as ease red tape for infrastructure development. These commitments were renewed during the Covid-19 pandemic, by which time there were around 18,000 towers. In July 2020 several agencies, including the DICT and the Anti-Red Tape Authority, signed a joint memorandum to streamline the procedures and requirements for the construction of common towers, including the issuance of licences and permits. These measures reduced the processing time for new applications considerably, from an average of 200 days to 16 days. By August over 1500 individual applications had been approved by local government units in 55 provinces and 25 cities for tower construction in 2020.
Meanwhile, August saw the DICT announce that it had signed agreements with 24 independent tower companies (ITCs), received letters of intent from 13 additional ITCs and launched an online portal for the registration of new ITCs. The agency announced the next month it had issued provisional certificates to automatically grant permission to all ITCs with signed agreements to own, construct, manage and operate towers. Valid through December 31, 2020, the temporary permission was another step towards accelerated tower rollout, even as Covid-19-related restrictions remained in place across much of the country. Building on this momentum, legislation permitting local players and internet service provides to provide last-mile connectivity was under consideration as of November 2020.
The Philippines became the first South-east Asian country to provide 5G in June 2019, when a pilot was launched by Globe Telecom in the capital, in Pasig City, with technology provided by Huawei. The company introduced the first 5G mobile phone to selected customers the following February. However, the commercial rollout of 5G services had yet to reach beyond certain parts of capital as of September 2020.
While PLDT originally planned to bring 5G to the market at the end of 2019, the timeline was delayed in order to more thoroughly test the technology and the development of the network. The player initially offered 5G services to post-paid subscribers in July 2020 using technology sourced from both Huawei and Ericsson in key business districts in Metro Manila, such as Makati and Bonifacio Global City.
By late September of that year the technology had been deployed in other high-traffic areas around the capital, including Ortigas, Pampanga’s Clark Green City, Quezon City’s North Avenue and Manila’s Taft Avenue. That same month the provider announced the availability of 5G to pre-paid subscribers and launched the first 5G services in Visayas and Mindanao, with selected sites in Boracay, Cebu, Iloilo and Davao.
As a key enabler of digital transformation, wider access to 5G services can help boost the Philippines’ competitiveness: with speeds around 10 times faster than 4G and 90% lower latency, 5G not only facilitates higher-quality video streaming and cloud gaming, but also enables the use of advanced internet of things technologies. With benefits to the entire value chain, these technologies include enhanced traffic management systems and other smart-city features; integrated automation to boost manufacturing competitiveness; and the real-time integration of logistics and supply chain operations to improve efficiency.
As it became increasingly clear that digital transformation would not only enable economic activity but also aid the health response to the pandemic, the DICT renewed its commitment to accelerating ICT infrastructure development. By July 2020 connectivity had been achieved for patients and medical staff in around 50 government-designated quarantine facilities as part of the Free Wi-Fi for All project. Meanwhile, the DICT announced a target of 2588 live sites in government hospitals and rural health centres by the end of the year to further the health response. The department also backed the proposed E-Governance Act of 2020, filed in July. The legislation aims to establish an integrated system for all government services, including a records management system, an information database and digital portals for government services. As well as facilitating zero-contact policies, the act would improve the ease of doing business by enhancing efficiency and providing a traceable record of all transactions in bureaucratic processes. The proposed act had yet to complete the legislative process as of November 2020.
In September 2020 President Duterte revealed an allocation of P21.4bn ($425.6m) towards digital transformation and ICT development in the proposed 2021 budget. While the lion’s share, or P9.4bn ($187m), will be used to support the government’s ICT expenses, the remaining proposed financing includes funding for infrastructure construction, with P2.4bn ($47.7m) for the Free Wi-Fi for All project; P2.1bn ($41.8m) for a government data centre to offer improved data security, as well as enhanced integration and efficiency of government processes; P903m ($18m) for the National Broadband Programme; and P197m ($3.9m) for the National Government Portal. A further P1.2bn ($23.9m) was designated to cybersecurity efforts, with other funding reserved for a range of initiatives across the tax, justice and local governance spaces. In a specific nod towards issues exacerbated by the Covid-19 pandemic, the administration also proposed P22m ($438,000) for the development of online information systems for health emergencies and nutrition enhancement. In late November the Senate passed the budget, which was undergoing a final review as of December 2020.
In parallel, business process outsourcing (BPO) is a crucial engine for the economy: indirect and economic multiplier effects bring the sector’s contribution to GDP to around 8%. The industry experienced expansion in 2019, with the workforce growing by 5.8% and revenue by 7.1%, according to the IT and Business Process Association of the Philippines (IBPAP). As such, BPO was designated essential during the 2020 lockdown and was permitted to operate amid new health measures. These included remote work for the majority of employees, while retaining a skeletal workforce on site. Employers were responsible for workers’ on-site accommodation and transport.
The industry quickly adapted. In March 40% of the workforce was working remotely and 10% was on-site. Other workers took annual leave, while some companies paid full or partial salaries to their employees, according to IBPAP. However, by August 63% of the workforce had been mobilised for remote work, and 27% was working on site as remote work infrastructure was strengthened and movement restrictions were eased.
Falling demand for services in segments such as travel and hospitality were offset to an extent by expansion in the health care, telecoms, e-commerce and financial services segments (see analysis). An IBPAP survey conducted during the height of the pandemic found that 47% of responding companies reported growth over the quarantine period, while 35% reported flat revenue and 18% had experienced a contraction. The industry expects a 0.5% contraction over 2020 to $26.2bn, according to IBPAP, with growth over the subsequent two years likely to stand at 3.2% and possibly rising as high as 5.5%. Furthermore, revenues are forecast to rise to around $27bn in 2021 and potentially up to $29bn the following year, creating 130,000 jobs.
While some industries saw layoffs during the lockdown periods, new jobs were created in the BPO sector. In late May 2020 JobStreet Philippines reported that BPO accounted for 41% of new job postings from mid-March to the end of April of that year. Meanwhile, in June US-based Alorica announced the creation of 4000 Philippines-based jobs. That same month another 2000 work-from-home positions were created in the country by Singapore-based Everise, which specialises in next-generation technology and transformation. Recruitment processes evolved to leverage remote communications in the hiring process and to enable contactless onboarding. For instance, a virtual job fair was held in September 2020 by the Department of Tourism in partnership with US-headquartered BPO firm Concentrix to recruit up to 10,000 displaced tourism workers for positions in the company.
The acceleration of digital technologies is set to transform BPO companies’ daily operations. “Digital transformation is reshaping the BPO industry,” Sam White, director of human resources of Ingram Micro Philippines, told OBG. “As this trend continues, the impact on jobs is predicted to be substantial, with estimates of more than half of existing jobs within the industry being at risk. Hence, upskilling in the areas of data literacy, financial acumen and robotics/digital automation is critical.” Pandemic-induced adaptations within the industry – such as higher demand for omni-channel solutions, greater penetration of artificial intelligence and increased automation to boost operational efficiency – accelerated this shift.
In July 2020 IBPAP announced plans to upskill 1000 full-time workers by the end of the year, rising to 1m by 2025. Under the programme, conducted in partnership with the DICT and the Development Academy of the Philippines, beneficiaries will be supported by grants, scholarships and teacher development courses.
Meanwhile, Digital Cities 2025 – launched in June 2020 by the DICT, the IBPAP and Leechiu Property Consultants – identified 25 high-potential areas for transformation into BPO centres based on criteria including talent availability, pre-existing infrastructure, cost and business environment. The cities will be prioritised for digital talent development and internet connectivity upgrades. The government expects that this programme will attract P70bn ($1.4bn) in investment by 2025, as well as create 70,000-80,000 new jobs per year – 30-50% of which will be outside of Metro Manila, providing more opportunities in remote regions.
With the support of the public sector, there is optimism that BPO will play a key role in the recovery. “As we emerge into the evolving new normal, we should identify what industry adaptations will be required in the near, medium and long term, and evaluate which policy measures will be needed to support these changes,” Rey Untal, CEO and president of IBPAP, told OBG.
Tech start-ups, like BPO players, demonstrated resilience during the pandemic and signalled the potential for digital development to boost the recovery. A study conducted in April 2020 by PwC Philippines, the DICT, domestic innovation centre QBO and local incubator IdeaSpace found that 49% of respondents reported introducing a new product or service during the lockdown, while 21% experienced a spike in demand for their offerings. Around 84% of respondents expected to normalise business operations within six months of the lifting of lockdown measures. However, fewer than 20% of respondents had enough capital and capacity to sustain their businesses beyond 12 months, highlighting the need for government assistance and innovative sources of financing. Indeed, 64% said they would apply for government grants and subsidies within the next three to six months, while 43% would seek equity financing, 29% would require bank loans and 14% would utilise private debt.
Start-up performance has been supported by an established ecosystem and policies aimed at enabling entrepreneurship. The Innovative Start-up Act of 2019, which was signed into law in April 2019, created a development programme under the purview of the DICT, the Department of Science and Technology, and the Department of Trade and Industry (DTI). It aimed to improve the ease of doing business through subsiding and fast-tracking business registration; promoting incentives and grants for start-ups; and nurturing the growth of such businesses. Additional provisions include support for research and development activities; the promotion of access to capacity building and training opportunities; and the facilitation of collaboration between start-ups, government agencies, academic institutions and the private sector.
The registration of new start-ups and other businesses was also eased in 2020 by the launch of an online business registration system. Between midMarch and September of that year, more than 75,000 new registrations were issued as Filipino entrepreneurs sought to adapt to the changing circumstances and find new opportunities – a much higher rate than the 1753 registered between January and mid-March 2020. Meanwhile, the total number of registrations rose by 12% over this period to 712,657, according to the DTI’s Business Name Registration Division. Government officials attribute the rise in registrations to the simplicity of the online system, which allows applicants to finish the process in approximately eight minutes.
It remains to be seen how quickly and effectively the public sector’s renewed commitment to accelerating ICT infrastructure development and the entry of the incoming third telecoms provider will translate into tangible improvements in service provision. Nonetheless, the uptick in demand for online services experienced during 2020, the resilience of the BPO industry during the pandemic period and the appetite for expansion within the start-up ecosystem point towards considerable potential for the Philippines’ digital economy to contribute to the post-pandemic recovery. Meanwhile, ongoing digitalisation efforts look set to further improve the ease of doing business and enhance the Philippines’ appeal for investors searching for a capital allocation destination in the years to come.
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