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Grace Mirandilla-Santos

The curious case of Philippine broadband

(Part 1 of a two-part series)

It’s now common knowledge that Philippine broadband “has one of the slowest average connection speeds in Asia Pacific and the costliest in the world.” This I reiterated as author of a policy brief launched by the Joint Foreign Chambers (JFC) of Commerce under the Arangkada (“to accelerate”) Project last week. The document is the result of a JFC roundtable discussion held last December, attended by the private sector (including telcos and ISPs, BPO-IT industry, and business groups), government, civil society and the academe.

Despite the well-established macro- and household-level economic benefits of promoting broadband service, the Philippines has stubbornly remained one of the poorest performers, globally. In Akamai’s Q3 2015 State of the Internet report, average connection speed in the country stagnated at 2.8Mbps, while neighbors like Indonesia, Vietnam, and China continued to advance. Although broadband prices have gone down recently, they are still expensive compared to other countries. A recent survey suggested that the Philippines has the highest price for 1GB of data in ASEAN, besting only Timor-Leste.

Why is Philippine broadband the way it is?

The policy brief offers several explanations: the presence of barriers to entry, anti-competitive practices, inadequate infrastructure, weak and ineffective regulation, prohibitive bureaucratic requirements in infrastructure build-out, and the lack of interconnection.

“Winner takes all” in Philippine broadband.

Everyone, including the government, has to rely on a telco with a franchise awarded through an act of Congress. PLDT and Globe, the country’s largest telcos, own and control most of the internet infrastructure—from the submarine cables, landing stations, backbone, and middle-mile networks up to the last mile. There is little room, if any, for non-telcos to grow and compete.

Any semblance of a telecom network is considered a service reserved for a public utility, which requires a Congressional franchise and specific types of service-based licenses from the regulator. Based on the implementing rules of the Public Telecoms Policy Act of 1995, a telco must be able to deploy several hundreds of thousands of landlines, regardless of what service it intends to render.

A telco should also comply with the 40% foreign ownership cap enshrined in the Constitution and set by the Foreign Investment Negative List. Being a capital-intensive and technology-driven sector, barring foreign players from fully participating even in the wholesale segments (landing station, backhaul and middle mile) effectively limits the potential for competition in telecoms.

Anti-competitive practices abound and remain unchecked.

An ISP cannot build its own network and has to rely on a telco’s facilities in order to the connect to the internet. As wholesale network providers, however, the same telco is also allowed to dominate in the retail market where its clients operate. Naturally, the smaller telcos and ISPs are not able to flourish and competition is easily crushed.

Internet service is considered to be value-added and, therefore, deregulated. Wholesale pricing is set by the telcos. Interconnection and access charges are based on bilateral commercial negotiations between a telco and its clients. Thus, despite reports of prohibitive pricing, the regulator has mostly taken a hands-off position on internet issues.

Internet infrastructure remains inadequate amid high telco profitability.

PLDT and Globe have always maintained that it is very expensive to connect the Philippines’ islands, and that more investment and financial incentives to the telcos are necessary to expand infrastructure and improve connectivity.

That said, the two telcos have continued to be among the most profitable telcos in the world, enjoying EBITDA margins of as high as 60-70% in 2010 and around 40-45% in recent years. This while 79% of all public schools in the Philippines remained without any form of internet connection, according to a survey by the Department of Education in 2012.

In one account, it was said that Singapore has more cell sites than the entire Philippine archipelago. And despite having one of the fastest connection speeds globally, Singapore is looking into getting a fourth telco into the market.

Prohibitive bureaucratic requirements are imposed on telcos.

It should be recognized that telcos do encounter some barriers imposed by government in the form of prohibitive bureaucratic requirements, arbitrary fees and permits, especially at the local level.

Telcos and ISPs alike have complained about not being able to put up or expand infrastructure in the last mile due to difficulties in dealing with various local stakeholders in each jurisdiction. Telcos also complain about bureaucratic issues, with some local officials allegedly imposing arbitrary fees for permits and clearances that are sometimes unaccounted for. National government agencies also require telcos to secure clearances for various purposes.

Apart from government, exclusive villages and homeowners’ associations may give telcos a difficult time to set up in their area. Sometimes the refusal is because the officers and residents do not want to have unsightly antennas. Other times, it is because of “enterprising” individuals and groups.