BY  KRISTA ANGELA M. MONTEALEGRE

CONSUMERS have long been clamoring for a third player to break the duopoly in the telecommunications market plagued by poor service quality and slow Internet speeds.

President Rodrigo R. Duterte has threatened to open up the sector to foreign competition if incumbent operators PLDT, Inc. and Globe Telecom, Inc. do not improve their services. But having a new entrant in the mature market is easier said than done given the massive financial resources needed to be able to mount a competitive stand against the two major players.

With the bandwidth-hungry public becoming more impatient by the day, the government is doing its share to boost Internet connectivity across the country, especially in far-flung areas. Could the government become that elusive third player?

“It’s not an impossible dream especially if the government would use creative solutions to bringing Internet connectivity. The mind-set that Internet service can only come from a telco needs to change,” said Mary Grace Mirandilla-Santos, lead convenor of the Better Broadband Alliance.

The Department of Information and Communications Technology (DICT) plans to offer free wireless Internet service in public areas such as national and local government offices, schools, hospitals, airports and parks, among others. This forms part of a broader government initiative called the National Broadband Plan aimed at accelerating the deployment of fiber and wireless technologies to increase Wi-Fi speeds and bring down the cost of Internet connection.

GAP IN THE MIDDLE MILE

The free Wi-Fi initiative is envisioned to enable the public to get better access to services in education, health, agriculture, and other sectors. It bridges the digital divide, allowing those who cannot afford to subscribe to broadband service get into the digital bandwagon from an education and business standpoint.

The Pipol Konek program entails the installment of an estimated 250,000 hot spots nationwide in six to seven years — a seemingly tall order considering that the project has only reached more than 800 sites as of early October.

The slow progress could be traced to the gap in the middle mile, or the domestic backhaul that brings bandwidth from the landing station where consumers get most of their capacity to the provinces and municipalities before it reaches the access network, said Ms. Mirandilla-Santos, also the vice-president for policy at the Internet Society – Philippines Chapter.

“Even in first- and second-class municipalities where you would expect good connectivity (due to proximity to the urban centers, population density, and relatively high income of residents), plug and play was not possible as the telcos’ presence did not translate to enough capacity required to connect the public Wi-Fi,” she said.

DICT Undersecretary Eliseo M. Rio attributed the sluggish start to the birth pangs of the project and manpower issues, noting that the agency can now go full blast on its implementation after President Duterte signed into law Republic Act No. 10929, or the “Free Internet Access Program” in August.

The government is bidding out contracts to put up free Wi-Fi hot spots covering specific areas using the technology of their choice, Mr. Rio said. The service will have an average speed of “not less than 10 megabits per second.”

Aside from PLDT and Globe, the free Wi-Fi project has attracted smaller players like AZ Communications Network, Inc.; Converge ICT Solutions, Inc,; and We Are IT Philippines, Inc., providing an opportunity for third players to make an impact in the market.

“If the government is by your side at least the barrier to entry for third players [that have] technology but who may not have the capital has been eradicated. It opens an opportunity for these third players to come in,” said Rens V. Cruz II, analyst at Regina Capital Development Corp.

Analysts have said the free Wi-Fi program may force the telcos to level up and offer higher value services to keep their subscribers.

GOV’T AS THIRD TELCO PLAYER?

For the DICT, the government should not be seen as a competitor, but a partner that will enable the telcos to expand their services and subscriber base.

Unlike in other jurisdictions, the private sector owns most of the country’s telecoms infrastructure. Many remote areas have had difficulty securing Internet service because providers cannot justify the cost of building out infrastructure to areas with few people to serve.

“It’s like [the whole Philippines], [our] roads are privately made and charge tolls [that’s why] telecom services [are expensive]. The analogy is the government must make roads for its citizens,” DICT’s Mr. Rio said.

The government, however, has had a terrible track record in building and operating telecom networks, the latest of which is the National Broadband Network deal with ZTE Corp. of China that fell through due to corruption allegations.

“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,” she said in a blog entry for Telecom Asia.

With the free Wi-Fi program still at the early stages, the government is relying on existing infrastructure to deliver free Wi-Fi in select locations. PLDT and Globe have joined forces to provide free Wi-Fi in transportation hubs such as airports, train stations, and seaports. They are also behind the free Wi-Fi on EDSA, the country’s major thoroughfare.

PLDT Chief Revenue Officer Eric R. Alberto admitted that while the program may cannibalize its offerings, they are complementary.

“You’d find that data use will be a fixture in your habit and by the time that happens — we hope that happens sooner than later — there will be propensity for you to top up,” Mr. Alberto said.

“Nothing is free so when you log in, you’re giving me your data. By opting in, it tells us you’re allowing us to perform analytics to serve you better in the digital world,” he added.

Aside from being the largest supplier of bandwidth for the project, the telcos’ own mobile broadband service can be offloaded to Wi-Fi hot spots through interconnection agreements with community wireless ISPs that will deploy the Wi-Fi networks in their respective areas. This will allow the telcos to serve their subscribers in areas where they would not have any signal otherwise, Ms. Mirandilla-Santos said.

FREE WI-FI TO IMPROVE CONNECTIVITY

The presence of another connectivity option could allow mobile base stations to breathe especially during peak hours, thus, improving the quality of service of mobile data in areas where both services are available, she added.

“In the long run and the government’s plans around free public Wi-Fi and improvement of connectivity expected to improve the digital milieu in the country, the telco incumbents should recognize the long-term return or benefits to their businesses once the entire country picks up and embraces digital transformation in a few years time,” IDC Philippines Country Head Jubert Daniel Alberto said.

IDC Philippines welcomed the strategic ICT push of the government to improve technology adoption from an overall perspective.

However, the government should review its policies, followed by rules on peering and infrastructure sharing among telco incumbents, and explore areas where the government can partner with them for a more holistic view.

“If the implementing agencies succeed in identifying key options for this project and coaxing telcos into long-term partnerships, we may well see improvement in the next five years,” IDC Philippines’ Mr. Alberto said.

Krista Angela M. Montealegre is the national correspondent of BusinessWorld.

BY MARIFI S. JARA AND CARMELITO Q. FRANCISCO

IT’S AN OLD IDEA — a Mindanao railway — dating as far back as the late 1930s after the Luzon rail was completed.

Then the Second World War came along and “it was put on the back burner,” National Economic and Development Authority-Davao Region Director Maria Lourdes D. Lim narrated, citing historical information based on government archives that are contained in the latest feasibility study for the Mindanao Railway System (MRS).

Rehabilitation of the Luzon rail was made a priority post-WWII and it wasn’t until 1957 that a train system for Mindanao, the country’s second biggest island after Luzon, was again considered.

A project study was undertaken by the Philippine National Railways (PNR), identifying a 1,570-kilometer (km.) track that would have required a P2.6-billion budget at that time.

It was probably the cost, but no one can say for sure now why the transport system was never pursued. It would remain shelved for more than three decades.

It was under former President Fidel V. Ramos, who started his six-year term in 1992, that the Mindanao
railway got back on the national government’s radar.

But more than two decades later, after numerous plans and studies under different administrations, the railway remained on the drawing board.

“In the past, we were never listened to; sometimes (the national government pretended listening but it was only lip service,” said Vicente T. Lao, chair of the Mindanao Business Council.

Ms. Lim explains that the way government works is that localities and regional agencies basically “compete” for funding and prioritization, particularly for big-ticket projects, and decisions are ultimately made at the national level with socioeconomic, technical as well as political considerations coming into play.

“It helped a lot when President Duterte won,” she said, referring to former Davao City mayor Rodrigo R. Duterte, the first from Mindanao to be elected president.

“And infrastructure investments are really a focus of this administration,” said NEDA-Davao Chief Economic Development Specialist Mario M. Realista.

TRAIN SYSTEM FINALLY TAKING OFF?

The Duterte government is looking to put up as much as P9 trillion worth of infrastructure projects from 2017 to 2022.

In June this year, the NEDA Board’s Investment Coordination Committee (ICC) approved three major railway projects with a combined cost of more than P532 billion.

Two are in Luzon: the P285-billion South Line of the North South Railway Projects and the P211.43-billion Malolos-Clark Railway Project, both planned for funding through official development assistance (ODA).

The third is Phase 1 of the MRS, a 102-km. track covering the Tagum-Davao-Digos (TDD) segment, with the P35.91-billion budget to be sourced from government funds.

Mr. Lao — who, like most in the Mindanao business community he represents has seen and been through a roller coaster of hopes and disappointments from government plans and promises — carries his optimism for the MRS with a grain of salt.

“This time, I hope it will get realized,” he said in an interview before the Department of Transportation (DoTr) announced in mid-August that the House of Representatives’ appropriations committee has already earmarked an initial P6.58 billion to jumpstart the MRS TDD segment.

Rep. Johnny T. Pimentel, a member of the appropriations committee who comes from the Mindanao province of Surigao del Sur, said he is glad to see the project “finally taking off and not being kicked around anymore.”

For the operation and management of the MRS, the House committee on government enterprises and privatization and committee on transportation jointly approved earlier this year several bills, which all seek to create the Mindanao Railways Corp. (MRC)

“The (MRC) bill was originally filed in 1987, during the 8^th Congress. It was continuously refiled in the succeeding Congresses, but always failed to reach the Plenary. But now in the 17^th Congress, with our President coming from Mindanao and the proposal being among the top legislative agenda of the House, the long-awaited dream may come true with the construction and operation of the Mindanao railways system,” Mr. Sarmiento said.

Senator Juan Edgardo “Sonny” M. Angara, chair of the ways and means committee, said he understands that the MRS is a dream come true for Mindanao’s people.

“A train system can be a ticket out of poverty for many of them. Cheap, reliable and fast movement of goods would increase incomes and value to products,” Mr. Angara said, “It is also a driver for peace because as communities become interconnected, economies are linked, growth spreads, and travel brings cultural exchanges.”

Mindanao’s dream would come at a cost, not just in terms of capital expenditure but also in the first decade of operations.

Based on the NEDA Secretariat’s assessment, the TDD segment would need an average of P290 million in government subsidy for the first 10 years of operations. Construction is scheduled to start by 2018 and completion within two years.

Romeo M. Montenegro, deputy executive director of the Mindanao Development Authority (MinDA), said while the first track of the MRS won’t be immediately profitable, the “long overdue” project should be seen more as a “catalyst for Mindanao’s growth”.

STARTING IN THE SOUTH

The Tagum-Davao-Digos segment within Davao Region, located in the southeastern part of Mindanao was recommended to become the starting point for construction — rather than the Iligan-Cagayan de Oro section in the Northern Mindanao Region as considered in earlier plans — given the “high sectional volumes” in terms of passenger and cargo traffic.

Davao Region’s gross regional domestic product (GRDP, at constant 2000 prices) was higher in 2016, as in the two previous years, at P333.02 billion against Northern Mindanao’s P305.45 billion. In terms of GRDP growth rate, Davao has also been faster at 9.4% compared with Northern Mindanao’s 7.6% last year.

The TDD segment was also considered for its connectivity to the growth areas of General Santos City, Koronadal City, and Cotabato towards the east, and San Francisco, Butuan City, and Surigao City towards the northwest.

Mr. Montenegro, who has been with MinDA and its predecessor Mindanao Economic Development Council since 2001 and been part of the MRS discussions over the years, said the government has to put in infrastructure and transportation systems to encourage private investments, especially in areas that have been neglected.

“With a better transportation system, there will always be someone who will take advantage, to explore areas never been explored,” he said. 

While only Phase 1 of the MRS has so far been included in the government’s “Build, Build, Build” priority list, the Duterte administration aims to have at least the funding in place, possibly all through ODA, for the rest of the rail segments.

NEDA Director-General Ernesto M. Pernia has said that China and Japan have expressed interest in the MRS.

Based on the MRS Development Framework, the train system will have an 830-km. main loop and 702 km. in spur or branch lines.

The main circumferential line, aside from the TDD, is composed of the following segments:

Butuan-Nabunturan-Tagum (208 km.)

Iligan-Cagayan de Oro-Butuan (285 km.)

Digos-Iligan (234 km.)

The spur lines are:

Butuan-Surigao (109 km.)

Kabacan-General Santos (141 km.)

Iligan-Zamboanga (338 km.)

Iligan-Dipolog (114 km.)

Cost for each of the planned segments has yet to be determined.

The TDD — the shortest segment at 102 km., with eight stations, one terminal in Davao City and a depot that will be built on a 10-hectare area in Tagum City — will have an average cost of P343 million per km. Using the TDD average as reference, the entire 1,532-km. Mindanao railway would need an investment of about P526 billion.

“What we (in government) have to look out for is the enabling environment and conducive policies to do business here… This (MRS) is a demonstration of the commitment to address infrastructure support. Mindanao has really been behind in competitiveness in terms of infrastructure,” Ms. Lim said.

Mindanao’s six regions — Zamboanga Peninsula, Northern Mindanao, Davao, Soccsksargen (South Cotabato, Cotabato, Sultan Kudarat, Sarangani, General Santos), Caraga, and the Autonomous Region in Muslim Mindanao — had a combined 14.3% contribution to the gross domestic product in 2016. This is in comparison to the regions where the two other railway projects approved by NEDA-ICC are located: the National Capital Region contributed 36.2%, Central Luzon with 9.3% and Calabarzon (Cavite-Laguna-Batangas-Rizal-Quezon) with 17.2%.

Ms. Lim said the goal is to boost intra-Mindanao commerce as well as exports through complementing industries among the regions.

PEACE AND ORDER ISSUES REMAIN

As for security concerns, the feasibility study on the TDD segment notes that the Digos-Cotabato-Iligan section is considered to have peace and order issues, which is why it has not been recommended for immediate implementation. “It is hoped that in time, the current situation shall improve,” the study said.

For the TDD, Ms. Lim said the Davao Regional Development Council, where she sits as vice-chair, has already undertaken initial coordination with the security sector, and the military’s 10^th Infantry Division has committed to create a special task force to look after the project once it gets rolling.

Secretary Datu Abul Khayr Dangcal Alonto, chair of MinDA, said in November last year that the MRS is intended to serve as a uniting tool for Mindanao.

The Marawi City-born Mr. Alonto, the first Muslim to head MinDA, said not even the crisis in his birth town should deter development programs in Mindanao.

“We cannot let terror, lawlessness, and violence shatter what we have built for Mindanao all these years. We call on our fellow Mindanawons to stay the course – be vigilant, but continue to be warriors of peace by spreading hope not fear,” said Mr. Alonto, who also served as chair of the former anti-government group Moro National Liberation Front.

Back in November, he said, “If a person can have his breakfast in Zamboanga, eat his lunch in Iligan, then dinner in Davao, that is the one, connected and united Mindanao we envision. That is home.”

Marifi S. Jara is BusinessWorld’s Mindanao bureau chief and Carmelito Q. Francisco is BusinessWorld’s Mindanao correspondent.

BY KRISTA ANGELA M. MONTEALEGRE

AS THE BATTLE for consumers shifts online, Philippine conglomerates are marching into unchartered territory by taking over logistics companies to ride the emerging e-commerce wave.

LBC Express, Inc. is unfazed by the entry of the big wigs, drawing strength from its expertise honed by decades of moving lives, businesses, and communities.

“Diversified offerings and solutions are a by-product of increasing competition in this sector — which is always a good thing for consumers. But for LBC, I’m proud to say that our heritage and years of experience in this industry is really what sets us apart,” LBC President and Chief Operating Officer Mike A. Camahort said.

Founded in 1945, LBC operated as a brokerage and air cargo agent before evolving into an express delivery service. It became the first Filipino-owned private courier company to provide time-sensitive deliveries and pioneered 24-hour door-to-door express delivery in the Philippines.

LBC is now a household name in express delivery after mastering B2B, B2C, and parcel delivery. It boasts of an extensive retail footprint servicing capability, with a network of over 6,400 locations, partners, and agents in more than 30 countries.

“The country’s logistics industry has been steadily expanding, thanks to globalization and the rise of e-commerce. These definitely contribute to the opportunities that our industry has for growth and is expected to reshape the business in a big way,” Mr. Camahort said.

Online purchases make up only less than 1% of total retail sales in the Philippines. With e-commerce expected to take off, conglomerates are future-proofing their businesses and logistics is a crucial part of their strategy.

While the new entrants are still on the drawing board, LBC is in a unique opportunity to showcase its ability of not only fulfilling deliveries, but also customizing solutions that meet the needs of small to medium enterprises.

“All things considered, I’d say that despite challenges, there are far more opportunities that will pave the way for continued growth in the logistics sector. This is an industry that will continue to challenge us, and adapting to these changes is critical to making sure we continue to achieve our targets and serve our customers,” Mr. Camahort said.

LBC is not resting on its laurels. The logistics service provider is relentless in taking a more proactive approach towards refining systems and processes to better serve the market.

The company is improving its IT infrastructure and automating key facets of its services. For instance, the company is implementing back-end service and systems innovation focused on customer convenience. Couriers are using handheld units during deliveries and SMS alerts are automatically sent to recipients and consignees after packages are scanned and sent out for delivery.

LBC, likewise, is ramping up its expansion by going deeper into untapped areas where the need for a reliable express delivery service is critical. About 100 stores are planned for opening this year, nearly double the 48 branches rolled out in 2016.

To grow the business, LBC is working on sealing key partnerships, leveraging on automation, fleet modernization, and growth and development of its team members. It is also rolling out additional products related to warehousing and the whole supply chain.

The integration of Southeast Asian economies also excites LBC, as open access to manpower, raw materials and other key resources will boost demand for the company’s services.

With more robust regional economic activity, the entire industry is pegged to grow by a staggering $41.3 billion over a four-year timeline. That means a lot of collaboration — not just internally for individual brands, but between industry players — must take place to maintain the growth trajectory.

“It’s exciting to see how the integration will play out among larger, heritage brands and smaller start-ups and how this can possibly pave the way for more innovation in the logistics sector,” Mr. Camahort said.

Krista Angela M. Montealegre is the national correspondent of BusinessWorld.