By Luisa Maria Jacinta C. Jocson, Reporter

THE GOVERNMENT should address barriers to efficient broadband infrastructure to help bridge the widening digital divide in the Philippines, where the market remains a duopoly, according to the World Bank (WB).

“The broadband market in the Philippines is an effective duopoly with two large telcos,” it said in a policy note discussing reforms to promote competition and increase investment in broadband infrastructure. “Globe and PLDT Inc./Smart [Communications, Inc.] are vertically integrated.”

“They own international connectivity, backbone, middle- and last-mile networks and have the majority subscriber share,” it pointed out. “Over 500 providers acting as retailers rely on wholesale infrastructure, either from the duopoly or market challengers.”

PLDT had P205 billion in revenue in 2022, while Globe had P175 billion, the multilateral lender said in its report. Converge ICT Solutions, Inc., a late third player, only had P34 billion.

PLDT and Globe said they were both working on a response to the World Bank study when sought for comment in separate Viber and Facebook Messenger chats.

“Laws on connectivity have remained unchanged despite vast technological advancements, evolving business models and widening access gap,” the World Bank said.

Among Association of Southeast Asian Nations (ASEAN), the Philippines is the least favorable on policy environment for affordable broadband, and among the slowest in the world in promoting reforms to make it more affordable, it added.

The World Bank cited data showing household penetration for fixed broadband in the Philippines at 33% in 2022. The cost of fixed broadband was more than four times more expensive than Malaysia and Vietnam and more than double the ASEAN average, it said.

For mobile broadband — considered the driver of consumer adoption of e-commerce, financial inclusion, disaster response and agriculture practices — active subscribers in 2022 were 70 per 100 inhabitants, the lowest among large ASEAN economies, it added.

Poor internet access and lack of digital infrastructure also affect crucial industries such as the service sector.

For example, the information technology and business process outsourcing industry, which creates jobs and drives the growth in service exports, remained constrained in a few locations, the World Bank said.

Unfortunately, the Philippines has been the last investment destination among major ASEAN economies for “hyper-scaler cloud service providers” such as Amazon and Google, it added.

“The cost of inaction — loss of growth opportunity, people remaining unequipped for future jobs and widening of the digital divide — is too high for the Philippines,” the lender said.

“Unaddressed, weak internet might derail the country’s achieving upper middle-income status in the coming years and its aspiration for a prosperous middle-class society by 2040,” it added.

The World Bank said the country’s internet connectivity lags its ASEAN peers in terms of affordability, speed and access, creating an “uneven landscape for digital participation.”

“Access to broadband is fundamental to participating in a country’s digital transformation,” it said. “However, the digital divide in the Philippines is rapidly expanding. In the least populated areas and remote islands, progress in household internet penetration over the last 10 years has only been a third of progress made in populated urban centers.”

In 2022, the Philippines invested 0.44% of its gross domestic product (GDP) in broadband infrastructure, compared with the majority of developing countries that have invested at least 1% of their GDP in telecommunication infrastructure for at least a year.

The bank also estimated that the investment gap in the Philippines is about $2 billion (P112.8 billion) yearly.

“Binding constraints to competition and investment in the Philippine broadband infrastructure are interrelated, with cumulative effects of policy actions (or inactions) reinforcing the market structure and operators’ conduct,” it said.

“Recent economic reforms such as the removal of foreign ownership restrictions in 2022 and the introduction of the competition law in 2015 have not significantly altered the market dynamics in the broadband sector under the prevailing legal system,” it added.

The World Bank cited barriers to market entry and investment, an unlevel playing field and the lack of an infrastructure sharing policy framework, among other things.

It called for reforms in broadband infrastructure policies to encourage investment and competition.

“Interrelated policy and regulatory barriers underlying poor internet in the Philippines require a comprehensive package of reforms,” the lender said. “An outdated franchising and licensing regime and rigid and nontransparent spectrum management have discouraged connectivity infrastructure deployment and efficient resource reallocation.”

The World Bank said there is rich literature citing global evidence on the impact of reforms on broadband infrastructure investment and performance, including through the liberalization of foreign investments.

The government also plays a crucial role in bridging the digital divide by channeling its resources to the poor, the multilateral lender said.

“The government can complement pro-competition policy reforms with direct public investments in justifiable, efficient and sustainable ways,” it said.

“As the government prioritizes digitalization with a view toward benefiting all Filipinos, updating policy to promote competition, encourage investment and upgrade broadband infrastructure is urgent and necessary,” it added.

Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., has a majority stake in BusinessWorld through the Philippine Star Group, which it controls.