Should the government be PH's third telco?

03 Oct 2017

Part 1 of a two-part series

Unlike other Asian countries, investment in telecoms infrastructure in the Philippines has been driven by the private sector. However, given unmet demand and poor quality of internet service, the Philippine government is now planning to build and operate a public sector-funded national broadband infrastructure. This initiative is one of the action items in the county’s first-ever National Broadband Plan.

The Department of Information and Communications Technology (DICT) is targeting the construction of a “Philippine Integrated Infostructure” in 3-4 years. However, the government still needs to conduct a feasibility study on which areas it would best to use public funds.

Would it make sense for government to be a third player in the telecoms market? A study commissioned by Globe Telecom thinks so. According to its findings, the government is the only viable third telco because of its supposed “cost-insensitive capacity to pour investments in last mile and high-cost areas.”

But the government did have its own telecoms network in the past, through the Telecommunication Office (TelOf). At one point, TelOf owned and operated digital exchanges, public telephone stations, telegraph offices, trunk radio stations, satellite communications stations, and maritime communications facilities nationwide. In the 1990s, TelOf’s backbone network in Luzon was sold to Digitel.

TelOf, which makes up 75% of all government employees in the ICT sector, has since been abolished and its functions, powers, and assets transferred to the DICT.

The government also funded and operated the “Telepono sa Barangay” (Telephone in the Village) Program through the Municipal Telephone Project Office, created in 1989 under the Department of Transportation and Communications (DOTC).

The TSB project, which received $20 million in overseas development assistance (ODA) funds, aimed to provide basic telecommunications services (i.e., landlines) to selected barangays in unserved provinces.

This universal access project was considered a failure. The private sector did not want to participate in the project, citing unprofitability and huge capital requirements as reasons. The project was also plagued with allegations of gross mismanagement.

Let’s not forget that during the time of Pres. Fidel Ramos, who led the liberalization in key economic sectors, the Medium-Term Philippine Development Plan (1993-1998) targeted an increase in telephone density by constructing an additional 1.31 million telephone lines.

But Ramos was able to accomplish this not by funding a government telco, but by breaking PLDT’s monopoly in the local exchange service and opening up the market, first in the international gateway facility then in cellular mobile phone service. By the end of his term, landline penetration more than doubled – from 1.65 per 100 persons in 1993 to 3.41 in 1998. From almost nil in 1993, mobile phone penetration was at 2.27 per 100 persons in 1998, and almost quadrupled two years after that.

Fast-forward to 2007, there was an attempt by government to build and operate a national broadband network. But this, too, suffered from corruption allegations. As a result, the acronym “NBN” now has a stigma.

So if we learned anything from history, it’s that government, to date, has had a poor record in building and operating telecoms networks, and that policy reforms that opened up the market had effected actual change.

If we considered these factors – high capital requirements, economies of scale, and sunk cost – as the only givens in network infrastructure, government would indeed be the best candidate to do the job. But these are not the only things that need to be considered. The government’s capacity, track record, and performance in similar initiatives (e.g., MRT) cannot and should not be ignored.

What if the government does decide to become a telco, does it have what it takes?

(to be continued in Part 2)

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