Philippines - Information Technology

This is a best prospect industry sector for this country. Includes a

market overview and trade data

Last Published: 7/18/2019

Overview

The Philippine Government has identified better

connectivity and promoting ease of doing business
among its priorities. President Rodrigo Duterte has
repeatedly reminded Government officials and the
private sector about improving their services. He
instructed the search for a third telecom operator to
address the duopoly between the Philippine Long-
Distance Telephone Company (PLDT) and Globe
Telecom. On May 2018, President Duterte signed
Republic Act (RA) No. 11032 or the Ease of Doing
Business and Efficient Government Service
Delivery Act. This law aims to streamline
government procedures and services and solve
what President Duterte calls “the perennial problem
of red tape”. RA 11032 was crafted to attract more
foreign investments to the Philippines and to fast-
track the establishment of new businesses. These
developments are expected to boost investments in
information technology products and services and
capital expenditure for telecommunications
networks.

Information Technology (IT)

The Philippines IT spending is forecasted to reach
US$5.1 billion in 2019 and US$8.1 by 2023, with
an estimated 12.1 percent annual growth rate
during this period. These figures from Business
Monitor International (BMI) breaks down the IT
industry into three segments: computer hardware
sales, software sales, and IT services.
Estimated 2019 hardware sales for the Philippines
is at US$1.9 billion, with annual growth rate of 5.8
percent to reach US$2.4 billion in 2023. The 5.8
percent annual growth rate is slower than originally
expected and this is because the Philippine
consumer is more inclined to invest on a
smartphone first as opposed to a PC. Growth of
tablets is slower because they are considered as
comparable to a smartphone in functionality, but
higher in cost. Acer, Lenovo and Asus are the top
PC brands in the Philippines for 2018. They are
more affordable compared to U.S. brands Dell and
HP. Apple is a popular premium brand but market
share for Mac desktop and notebook remains low
due to the price sensitivity of the market. Printer
and copier demand are on a downward trend given
the reliance on smartphones and movement away
from paper-based processes. A more positive trend
is expected for servers and storage as small and
medium enterprises are projected to automate, and
larger companies to modernize their systems and
expand their computing capacity.
There is a growing demand for automation across
sectors and this will lead to robust opportunities for
software and services. Software sales for 2019 is
estimated at US$694 million, with an 18.2 percent
annual growth to reach US$1.4 billion by 2023.
Efforts to modernize from both the private and
public sectors will spur demand for software. IT
services such as training, customization,
consulting, and maintenance is expected to hit
US$2.8 billion in 2019 and expand by 14.4 percent
per annum to reach US$4.8 billion in 2023.
Migration to cloud services and cybersecurity
solutions are technology trends that are expected to
have the most positive impact on IT services.
The Philippines growing middle class and young
population are important drivers of IT demand
because their spending levels on technology
products are on an upward trajectory and it is
benefitting premium brands. Infrastructure
investments in the Philippines is seen as another
source of opportunity. The road, railway, airport,
bridge, and port systems that are being built will
require, at a minimum, design software, building
information modeling (BIM) for better project
management, and file sharing applications. These
will drive demand for hardware, software and
services.
The Philippine Government, the business process
outsourcing (BPO) industry, the financial sector,
and the telecommunications industry are key
vertical markets for IT. The Philippine
Government showed its strong support for the
industry by establishing its own Department of
Information and Communications Technology
(DICT) in 2016. Details on the DICT’s projects
are listed under “Opportunities”. The BPO
industry currently employs 1.8 million and has
large companies like Citi, JP Morgan, HSBC, and
Accenture with offices in the Philippines. The
BPO industry is not only a large employer but is
also a major consumer of hardware, software and
services. The financial services industry is a major
customer for automation and security services to
support its online services. All the Philippines’
universal banks provide online services and
transactions. The telecom industry is dependent
on IT hardware, software and services to operate
networks and to interface with customers. A
discussion on the Philippines telecommunications
industry is provided below.

Telecommunications
The Philippines telecommunications industry is at a
significant point in its history since its deregulation
in the late 90’s. The industry saw mergers and
acquisitions in the early 2000’s that resulted to the
duopoly of the Philippine Long-Distance
Telephone Company (PLDT) and Globe Telecom.
Below is a table showing the breakdown of mobile
and broadband subscribers from Globe and PLDT,
as of December 2018:
The Philippines information communications
technology (ICT) industry has significant growth
potential given increased public and private
investments, upward consumer spending, and
demand for better services that can be addressed
through improved infrastructure and automation.
GLOBE TELECOM[1] PLDT[2]
Mobile Subscribers 74.1 million
(71.5 million pre-paid / 2.6 million postpaid)60.5
million
(58.2 million pre-paid / 2.3 million postpaid)
Broadband Subscribers 1.6 million 2.1 million
Apart from consolidation, the early 2000’s also saw
the rise of Chinese telecommunications equipment
providers. The DICT has indicated that the
Philippine telecommunications network is about 80
percent reliant on Chinese telecom equipment led
by Huawei and ZTE. U.S. telecom equipment
providers found it difficult to compete against the
aggressive financing packages of their Chinese
competitors.
President Duterte highlighted the need for better
telecom services in 2016 and mentioned that he
would like a third telecom carrier to operate in the
country. The President blamed the duopoly for the
country’s poor telecom services, and slow internet
speed. The DICT published Memorandum Circular
09-09-2018, the Terms of Reference for the
Bidding for the Third Major
Telecommunications Provider on September 21,
2018, and the opening of bids took place on
November 7, 2018. The highest committed level of
service (HCLoS) selection model was adopted for
the bidding with three selection criteria: national
population coverage (40 percent), minimum
average broadband speed (25 percent) and annual
capital and operational expenditures (35 percent).
Three companies submitted bids:
1. MISLATEL: A consortiuim of Udenna
Corporation, Chelsea Logistics, Mindanao Islamic
Telephone Co., Inc. (MISLATEL) and Chinese
state-owned China Telecom. MISLATEL is the
franchise holder (granted in 1998) but it did not
actively roll-out its services.
2. Sear Telecom: A consortium of TierOne
Communications and LCS Holdings of Chavit
Singson (a politician from Northern Luzon). They
are supported by Fuhjian Torch Electron
Technology of China, Miller Pte. Ltd of Singapore,
and Southeast Asia Telecom of Cambodia.
3. Philippine Telephone and Telegraph
(PT&T): A telecom company established in 1962
and was a major competitor of PLDT in the 1980’s
through the 1990’s. It filed bankruptcy in 2004 and
officially exited court-assisted rehabilitation in
December 2018. Menlo Capital Corp. acquired
substantial shares in PT&T in August 2017.
MISLATEL was named as the “provisional new
player” on November 7, 2018 when the two other
companies were found to have incomplete or
insufficient documents. MISLATEL is waiting for
its “Certificate of Public Convenience and
Necessity (CPCN)” from the National
Telecommunications Commission (NTC), and the
award of frequency bands of 700 megahertz
(MHz), 2100 MHz, 2000 MHz, 2.5 gigahertz
(GHz), 3.3 GHz and 3.5 GHz.

Leading Sub-Sectors
•Fiber Optic Network – given the new
investments in broadband
•Cyber Security – significant cyber investments
for both the public and private sectors
•Cloud Services – there is a policy shift towards
cloud services, but further market education is
needed to address misconceptions and better
understand how it may be procured.
•Networking equipment – continuous upgrades
for telecom companies and for enterprise
customers
Storage and servers – to support automation and
continuous upgrades
•Smartphones – the preferred connectivity device
of Filipino consumersLeading Sub-Sectors

Opportunities
Globe has announced US$1.2 billion capital
expenditure in 2019, while PLDT will invest
US$1.5 billion . MISLATEL is expected to
invest US$800 million in the next five years as
part of its commitment as the new major
telecommunications player. Apart from
MISLATEL, companies like Converge ICT
Services, NOW Corporation and PT&T are
investing in telecom infrastructure. Converge
ICT has announced a US$1.5 billion, five-year
expansion of its fixed broadband capabilities.
Converge has committed to lay its own fiber
optic network and domestic sub-sea cable.
PT&T plans to upgrade its core network, expand
its fiber footprint, and build cyber security, IoT,
and Smart City opportunities.
PLDT and Globe have announced 5G
partnerships; Globe with Huawei and PLDT with
Nokia for 5G in universities , and with Cisco
“help transform its fiber transport network in to a
fully automated, software-defined 5G-ready IP
transport network over the next three years.”
Globe is preparing to launch 5G for the home
(home broadband service) in June 2019 .
The DICT launched the “National Broadband
Plan” in 2017 with the goal to connect
government offices nationwide, provide internet
access to far-flung areas that are either un-served
or underserved by the private sector, and
stimulate economic growth through the digital
empowerment of the people. The plan is divided
into five components:
1. International Gateway – Facebook,
DICT, and the Bases Conversion Development
Authority (BCDA) entered into a partnership to
build the “Luzon Bypass Infrastructure”, a high-
speed broadband infrastructure that includes two
cable landing stations connected by a 250-km
long cable network corridor. Facebook, DICT
and BCDA signed the Strategic Engagement and
Collaboration to Undertake a Reliable and
Efficient Government Internet (SECURE
GovNet) project agreement on November 2017.
Facebook will build and operate a submarine
cable system that will land on Baler, Aurora on
the east coast of the Philippines. BCDA and
DICT will construct the 250-km bypass cable
network from Baler to Poro Point, La Union on
the west coast. Facebook will continue the cable
system as it exits from Poro Point. According to
DICT Secretary Rio, this cable system will
provide direct connections from Luzon to
internet hubs in the U.S. and Asia. Facebook has
agreed to provide the Philippine Government
with broadband capacity of at least two million
MPBS in exchange for using the bypass cable
network.
2. Domestic Backbone – DICT entered into
a tri-partite agreement with the National Grid
Corporation of the Philippines (NGCP), and
Transnational Corporation (Transco) to use
NGCP’s fiber optic network to provide
broadband to areas that are underserved or
unserved by the two telecom providers.
3. Accelerated Tower Build – This
focuses on new telecom tower build-up efforts
and facilitating tower-sharing between networks.
The Philippines only has 20,000 telecom towers,
the goal is to increase this to 60,000 by 2022.
The DICT released its common tower policy on
May 24, 2019.
4. Accelerated Fiber Build for the Last
Mile – The DICT wants to increase Fiber-to-the-
Home (FTTH) connectivity. The plan is to offer
subsidies to telecom companies to lay fiber in
strategic areas that are not commercially viable.
5. Satellite Overlay – The Philippines is
an archipelago and there are numerous isolated
areas that are best served by satellite services.
The DICT is interested to receive technical
assistance to help them determine the scope of
satellite service that meets the country’s needs.
There is interest to potentially launch its own
satellite, but these are all in very early stages of
discussion.
In May 2017, the DICT released the “National
Cybersecurity Plan 2022” (NCSP) with the goal
of increasing the security and resilience of
critical infrastructure in the Philippines. The first
component of the NCSP is the “National Cyber
Intelligence Platform Project” (NCIP). The
NCIP Phase I is valued at US$10 million and it
will establish a National Computer Emergency
Team (NCERT) and a Security Operations
Center (SOC) for threat intelligence and
analysis. The NCERT and the SOC will identify,
monitor and respond to cybersecurity threats and
provide the basis for further implementation of
the NCSP through subsequent project phases.
Phase I will include provision to connect 10
other Government agencies. DICT awarded
Phase 1 to a consortium led by Israel company,
Verint.
NCIP Phases II and III will include a rollout of
cybersecurity infrastructure and capacity
building for up to 50 Government agencies. The
budget for Phase II implementation is
approximately US$40 million.

Web Resources

Dept. of Information and Communications Technology: http://www.dict.gov.ph/

Converge ICT Solutions: https://www.convergeict.com/
Globe Telecom: https://www.globe.com.ph/about-us/investor-relations.html;
https://www.globe.com.ph/content/dam/globe/brie/About-us/sustainability/documents/GLO-Integrated-
Report-2018-Final-1.pdf
PLDT: https://pldthome.com/about-us;
http://pldt.com/docs/default-source/presentations/2018/fy18-results-presentation_final.pdf?sfvrsn=0
PT&T: https://www.ptt.com.ph/
SMART Communications: https://smart.com.ph/About/profile/

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