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March 2002

This report has been written by Michael Minges, Esperanza Magpantay, Lucy Firth and
Tim Kelly of the International Telecommunication Union (ITU). The report is based on field research carried out between 1 – 5 October 2001 as well as articles and publications sourced in the document. The National Telecommunications Commission provided incalculable support; without their assistance, this report would not have been possible. Equally, the report would not have been possible without the cooperation of the many from the Filipino public and private ICT sector who offered their time to the report’s authors. The kind hospitality of Philippine Electronics and Telecommunications Federation (PETEF) is also acknowledged. We would also like to thank
N. Santiago of Globe and A. Bengzon, Undersecretary for Communications, for their insightful comments. The report is one of a series of case studies examining the
Internet in South East Asia carried out in 2001. Additional information is available on the ITU’s Internet Case Study web page at
The report may not necessarily reflect the opinions of the ITU, its members or the government of the Republic of the Philippines.
The title refers to the Filipino (Tagalog) word “Pinoy” meaning ‘Filipinos by Heart.’ The
SMS message appearing on the mobile phone screen (“Kmusta txt k nman”) is also in
Tagalog and means ‘Hello, can you send me a text message’.

© ITU 2002



1. Country background ............................................................ 1
1.1 Overview ............................................................................ 1
1.2 Demography ........................................................................ 1
1.3 Economy ............................................................................. 2
1.4 Human development ............................................................ 3
1.5 Recent history ..................................................................... 3
2. Telecommunications and Mass Media .................................. 5
2.1 Telecommunications ............................................................. 5

Mass Media ...................................................................... 17

3. Internet in the Philippines ................................................. 22
3.1 History .............................................................................. 22
3.2 Market .............................................................................. 22
3.3 Interconnection ................................................................. 23
3.4 Pricing .............................................................................. 24
3.5 Broadband ........................................................................ 24
3.6 Rules & regulations ............................................................ 26
3.7 Universal access ................................................................. 27
4. ICT in Government, Education, Health and Business .......... 31
4.1 Government ...................................................................... 31
4.2 Health .............................................................................. 34
4.3 Education .......................................................................... 36

Electronic commerce ......................................................... 39

5. Conclusions ....................................................................... 42
5.1 State of the Internet ........................................................... 42
5.2 Recommendations .............................................................. 43

Annex 1: List of meetings ........................................................ 46
Annex 2: Acronyms and abbreviations .................................... 48
Annex 3: Useful links .............................................................. 51
Annex 4: Framework dimensions ............................................ 52


1.1 Map of The Philippines .......................................................... 1
1.2 GDP change over previous year ............................................. 2
2.1 Outperforming the rest of ASEAN ........................................... 6
2.2 Philippine Telecom Sector ...................................................... 8
2.3 So many lines but we still can't catch up ............................... 11
2.4 Getting over international .................................................... 12
2.5 Mobile mania ..................................................................... 13
2.6 Telephones in the regions .................................................... 16
2.7 Mass Media ....................................................................... 18
3.1 Internet subscribers and estimated users in the Philippines ..... 22
3.2 Dial-up Internet prices in South East Asia ............................. 24
4.1 Philippine IT Ecozones ........................................................ 34
4.2 Proposed Social Security Wide Area Network ......................... 35
5.1 State of Internet in the Philippines ....................................... 42

1.1 Population Indicators, 1990-2000 ........................................... 2
1.2 Human Development Indicators ............................................. 3
2.1 Telecommunication Industry Structure .................................... 7
2.2 EO 109 ............................................................................. 10
2.3 Plus I get free SMS! ............................................................ 14
2.4 Philippine mobile market ..................................................... 14
2.5 Universal Access and Universal Service ................................. 15
2.6 Mass media contradictions ................................................... 20
3.1 Broadband pricing .............................................................. 25
4.1 Philippines@High School ..................................................... 37

2.1 The demand for mobile messaging: SMS ................................. 5
2.2 Universal availability for US$ 24 million ................................. 17
2.3 The Portal Wars ................................................................. 19
3.1 E-vangelism ...................................................................... 28
3.2 Txting Nation ..................................................................... 29
4.1 e-whistleblower .................................................................. 33
4.2 Computerizing social security ............................................... 34
4.3 "I Love You" and Filipino computer programming talent .......... 39


1. Country background


Country background



Figure 1.1: Map of The Philippines

T h e Re p u b l i c o f t h e
Philippines, with an area of a p p r o x i m a t e l y
300’000 square kilometres, is located in South East
Asia, between mainland
Asia and Australia. It is surrounded by the South
China Sea on the west, the
Pacific Ocean on the east, the Sulu and Celebes Seas in the south and the Bashi
Channel in the north. The
Philippines’s 7’107 islands form one of the largest archipelagos in the world.
Of these islands, only
2’773 have been named.
The three major island groups are Luzon, Visayas and M i n d a n a o.
Philippines is divided into
16 regions, 78 provinces,
96 cities, 1’513 municipalities and 41’943 bara n gays.1
The country has a diverse topography, including high mountains and volcanic f o r m a t i o n s , e x t e n s i ve va l l e y s a n d p l a t e a u s interspersed with rivers and lakes. Some 53 per cent of the country’s total land area is forest and woodland. The
Philippines has a tropical climate with two pronounced seasons, rainy from June to November and
Source: The World Factbook. dry from December to May.
The country is situated within a cyclone belt and is hit by numerous tropical storms every
76.5 million people. The capital, the year. c i ty o f M a n i l a , h a s 1 . 6 m i l l i o n inhabitants and is the most densely
Demography populated area. The National Capital
Region, consisting of the capital and
The 2000 Census of Population and surrounding urban agglomeration, is
Housing showed a population of home to some ten million people (or


Philippines Internet Case Study

13 per cent of the population). Rural and urban population in the country are split evenly. The annual average population growth rate between 1995 and 2000 was 2.4 per cent. The country’s 15.3 million households averaged five members in 2000. In
1999 it was estimated that 37 per cent of the population was under the age of
15, 59 per cent between 15 and
64 years and only four per cent of the population is 65 years or older. Although there are an estimated 111 linguistic groups, there are two official languages,
Filipino (which is based on Tagalog) and
English. English is the official language used in business and government dealings. The majority of Filipinos speak one of eight major dialects, namely
Tagalog, Cebuano, Ilocano, Hiligaynon or Ilonggo, Bicol, Waray, Pampango, and Pangasinense.

Table 1.1: Population Indicators, 1990-2000




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Source: National Statistics Office.

(ten per cent). According to the United
Nation Development Programme’s
(UNDP) Human Development Report
2001, the Philippines ranked 22nd out of the 30 leading exporters of hightech products in the global market.
The inflation rate in April 2001 was
6.7 per cent compared to 3.7 per cent in April 2000. The unemployment rate stood at 10.1 in July 2001, three points lower than April 2001 (13.3 per cent). Outstanding external debt amounted to US$ 55.5 billion at the end of 2000.

The majority of Filipinos, some
95 per cent, are of Malay descent.
Ethnic minorities include people of
Spanish and Chinese descent. A major heritage of Spanish colonialism is the country’s religion.
Some 84 per cent of the Filipinos are
Roman Catholics. Some ten per cent are Protestants or part of another
Christian religion and around five per cent are Muslims.



At the end of 2000, GDP at current prices amounted to 3’302’589 million pesos (US$64’127 million), with GDP per capita amounting to 42’112 pesos
(US$817). Services accounted to more than half of the country’s GDP, industry 31 per cent and agriculture
16 per cent. Due to the spill-over of the Asian financial crisis, the economy sharply deteriorated in 1998. GDP dropped by almost 0.6 per cent that year but has since recovered and grew
3.3 per cent in 1999. The country experienced a rise in the value of output until the end of 2000 but due to the sudden change in the administration, and political unrest in the country, the first two semesters of 2001 again showed a decrease in
GDP growth (see Figure 1.2).

Figure 1.2: GDP change over previous year

GDP Growth









Source: National Statistical Coordination Board.

Top exports are electronics and components (46 per cent) and textiles


1. Country background

Table 1.2: Human Development Indicators
Philippines compared to other South East Asia economies, 1999



















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( Ã












% "!Ã











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! Ã





"% Ã

" Ã


$" Ã



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Source: United Nations Development Programme, Human Development Report 2001.


Human development

Spanish named the land ‘Filipinas’, after
Philip II of Spain. For over 300 years, the Philippines was a colony of the
Spanish crown. In 1898, the territory was ceded by Spain to the United
States, following the Spanish-American war. Following Japanese occupation during World War II, the Philippines gained full independence in 1946.
Ferdinand Marcos was elected president in 1965, and remained in power for 21 years. He fled the country in 1986 when
Corazon Aquino called on ‘People
Power’, a non-violent resistance to
Constitution was ratified in February
1987. Aquino faced many challenges, including economic problems, opposition from certain Filipino elite and hostile military. After seven coups in six years, Aquino was succeeded by the
Minister of Defence Fidel Ramos in
1992. In 1998, Joseph Estrada replaced him. Only two years later Estrada was impeached on charges of corruption and mass demonstrations (People Power II) eventually forced him to resign in
January 2001. Vice-president Gloria
Arroyo, the second woman to take over as president of the Philippines, succeeded him.

A c c o r d i n g t o U N D P ’s H u m a n
D e ve l o p m e n t Re p o r t 2 0 0 1 t h e
P h i l i p p i n e s ra n k s 7 0 th o u t o f
162 countries in the Human
Development Index (HDI), placing the country in the upper third of the medium human d e ve l o p m e n t category. The Philippines achieves a relatively higher ranking in terms of human development than its GDP would suggest. The HDI is composed of a basket of indicators including life expectancy at birth, adult literacy, school enrolment and GDP per capita.
Table 1.2 shows that HDI varies greatly in the South East Asia region and that the Philippines ranks fifth among its nine neighbours. It is interesting to note that the country has by far the highest school gross enrolment ratio (82 per cent) and the second highest adult literacy rate
(95.1 per cent).2

Recent history

In 1521, Ferdinand Magellan arrived in the Philippines and claimed the archipelago for the King of Spain. The


Philippines Internet Case Study



Source: National Statistical Coordination Board. Barangay is the basic unit of the Philippine political system and consists of not less than 1’000 inhabitants residing within the territorial limit of a city or municipality and administered by a set of elective officials headed by a barangay chairman.
These figures are misleading and symptomatic of the confusing statistics plaguing the Philippines. For example, the figure for literacy does not refer to functional literacy (84 per cent). Also the last national literacy survey was carried out as long ago as 1994. Therefore, the source of the UNDP statistics is questionable. The school enrolment figure also does not seem consistent with national statistics. Participation rates reported by the National Statistical Office for School Year 1999-2000 are: elementary 97.0 per cent; secondary 65.4 per cent, and tertiary 23.9 per cent. A weighted average results in a figure of 64 per cent and not 82 as reported by UNDP. See “A View of the Philippines” on the NSCB web site at: 4

2. Telecommunications and Mass Media


Telecommunications and Mass Media



Message Service (SMS), or “txting”
(see boxes 2.1 and 3.2).

The Philippine telecommunication market is distinctive in a number of ways. First, it is one of the few countries in the world where telecommunication services have historically been operated by private entities. Second is the innovative regulatory requirement laid out in the mid-1990s that called for mobile and international telecommunication operators to install a specific number of fixed lines. This was seen as a way of balancing lucrative opportunities in the international market against the supposedly less profitable requirements to roll-out lines outside the main population centres. Third is the explosive growth of mobile, making the nation among the first w h e r e m o b i l e s s u r p a s s e d f i xe d telephone lines. In particular, Filipinos have shown themselves to be world champions in the use of Short

As Figure 2.1 shows, the results have generally been positive. The
Philippines has outperformed the rest of the ASEAN region in terms of its fixed-line network for every year between 1992 (before the policy began) and 2000 (by which time fixed-mobile substitution was having a negative effect on further f i x e d - l i n e g r o w t h ) . S i m i l a r l y, mobile growth, which peaked in
1995, has also been higher in the
Philippines on a consistent basis since 1992. There has been a notable upturn in mobile growth since 1998. Part of this reflects the rebound from the 1997 financial crisis, which occurred much faster in the Philippines than elsewhere in the region. But it also reflects the beneficial impact of pre-paid tariff packages.

Box 2.1: The demand for mobile messaging: SMS
SMS, or Short Messaging Service, is one of those serendipitous applications that are discovered almost by accident. The capability to send some
160 or so characters of data (barely a kilobit) was included in the original specification of the GSM digital mobile standard that was developed in the 1980s and implemented from 1991 onwards. But it was never considered to be a viable application for which customers would pay. After all, compared with sending e-mail from a computer, why would anyone want the inconvenience of having to make several keystrokes to create each letter or restrict themselves to such short messages? Consequently, in the early years of
GSM, SMS was given away free of charge.

revenues for the Philippines’ two main mobile operators, Smart and Globe.

The European engineers who defined the GSM standard did not imagine that their throwaway service would find its apotheosis in the Philippines.
Around Christmas 2001, the volume of messages there reached around 90 million per day, or around ten for each user, creating a considerable source of

SMS played an important part in recent Filipino history. When President “Erap” Estrada refused to stand down, even after being implicated in a corruption scandal, Filipinos used SMS to coordinate the demonstrations that eventually led to his downfall; so-called “People Power II”.

Why did it take off? Part of the reason has to do with the way it was charged. A number of free SMS messages were included in each prepaid subscription. The popularity of SMS is partly due to the fact that a user can send around eight SMS for the price of one minute of voice call and the price is independent of distance (until recently, there was no surcharge for sending SMS overseas, where many
Filipinos work). In addition, mobile users can receive messages from Internet users and, of course, use
SMS to download the ubiquitous ring tones.


Philippines Internet Case Study

Figure 2.1: Outperforming the rest of ASEAN
Annual growth rates for the Philippines in fixed-line and mobile networks, 1992 - 2000

Annual grow th rates in fixed-lines netw orks

Annual grow th rates in mobile subscribers



Philippines’ average grow th






Philippines average grow th rate





ASEAN average grow th



ASEAN average grow th rate

1992 1993 1994 1995 1996 1997 1998 1999 2000

1992 1993 1994 1995 1996 1997 1998 1999 2000

Source: ITU World Telecommunication Indicators Database.

2.1.1 Policy and regulatory:
Private ownership preferred interconnection rules. The Act e n d o r s e s t h e p o l i c y o f p r i va t e ownership, instructs the government to sell remaining publicly held telecommunication assets and also calls for operators to list up to 30 per cent of their shares to encourage citizen ownership. It also entrusts the
NTC with the right to establish tariffs for telecommunication services.

The Department of Transportation a n d C o m m u n i c a t i o n s ( D OTC ,
<>) is the ministry responsible for telecommunication policy in the Philippines. The National
Telecommunications Commission
(NTC, <>) is the industry regulator. The NTC wa s created in July 1979 by Executive
Order No. 546 when it took over from the former Board of Communications and the Telecommunications Control
Bureau. This makes the NTC one of the oldest telecommunication regulators in the world. Although the
NTC is an agency of the DOTC, its legal decisions can only be appealed to the
Supreme Court. The NTC has three commissioners appointed by the

The present Philippine telecommunication market is one of the most competitive in the world with five companies providing mobile cellular services, eleven international gateway providers and at least two operators theoretically allowed to provide fixed service in each region across the country. Market entry is however constrained due to policy and technical reasons and apart from the Value-Added-Service segment; n o n e w o p e ra t o r s h a v e b e e n authorized over the last five years
(see Table 2.1). On the policy front, there is a feeling that there are enough operators considering the level of development of the market.
Some operators are losing money and if anything, there is a belief that market consolidation rather than m o r e l i b e ra l i z a t i o n i s n e e d e d .
Indeed, consolidation is already starting to occur. Technically, there

Re p u b l i c A c t N o. 7 9 2 5 , “P u b l i c
Telecommunications Policy Act of the
Philippines” passed in March 1995, is the main legislation for the telecommunication sector.3 The NTC is expected to ensure that the policies laid out in the Act are implemented.
The law sets out the duties and obligations of public telecommunication operators as well as


2. Telecommunications and Mass Media

Table 2.1: Telecommunication Industry Structure
Number of licenses, by category
Telecom Service













Paging Service





Public Trunk Repeater Service


Local Exchange Carrier Service
Cellular Mobile Telephone Service




International Record Carrier





Domestic Record Carrier





Very Small Aperture Terminal






Public Coastal Station









Value-Added Service




Source: NTC.

are limits for the mobile market with additional spectrum not available to accommodate new entrants.

Convenience and Necessity. Third, the
NTC must also grant authority for operation of the service; these are almost always provisional, generally covering a period of around five years.

The more serious limitation on market growth is the limitation on foreign ownership. The Constitution limits foreign ownership in public utilities to
40 per cent. The incumbent carrier,
PLDT, has attempted to raise finance for investment (and to reduce its older debt) by selling chunks of shares to foreign investors. First Pacific of
Hongkong owns 24 per cent while a
20 per cent stake of its mobile subsidiary, Smart, is reportedly attracting interest from NTT of Japan, among others. But the fact that these foreign investors could never own or control a Philippines operator reduces the level of interest, and therefore the price. This constraint is particularly acute in segments of the market, like broadband, which are more capital intensive. 2.1.2 Operators
Although there are numerous telecommunication operators in the
Philippines, the industry is dominated by several large companies.
The nation’s oldest operator is the
Philippine Long Distance Telephone Company (PLDT, <www.pldt.>). It was incorporated in
1928. Predominately US-held, control reverted to Filipino shareholders in
1967. Its charter was amended in
1991 granting PLDT the right to offer any telecommunication service in the country. PLDT’s franchise was also extended until 2028. PLDT is by far the largest operator in the nation.
PLDT’s foreign owners are Hong
Kong’s First Pacific with 25 per cent and Japan’s NTT with 15 per cent.
Remaining shares are traded on the
Philippine Stock Exchange.

Unlike many countries, licenses per se are not issued to telecommunication service operators in the Philippines.
O p e ra t o r s r e q u i r e a f ra n c h i s e , certificate and approval to provide telecom service. First, a legislative f ra n c h i s e , i s s u e d b y C o n g r e s s
(parliament) is needed. Second, the
NTC must issue a Certificate of Public

PLDT also wholly-owns Smart and is majorit y-owner of Piltel. Smart
<> was set up in
1991 to provide mobile telephone


Philippines Internet Case Study

Figure 2.2: Philippine Telecom Sector
























Source: DOTC.

services. It has a 25-year franchise issued in 1992. It was purchased by
PLDT in March 2000. Piltel wa s established in 1968 to operate local telephone service in General Santos
City. PLDT purchased 32 per cent in
1975 and increased its holdings to
50 per cent in July 1998. Remaining shares were listed on the Philippine
Stock Exchange in 1995. Piltel has a
25-year franchise, renewed in 1992.
It launched mobile services in 1991 and today operates both AMPS and
CDMA networks and leases GSM capacity from Smart.

tions Corporation (ICC) and in mobile operator Extelecom. Express Telecom
(Extelecom) was established in 1988 and launched the country’s first mobile cellular service in May 1989. Its owners are Bayantel, Luxembourgbased international cellular operator
Millicom, and the Philippine group
Mayon Holdings.
Digital Telecommunications Phils., Inc.
(Digitel, <>) was a wa r d e d a 3 0 -ye a r c o n t ra c t i n
February 1993 to manage and operate t h e D o TC ’s t e l e c o m m u n i c a t i o n facilities Luzon Island. In 1992 it gained an international gateway facility license and in February 1994 this was converted into a franchise under the Special Areas Scheme
(SAS) to provide nationwide fixed and international telephone service. In
August 2000, Digitel was granted a

B aya n
Te l e c o m m u n i c a t i o n s
Incorporated (BayanTel, <www.>) was established in
O c t o b e r 1 9 9 3 . I t h a s m a j o r i ty ownership in several local exchange carriers, in international gateway provider International Communica-


2. Telecommunications and Mass Media

Provisional Authority to provide mobile cellular services. It is in the process of constructing a GSM 1800 network.
Digitel plans a soft launch in 2002 and a hard launch by May 2002.

a small portion of lines. The most significant impact on the fixed line market occurred in 1993. That was when then President Fidel Ramos signed Executive Order 109. It called for mobile cellular and international telephone service operators to also provide fixed-line telephone service.
Each cellular operator was required to install 400’000 lines and each international operator 300’000 lines within five years. EO 109 enforced compliance by requiring operators to put up performance bonds that could be forfeited if line installation targets were not met. Operators were assigned different regions of the country to ensure even roll-out. In addition, in order to ensure that lines were not only installed in cities, there were targets for the ratio of urban to rural lines. That is, one rural line was to be installed for every ten fixed lines. The EO also explicitly allowed cross-subsidies in order to keep local service rates affordable. This was to be implicitly carried out by operators through their supposedly more lucrative mobile or international operations. In addition, local exchange operators were to receive access fees for use of their networks.

Te l e c o m m u n i c a t i o n s
Philippines, Inc. (ETPI, <www.etpi. c o m> ) p r ov i d e s i n t e r n a t i o n a l telephone services. It has ownership in a number of submarine fibre optic cable systems. The company’s roots go back to 1878. It became part of the UK’s Imperial and International
Communications that later became
Cable and Wireless. In October 2000, the forty per cent shareholding of
Cable and Wireless was sold to
Australian Gigahertz Network.
Globe Telecom <> emerged from Globe-Mackay Cable and Radio (GMCR), a company set up in 1930 to provide maritime and t e l e g ra p h s e r v i c e s . I t r e c e i ve d franchises to provide fixed, mobile and international telephone services in the early 1990s and has since emerged as the second largest operator in the country. In June 2001, Globe acquired mobile operator Islacom with the r e s u l t t h a t I s l a c o m ’s s t r a t e g i c i nv e s t o r— G e r m a ny ’s
Telekom—ended up owning part of
Globe (4.65 per cent). Globe’s other foreign shareholder is Singapore
Telecom (11.79 per cent). The Ayala family owns a further eleven per cent.
Islacom launched a GSM network in
1 9 9 4 a n d a l s o o p e ra t e s m a i n telephone lines.

Nine operators were obligated to install fixed telephone lines under
EO 109. When all the new lines to be installed were added up, they came to four million or more than quadruple the number that existed at the end of 1993. These were to have been installed by the end of
1998. The implementation of the policy fell short by around
600’000 lines in 1998 but by the end of 2000, the four million target was reached. Some operators exceeded their line installation requirements while others did not complete theirs.
One reason put forward by some operators for not accomplishing the target was “peace and order” particularly in the south of the c o u n t r y. O t h e r r e a s o n s i n c l u d e permission not being granted by the local authorities as well as the financial crisis.

Philcom, PT&T and Capwire are linked through holding company
Re p u b l i c
Te l e c o m m u n i c a t i o n s
(Retelcom). All provide international telecommunication services in addition to local exchange services.
There are also over 50 small local exchange operators, many members of the Philippine Association of Private
Telephone Companies (PAPTELCO).
2.1.3 Fixed: The EO 109 effect
There were 77 operators providing fixed telephone line service at the end of 2000. Most are provincial operators
(PAPTELCO members) that account for

Although the number of lines called for under EO 109 was eventually installed, the majority are not in


Philippines Internet Case Study

Table 2.2: EO 109




…r„ˆv…rq v†‡hyyrqÃi’à v†‡hyyrqÃi’








"&#' %














& ""#

Tr…‰vprÃi’Ã 8hƒhpv‡’









! ('!



" È
























"&(# "




&!" #







& "$&


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!& ¶!'
















Note: IGF = International Gateway Facility. CMTS = Cellular Mobile Telephone Service.
Source: ITU adapted from NTC.

mobile communications. To be fair, at the time EO 109 was implemented, mobile communications was costly and considered a luxury, even a status symbol. In retrospect, a lighter regulatory burden, which would have opened the market to new players and investors, without dictating the pattern of their investment, may have proved more beneficial. Such a policy might have meant that the market consolidation that has recently taken place would have happened earlier. It may also have e n c o u ra g e d greater price competition. service. The Philippines has one of the world’s highest ratios of unused telephone lines. At the end of 2000, only 44 per cent of installed telephone lines were in use, and only 29 per cent among those companies subject to the
Special Areas Scheme. A major reason is that lines were installed in places where people could either not afford them or did not want them. Also, subscription charges were not dramatically reduced. Thus EO 109 overlooked one of the principles of
Economics 101: an increase in supply should lead to a fall in price. Since this did not happen, and considering the level of economic development, without a fall in prices, the Philippines just did not have the capability to absorb all the new lines.

N e ve r t h e l e s s , despite these shortcomings, the impact that the policy of opening up the market had on fixed-line growth is evident, at least in the mid 1990s (see Figure 2.1). Not only did the policy introduce new investors, it also re-energised the incumbent, PLDT, which still holds more than 55 per cent of local line

A more significant shortcoming of the
EO 109 was the emphasis it put on the fixed-line network, whereas subsequent developments showed that Filipino’s appetite was greater for




2. Telecommunications and Mass Media

Figure 2.3: So many lines but we still can't catch up


Fixed lines installed and in use, Philippines and main telephone lines per 100 inhabitants,
Philippines and South East Asia




Telephone lines in service per
100 inhabitants

South East Asia

Main lines







1994 1995 1996 1997 1998 1999 2000

1992 1993 1994 1995 1996 1997 1998 1999 2000

Source: ITU.

subscribers as of 2000. By the mid1990s, however, when mobile provided a more attractive alternative to fixedline service, the shortcomings in the policy were more evident. While the
Philippines had the highest line installation rate of the region, this did not transform into the biggest gain in lines in service or penetration rate. The
Philippines telephone lines in service rate grew by 16.8 per cent a year between 1995 and 2000, a rate surpassed by three other South East
Asian Nations (Cambodia, Lao PDR and
Vietnam). Indeed the Philippines was not much closer to catching up with the
South East Asian average teledensity at the end of EO 109 than it was before.4
Finally, the explosive growth of mobile was the nail on the coffin for the EO
109 experiment. The popularity of mobile was completely unforeseen at the time EO 109 was designed. One interesting development is how the
Philippine fixed line market is now adopting popular mobile features such as text messaging and prepaid service.

seen its market share (based onlines in service) plummet from 95 per cent in
1992 to just over half (56 per cent) by
2000. While many countries are struggling to attract competition in their fixed line markets, the Philippines already has it.
2.1.4 Long distance
There are three nationwide terrestrial backbones. PLDT has a nationwide fibre optic network as well as a digital microwave network for backup. In
1999, the Telecommunication Infrastructure Corporation of the Philippines
(TelicPhil), a consortium of seven telecom operators, completed a nationwide fibre optic network. There are also several satellite networks with nationwide coverage utilizing VSAT
(Very Small Aperture Terminals) antennae for the ground segment.
Despite increasing competition, PLDT remains the largest national long distance operator. It carried 3.3 billion minutes in 2000. National long distance accounted for 17 per cent of PLDT’s revenues in 2000 or 10.6 billion pesos
(US$ 210 million). In May 2001, PLDT reduced prices to a flat 3.00 pesos
(US$ 0.06) per minute rate for any national long distance call within its network and 3.50–5.00 pesos
(US$ 0.07-0.10) for calls terminating in other networks.

Perhaps the main legacy of EO 109 is that it created alternate providers of fixed telephone lines. The fact that the
Philippines implemented the policy early on, when teledensity was so low, has resulted in a market with a number of alternative providers to the historical provider, PLDT. As a result, PLDT has


Philippines Internet Case Study

2.1.5 International
A s r e c e n t l y a s f i ve ye a r s a g o, international telephone service was perceived as a lucrative market segment. The 8 million or so Filipinos working outside the home country are eager to stay in touch with friends and family, providing a huge potential market.5 A number of new carriers were willing to take on fixed line installation obligations in order to obtain the right to provide international telephone service. But pressure by the US to reduce settlement rates, IP Telephony and alternative routing of calls have made the international gateway business much less attractive than at the time the licenses were awarded.

destinations where there are lots of
Filipino workers, such as in the Arab
States. This is perhaps one unintended outcome of the NTC’s relaxed attitude to price cross-subsidy between market segments. The difference between the settlement rate to the US of 19 US$ cents and the retail rate of 40 US$ cents still leaves plenty of scope for arbitrage. Consequently, PLDT’s international incoming traffic jumped by over 100 per cent in 2000 while outgoing traffic has actually fallen since 1998. As a result of these price reductions, and because PLDT’s rates have been matched by every other carrier in the market, leading to a loss of market share, PLDT has seen its international revenue decline from just over 50 per cent of total revenues in 1996 to 21 per cent in 2000 (see
Figure 2.4).

In its so-called Benchmark Order, the
US regulator, the FCC, had ordered the
Philippines to reduce its settlement rate to US$ 0.19 by January 2001, a step the Philippines carried out a year i n a d va n c e . B y d o i n g s o, t h e
Philippines hoped to stem the large rise in illegal accounting rate bypass traffic. International prices have dropped sharply over the last few years and now stand at a flat US$ 0.40 to any destination. Although this sounds attractive, what it really means is that low cost traffic to the US is being used to cross-subsidise the cost of outgoing traffic to other higher cost

2.1.6 Mobile
Technically, the Filipino mobile cellular market is diverse with five companies operating seven networks (AMPS (2),
CDMA, TACS, GSM (3)). In reality, the market is dominated by two players
(PLDT and Globe) and one technology
(GSM). PLDT wholly-owns Smart and majority-owns Piltel while Globe recently purchased Islacom. These two companies—PLDT and Globe—thus control 98 per cent of all subscribers.
The dominance of GSM is almost

Figure 2.4: Getting over international
PLDT's international revenues as per cent of total and PLDT's international telephone traffic


PLDT: International long distance revenues as % of total


PLDT: International telephone traffic, millions of minutes











Source: ITU adapted from PLDT.





2. Telecommunications and Mass Media

Figure 2.5: Mobile mania
Fixed and mobile telephone subscribers per 100 inhabitants, Philippines and mobile telephone subscribers per 100 inhabitants, Philippines compared to South East Asia





Fixed and mobile telephone subscribers per 100 inhabitants













99 2000

Mobile telephone subscribers per 100 inhabitants 8.4


South East Asia









99 2000

Source: ITU.

complete. From less than five per cent of subscribers in 1994, some 92 per cent of subscribers were connected to
GSM networks in June 2001.

region. The fact that most of the operators also had international licenses made it easier to keep mobile tariffs down. The
Philippines has among the lowest tariffs in the region.

The Filipino market is also one of the fastest expanding in the world. Mobile growth in 2000, 127 per cent, was the second highest in the country’s history after the peak of 1995, and the signs are that 2001 will be almost as good a year. Mobile is increasingly becoming a way of life in the country and, since early 2000, the predominant method of telephone communications. The
Philippines became the 13th country in the world where mobiles passed fixed. From some 100’000 subscribers in 1993, the Philippine mobile market has emerged as the largest in South
East Asia with 8.6 million subscribers in June 2001. Unlike fixed telephone lines where the Philippines is still playing catch-up, the nation’s mobile density is way above the South East
Asia average (see Figure 2.5).



What has driven this rapid mobile growth? •

One reason is the large number of full service operators. The decision to allow five mobile operators from the mid-1990s made the Philippines one of the most competitive markets in the


A second factor was huge pentup demand. Though cellular (and international) operators had obligations to install several million fixed lines, there appears t o h ave b e e n a m i s m a t c h between supply and demand.
Fixed lines were installed in places where people did not need them or for prices that they could not afford. Mobile went where the demand wa s and thus substituted for fixed lines. Mobile was a more attractive proposition not because it was cheaper but it was easier to acquire and prepaid meant that anybody could subscribe. At December
2000, around 80 per cent of all subscribers were prepaid.
Finally, the craze over Short
M e s s a g i n g Sy s t e m ( S M S ) , particularly the fact that mobile text messages are either free or cheaper than a regular mobile call, drove others to mobile.
Mobile has spread like wild fire.
Mobile coverage is estimated at

Philippines Internet Case Study

Table 2.3: Plus I get free SMS!
Comparison between fixed and mobile monthly charges, Pesos/United States Dollar




Internet, operators have launched 2.5 generation applications as a precursor to future third generation
(3G) networks.


Smart launched Wireless
Application Protocol (WAP) service in June 2000 and
$" $$ $Ã

i n N ovember 2000 it launched a WAP portal
%(" !%Ã
&(( $$ Ã called Zed in partnership
! #à with Sonera, Finland’s leading mobile operator.

The portal can also be accessed via SMS text
Note: Fixed tariffs are for December 2000. Mobile messages. Smart tariffs are for December 2001. launched GPRS in Source: ITU, adapted from PTOs.
March 2001. One innovation is ‘Smart Money’, which allows users to download cash to their SIM cards.
70 per cent of the population.
Smart Money won the 2001 GSM
Arguably, more Filipinos are
Association Most Innovative Service within range of a mobile signal award.6 Globe introduced WAP in 1999 than a fixed telephone line. and GPRS in the second quarter of
As a result, the Filipino market is one
2001. There are problems with these services that operators around the of the most dynamic and closely world also face. One is the shortage observed mobile markets in the world.
It leads the world in per capita SMS and high cost of WAP and GPRS use (see Box 3.2) and for a developing enabled phones. Another problem has country, is quite advanced in other been slow speed and lack of compelling content. Despite these mobile data applications, such as those using the SIM Toolkit. Although limitations, it is estimated that there
S M S c o n t i n u e s t o d r i ve m o b i l e were around 60’000 WAP phones and

TableFigure 2.5: Mobile mania
2.4: Philippine mobile market
Mobile operators and subsribers, June 2001



EˆrÃ! Ã





Hh’Ã ('(Ã






Eˆrà ((#Ã
(( Ã

$ ¶(&Ã


Distribution of mobile subscribers, June
Total = 8.6 million










# ¶&!$Ã



6ƒ…vyà (((Ã


Note: * December 2000. ** Including GSM subscribers served by using Smart's network.
Source: ITU adapted from PTOs.



2. Telecommunications and Mass Media

minute payments amongst the operators that process the telephone call. One major problem has been that, due to the growth of mobile telecommunications, most local fixed line operators are finding that they are paying an increasing amount to mobile operators, thus reducing the amount that was supposed to be used for maintaining lower local fixed tariffs.

some 10’000 GPRS phones by midyear 2001. No policy on the licensing of 3G mobile has yet been announced.
2.1.7 Interconnection
One obstacle to the smooth operation of the Philippine telecommunication market has been interconnection.
Although operators are obligated to interconnect their telecommunication networks under the Public
Telecommunication Act, the process has been slow. The NTC is supposed to establish interconnection rates if operators cannot agree amongst themselves. One irony is that even though cross-subsidies are legal, and actually encouraged in the Philippines in order to keep local service affordable, many local exchange operators claim they pay out more in interconnection fees than they receive. The situation has been aggravated by the fact that there are generally no local telephone usage charges (local calls are covered by the flat rate monthly subscription) but nevertheless local exchange carriers have to pay interconnection charges to mobile operators.

2.1.8 Universal Access
The Philippines has had success over the last decade in improving access to basic telecommunication services.
One measure of Universal Service is the number of households with a telephone. The nation has seen a steady rise in the number of homes with a fixed telephone line over the last decade, from 3.3 per cent in 1991 to
14 per cent at the end of 2000.7 If mobile telephone ownership were included, the figure would undoubtedly be higher but this information is unfortunately not collected.
Nonetheless, it is clear that a majority of Filipino homes still do not have a telephone, either because they cannot afford one or because the infrastructure is not available.8 Thus,

Interconnection either takes the form of revenue sharing agreements or per

Figure 2.5: Mobile mania
Table 2.5: Universal Access and Universal Service




13.5 14

Households with a fixed telephone line







# ¶(#Ã

$#ÈÃ Ã






1991 1992 1993 1994 1995 1996 1997 1998 1999 2000


Note: 1/ Data comes from NTC, which does not distinguish between city and municipality. Data refer to
1999. Note that in its 2000 Annual Report Form 20-F, PLDT reports that its network is linked to calling points in 1’134 municipalities in the country, which would raise the per cent with telephone service to 74 per cent.
2/ Data for number of Barangays with telephone service is from PLDT’s 2001-02 Metro Manila Telephone
Data for households with a fixed telephone line is derived from the number of residential telephone lines divided by the number of households.
Source: ITU adapted from NTC, NSO and PLDT.


Philippines Internet Case Study

Figure 2.6: Telephones in the regions
Distribution of main telephone lines and main telephone lines per 100 inhabitants by Philippine region, 2000

Distribution of main telephone lines in the Philippines, 2000



IV S. Tagalog
VII C. Visayas
III Central Luzon
I Ilocos
VI W. Visayas
XI S. Mindanao
X N. Mindanao
VIII E. Visayas
V Bicol
II Cagayan
XII C. Mindanao
IX W. Mindanao

Main lines per 100
inhabitants, 2000

Note: NCR = National Capital Region. CAR = Cordillera Administrative Region. ARMM = Autonomous
Region in Muslim Mindanao.
Source: ITU adapted from NTC.

a more realistic goal is Universal
Access, that is reasonable access to a telephone. This could either be through a neighbour, from a work telephone or from a public payphone.
This might be measured in a survey that asked households how far (either by time or distance) they are from a telephone. This kind of data is lacking.
Instead, most Philippine government measurements of telephone access a r e b a s e d o n t h e t ra d i t i o n a l teledensity indicator—that is the number of fixed telephone lines in service divided by the population. The government often uses capacity (i.e., the number of lines installed), rather than lines in service, to calculate teledensity. This presents a distorted and not globally comparable figure.

Another measure of access to telephone service is the number of payphones. This has risen steadily from 4’809 in 1991 to 14’959 in 2000.
Another indicator would to be measure the number of localities with telephone service. This gauges the level of telephone availability in the various administrative units in the Philippines
(i.e., province, city, municipality, and barangay). The Municipal Telephone
Act of 2000 aimed to have publicly provided and subsequently privatized, telephones installed in each city and municipality. By 1999, one year before the Act lapsed, 46 per cent of the original target of 1’609 cities and municipalities were still without a telephone. O t h e r g ove r n m e n t p o l i c i e s f o r promoting telephone access included
EO 109 that mandated mobile cellular and international telephone service p r ov i d e r s t o a l s o i n s t a l l f i xe d telephone lines. At least ten per cent of the lines were to be installed in rural areas. The government has explicitly encouraged cross-subsidies in pricing in an attempt to keep local tariffs affordable. Local service prices in rural areas and provincial regions are also cheaper than in the National Capital
Area. However since most operators do not charge for local calls, the

Data for main lines in service show wide variations within the country.
Almost half of all fixed telephone lines in service are in the National Capital
Region (around Manila) even though it only accounts for 14 per cent of the nation’s population. The number of fixed telephone lines in service per
100 inhabitants varies from 14.2 in the capital region to less than one in three regions. All but two regions are below the national average of four fixed telephone lines in service per
100 inhabitants.


2. Telecommunications and Mass Media

Box 2.2: Universal availability for US$ 24 million
One potential solution for universal telephone access is satellite technology. One interesting technology is the regional Global Mobile Personal Communications
Satellite Systems (GMPCS). These have rather more modest costs and objectives than the global GMPCS operators, like Iridium, Global Star or ICO, which have struggled to come up with viable business plans. But they still offer services that can be accessed by small handsets and do not require large investment in the ground segment (e.g., earth station or large satellite antenna). Asia Cellular Satellite (ACeS), a consortium of PLDT, Lockheed Martin (USA), Nusantara
(Indonesia) and Jasmine (Thailand), launched a regional GMPCS satellite in February 2000 that has a footprint over all of East Asia. Smart plans to establish some 1’500 public telephone offices in remote areas around the Philippines using the ACeS system.11

One lesson learned from earlier GMPCS systems that were not successful was that pricing has to be competitive with mobile cellular systems. Calling charges for the ACeS system in the Philippines are reasonable at US$ 0.26 per minute for domestic calls and US$ 0.35 per minute for international.
These rates are competitive with other offerings.
The downside is that incoming calls are charged at
US$ 0.26 per minute. A handset and SIM card cost
US$ 691 and US$ 43 respectively. The Philippines could thus extend telephone service in the 32’000 or so barangays without telephone service for around
US$ 23.5 million. This represents a modest investment; more or less equivalent to PLDT’s profits in the first half of 2001.

monthly service charge is higher, raising the cost of telephone service. Line installation charges also tend to be relatively expensive and, unlike monthly subscription charges, are the same throughout the country. For example,
PLDT charges 1’999 pesos (US$ 38.82)
(reduced from 3’377 pesos (US$ 65.57) in November 2000) regardless of whether the subscriber is in Manila or
Mindanao. Despite this reduction, over half of Filipino homes cannot afford fixed line telephone service.9 Fixed operators are taking a lesson from mobile and introducing prepaid service. PLDT’s
Teletipid fixed line prepaid service had chalked up over 100’000 subscribers by
September 2001, one year after launching. a mobile signal. The government has set a target of 100 per cent coverage of provincial capitals and cities by
2004. This target is probably already close to being met if not already accomplished. It might have been more relevant to pursue a goal of
95 per cent of the population covered by a terrestrial mobile cellular signal.
Furthermore, this important indicator should be tracked and monitored on a regular basis.

Future government plans call for raising installed capacity density to
12.73 in 2004 (from 9.05 in 2000).10
This target is not likely to add to any measurable increase in telephone access unless prices are lowered, as the telephone lines will remain unsubscribed. More likely, it will add to the already high level of excess capacity. Plans also call for extending telephone service to 71.6 per cent of barangays (from 24 per cent in
2000). The impact of mobile on enhancing access to telephone service is also significant. Though official figures are not available, it is estimated that over 70 per cent of the Filipino population is covered by


The entire archipelago is already covered by a telephone signal if one factors in satellite systems. This c overage could be leveraged to provide a higher level of telephone access (see Box 2.2).
Mass Media

The Philippines has a vibrant media sector. Ownership is predominately private and press freedom is guaranteed under the constitution.
The end of the Marcos regime represented a turning point for the industry. Several leading newspapers and broadcast stations had been shut down during the imposition of martial law. They reopened later, to be joined by newcomers attracted by the liberal press environment. One major problem in analysing the mass media sector is the lack of reliable information. There is a shortage of timely official statistics and other


Philippines Internet Case Study

sources vary widely (see Table 2.6).

penetration of 4.2 per cent or 2.7 for the country as a whole.

2.2.1 Printed press
T h e r e a r e ov e r t h i r ty d a i l y newspapers, most published in Manila.
Many are in the English language.
International dailies and foreign magazines are widely available. Most of the leading newspapers have web sites (see Box 2.3).

2.2.2 Broadcasting
The first radio stations were set up in the 1920s and the first commercial stations started broadcasting in 1930.
The first television broadcast was in
October 1953.
Radio is the most popular medium in the country with some 81 per cent of those over ten listening in 1994.13 AM stations broadcast mainly in Filipino whereas FM is mainly in English. The
NSO put the number of households with a radio receiver at 81 per cent in

There is considerable variation in the data regarding just how many Filipinos actually read newspapers. A 1994 survey by the NSO found that 30 per cent of the population over ten were exposed to newspapers. The latest available data from UNESCO for 1996 put the number of daily newspapers at 47 and circulation at 5.7 million copies or 8.2 per 100 inhabitants.12
Another estimate, based on sales figures, market share and pass-on c o p i e s o f t h e c o u n t r y ’s l a r g e s t newspaper, suggest that circulation of all newspapers in 2000 was around two million copies per day. This amounts to an adult newspaper

There are six free-to-air nationwide television networks. ABS-CBN
Broadcasting Corporation (ABS-CBN,
<>) broadcasts on
Channel 2 and claims to be the most popular television station in the nation with an average audience share of
45 per cent.14 People’s Television
Network <>, the only

Figure 2.7: Mass Media
Exposure to Forms of Mass Media, 1994, among citizens older than 10

Source: NSO.


2. Telecommunications and Mass Media

g ov e r n m e n t- o w n e d station, broadcasts on Channel 4. Associated
Broadcasting Corporation ( A B C ,
<>) broadcasts on
Channel 5. GMA <> c l a i m s t o b e t h e n a t i o n ’s m o s t awarded television network and the second most watched; it broadcasts on Channel 7. Radio Philippines
Network (RPN, <>) broadcasts on Channel 9. IBC
<> broadcasts on
Channel 13. There are an estimated eight million TV homes in the country or a little over half of all households.15

f ra n c h i s e wa s aw a r d e d t o o n e company in 1977. Ten years later the industry was liberalized. According to the NTC, there were 1’162 licensed cable television companies at the end of 2000. However perhaps less than half are actually in operation and three major ones dominate: Sky, Home and
Sun. It is estimated that they account for more than half of the some
1.3 million estimated cable TV subscribers in the country.
Satellite TV is available through the use of large antennas (SMATV). A few companies are trying to launch DirectTo-Home (DTH) satellite service, but face tough competition from the large number of cable TV subscribers.

Cable television began in the
P h i l i p p i n e s i n 1 9 6 9 . 16 It was monopolized when a nationwide

Box 2.3: The Portal Wars
Filipino newspapers face a tough competitor in the
Internet. The country’s large number of English speakers is comfortable surfing to US sites for news and information. According to one estimate, some
90 per cent of Filipino Internet traffic is destined to the US. Global portals are moving in the reverse direction, setting up Filipino-oriented sites. Yahoo has a specialized Philippines page <> while Lycos has established a Filipino site
<>. Local newspapers also have to contend with new Filipino sites such as Global
Pinoy <> that do not have ties to the traditional media. Yehey!, set up by five college students in 1997, claims to be the Philippines top search engine providing links to some
16’000 Filipino-related web sites. Yehey!, which also provides news, weather and other information, has six million page views a month.
The papers are fighting back. The Manila Times, once the largest English newspaper in East Asia, was one of the country’s first newspapers to go

online in September 1995. Since then, all the leading newspapers have followed. INQ7 merges the country’s leading newspaper, the Philippines
Daily Inquirer (PDI) and its second most popular television station, GMA, into an integrated portal.
Since most Filipinos within the country do not have fast Internet access, INQ7 optimises speed so that pages can be downloaded quickly. It also offers regular updates to attract people to the site. INQ7 claims to be one of the most visited news sites in the world. PDI states that there were 800’000 daily hits to its web site during the height of the Estrada controversy. Not to be outdone, broadcasters have also jumped into the foray. All the leading television networks have web sites. ABS-CBN has three, one for its television station, another for news reports and a third is community oriented Pinoycentral. ABS-CBN was the first to provide live video streaming. It claims that its three sites, which swept the Philippine
Web Awards, garnished some 87 million page views in the year 2000.


Philippines Internet Case Study

Table 2.6: Mass media contradictions





@‘ƒ‚†ˆ…rǂÁr†ƒhƒr…Ãr…à Ãvuhiv‡h‡†Ã



VI@T8PÃ ((%Ã
ITPà ((#Ã6trà Ã

Ir†ƒhƒr…Ãpv…pˆyh‡v‚Ãƒr…à Ãvuhiv‡h‡†Ã


VI@T8PÃ ((%Ã

Ir†ƒhƒr…Ãpv…pˆyh‡v‚Ãƒr…à Ãvuhiv‡h‡†Ã






' !ÈÃ


$¶& !¶Ã





TˆÃ8hiyrÃ! Ã









!¶ #%¶Ã

Source: ITU adapted from sources shown.


68Ivry†rÃ (((²

2. Telecommunications and Mass Media













Laws and regulations applicable to the telecommunication sector are posted on the NTC web site at Michael Minges. “Philippine telecommunications in an ASEAN context.” Presented at Philippines
Telecommunications ’94. November 1994. Manila.
The distribution of the Philippines international telephone traffic closely parallels the location of Filipino
Overseas Workers. For a breakdown of Philippine international telephone traffic see PLDT. Annual Report of
Form 20-F 2000.
GSM Association. “Winners of the 2001 GSM Association Awards acclaimed.” Press Release. 21 February
This figure is derived from the number of residential telephone lines divided by the number of households.
Infrastructure would also include electricity. One quarter of Filipino homes did not have electricity in 1999 and some 10’000 barangays lacked electricity. Medium Term Philippine Development Plan. 1999-2004.
It is reported that 63 per cent of families in the Philippines cannot afford basic telephone service. See “PLDT launches Phonetastic Festival to offer affordable phone service.” Press Release. 9 November 2001. NEDA. Medium-Term Philippine Development Plan, 1999-2004.
“SMART inaugurates satellite capable Public Calling Office.” Press Release. 15 January 2001. UNESCO. “Daily and non-daily newspapers: number and circulation.” NSO. “Exposure of Population to Mass Media.” “ABS-CBN registers 4% EBITDA growth as Net Income declines 19% as of September 2001.” Press Release.
12 November 2001.
This figure is derived from a 1994 NSO survey, the latest official figures available. The result appears low especially when compared with neighbouring countries. An AC Nielsen study estimates that four out of every five Filipino homes has a television.
For a brief timeline of the Filipino cable industry see the Philippine Cable Television Association web site at 21

Philippines Internet Case Study


Internet in the Philippines



Te l e c o m m u n i c a t i o n
Commission (NTC) has registered over
150 Value-Added Service (VAS ) providers. However not all are ISPs nor are they all in operation. There are also ISPs that have not registered with the NTC. Counts of ISPs with AS numbers or members of the Philippine
Internet Service Organization (PISO) both come to 48.18 Thus, it seems safe to say there were less than 50 active
in the Philippines at October 2001.

Although some companies established their own private connections to the
Internet in the early 1990s, it was not until 1994 that the Philippines obtained its first permanent public connection.
The Philippine Network Foundation
(PHNET) achieved the nation’s first public permanent connection to the
Internet, via a 64 kbit/s link to Sprint in the United States on 29 March
1994.17 PHNET, a consortium of private and government institutions, managed what was then the country’s only public gateway to the Internet. These institutions included government agencies, especially those affiliated with the Department of Science and
Technology, universities, and some commercial companies. The first commercial Internet Service Provider
(ISP), Mosaic Communications
(MosCom), launched service in
August 1994.

The structure of the Internet market in the Philippines is hierarchical. This is because VAS providers must lease their transmission infrastructure from licensed telecommunication operators. For example, at the end of
1999, only 13 out of 199 VAS had their own networks. At the top of the pyramid are the public telecommunication operators with international
Internet bandwidth. Some of these have their own Internet subsidiaries.
Almost all international telecom operators lease international Internet
There is no official figure for the bandwidth to downstream ISPs. The number of ISPs operating today. The larger ISPs in turn resell connectivity to smaller ISPs in the provinces. Figure 3.1: Internet subscribers and estimated users in the Philippines
Reliable figures on the number of Internet
2.5% subscribers in the
country do not exist.
Although the NTC solicits
this information on a
1.0% quarterly basis, not all
ISPs furnish the
information. In any case,
0.0% the information is
neither compiled nor
Subs. published. In addition,
Users some ISPs use different
User methodologies for penetration reporting subscribers
(e.g., estimated number of users rather than
Source: ITU estimates. subscribers). 22

3. Internet in the Philippines

The growth of the pre-paid Internet market also poses a statistical problem since there are different ways to account for this. The ITU estimates that there were around 270’000 dialup subscribers at the beginning of the year 2001. It is estimated that the top four ISPs account for around half the market. According to a government report, there were some 1.5 million users at the end of 2000 for a penetration of around two per cent of the population.19

Destiny, Digitel, Edsamail, ETPI,
Evoserve, Interdotnet, Meridian,
M o s C o m , Pa c i f i c I n t e r n e t ,
Philweb, Sky Internet and Tridel.
T h e C O R E e xc h a n g e a l s o interconnects with MIX.
It is estimated that around 90 per cent of Philippine Internet traffic is destined abroad, primarily to the United States.
Nonetheless there is a growing amount of domestic traffic. Since there is no single Internet exchange to which all ISPs are connected, there are situations where national Internet traffic will be transited abroad to return to the Philippines, adding to international Internet connectivity costs. Thus far, there has been no neutral party interested in promoting a neutral Internet exchange to which all ISPs could connect. Except for
CORE, a different telecom operator operates each exchange and they have not cooperated. Although CORE a d v e r t i s e s i t s e l f a s a n e u t ra l exchange, it is perceived as being controlled by Bayantel. PLDT has a plan to interconnect all of the Internet exchanges. Interconnection

There is no legal requirement for ISPs to interconnect with each other. Some
h av e p r i va t e peering arrangements with each other. ISPs using the same international gateway operator would be interconnected by default. Of the eleven international g a t e way telecommunication operators, six provide international
Internet bandwidth (Bayantel, Digitel,
Globe, Eastern, Philcomsat and PLDT).
ISPs can connect to three exchanges for swapping their national Internet traffic: •


ISPs cannot provide their own national or international infrastructure unless they also have a telecommunication franchise license. There is no national
Internet backbone so this means that some ISPs have strung together a national network by leasing lines from different telecommunication providers. In an attempt to facilitate t h e p r ov i s i o n o f i n t e r n a t i o n a l connectivity, PLDT has launched its IGATE service for ISPs. Instead of h av i n g t o p r o c u r e i n t e r n a t i o n a l bandwidth through multiple domestic and foreign suppliers, I-GATE is a onestop service that provides a direct connection to the Internet backbone.
It is powered by a 155 Mbit/s
(December 2001) submarine fibre optic connection to the US.

Philippines Internet Exchange
( P H I X ) < w w w. p h i x . n e t . p h > operated by PLDT. PHIX was the first Internet exchange in the country and launched in January
1997. Eight ISPs exchange their traffic, including Infocomm,
PLDT’s ISP subsidiary. Other ISPs using PHIX are Evoserve, Iphil,
MosCom, Pacific Internet, Tridel,
Virtual Link and WorldTel.
C o m m o n Ro u t i n g E xc h a n g e
(CORE) < html> managed by the Philippine
Network Foundation (PHNET).
This exchange is free and open to all registered ISPs but they must h a ve their own international connectivity and supply their own 128 kbit/s link to the exchange.


The Philippines archipelago is well situated in terms of being able to take advantage of undersea fibre optic routes. As a result most international
Internet connectivity is symmetric via fibre optic cable. Most connections are to the United States, the destination

Manila Internet Exchange (MIX,
operated by Eastern Telecoms
(ETPI). MIX has 13 ISPs: Bitstop,


Philippines Internet Case Study

telephone ownership, and reduces the size of the dial-up market. So while the Philippines has comparatively low
ISP charges, the overall cost of Internet access is relatively high when factoring in the telephone subscription charge. Figure 3.2: Dial-up Internet prices in South East Asia
30 hours of use per month, US$, October 2001

Line rental
Telephone Usage







Source: ITU adapted from ISP and PTO data.


of the majority of traffic. There are a few connections to other Asian economies primarily Japan, Hong
Kong SAR and Singapore. Although
ISPs have to go through telecom operators for outgoing international connectivity they can negotiate their own incoming satellite connectivity. As with the number of subscribers and users, there is a lack of clarity regarding international Internet bandwidth in the country. The top four
ISPs reported 237 Mbit/s of international incoming connectivity and 154 Mbit/s of outgoing in
October 2001.


Pre-paid cards have been growing in popularity, for fixed as well as for mobile networks. One reason is that a pre-paid user does not necessarily h av e to h ave a telephone line or PC since the card can be used at Internet cafés.


High-speed Internet access, via cable modem, ADSL (Asymmetric Digital
Subscriber Line), and fixed wireless broadband systems, is available in the
Philippines. There are up to ten operators currently in the market, but none has more than around
3’000 subscribers. Perhaps because of the confusing array of choices, the market has been slow to take off and no one is making money from broadband access in the Philippines at present:


The Philippines is the only country in
South East Asia where local telephone calls are free.20 Thus, dial-up Internet subscribers only pay the ISP charge.
ISPs generally provide various packages based on the number of hours. None yet offers an unlimited plan, possibly because when combined with the lack of local call charges, users could stay connected indefinitely. Efforts to adopt local call charging as part of a tariff rebalancing exercise have met with stiff resistance and it is unlikely it will be implemented.21 The downside is that the Philippines has the highest monthly telephone subscription charges in the region, which raises the price of


Several telecom operators have launched ADSL.
introduced ADSL in November
2000. It claimed around
3’000 subscribers in September
2 0 0 1 . H o w e v e r, t h e b a s i c service offered for residential users provides only a guaranteed 64 kbit/s burstable to 128 kbit/s. By most definitions, this would not constitute a broadband connection but in the Philippines, where Internet dial-up speeds are generally slow and unreliable, it is possible to market the service as “broadband”. PLDT’s prices are around US$ 50 per month for residential subscribers and US$ 200 for business users.

3. Internet in the Philippines

It is not clear why business users should pay so much more for the same service, but PLDT obviously has no interest in cannibalising their existing leased line and
ISDN services.

<>, which uses spectrum in the 29-31 GHz range to provide LMDS service. It was awarded the spectrum in 1998 and has been offering service since
October 1999. BP’s main service offering is 128 kbit/s burstable to
512 kbit/s, though some clients, like
Thomson Financial or IDS Finance, h av e m u c h h i g h e r c a p a c i ty.
Multimedia Technology Inc owns BP and its investors include the US company, Callahan Associates, and the Soros Foundation. The limitation on foreign ownership has acted as a brake on expansion. BP’s strategy has been mainly to serve clients in Multitenanted units (MTUs) in the main business districts, like Makati in
Manila. As of October 2001, it had around 300 customers in 80-100 such

Internet access via cable modem was launched in 1999. Industry estimates of the number of cable television subscribers is over one million, so it would seem that cable modem access has p o t e n t i a l . H o w e v e r m a ny subscribers are connected to antiquated networks that would need to be upgraded for cable modem access to be feasible.
One of the leading cable modem providers, Sky Internet, was unable to bill its customers for several months following its launch due to the antiquity of its system. One incentive would be to allow cable providers to also offer telephony over their cable networks but so far this is prohibited. Broadband Internet access faces a number of barriers. First, the service is relatively expensive, at least for business ADSL access. One reason is that telecom operators are reluctant to price ADSL below their leased line and ISDN services for which they already have many customers. ADSL for the most part seems to be targeted at business users. There is also no regulatory requirement for fixed line operators to unbundle their local loop lines to allow other operators or ISPs to provide ADSL service. Second, the availability of flat rate telephone tariffs

Several companies have launched or are planning to launch fixed wireless broadband access. These use various systems including such as MMDS
(Microwave Multipoint Distribution
System) and LMDS (Local (or Lowpower) Multi-point Distribution
Sy s t e m ) .

Table 3.1: Broadband pricing
Cable modem and ADSL subscription rates, December 2001











Note: Subscribers to the Home Cable package must subscribe for one year. No mention is made of speed. GlobeNet’s DSL Basic is priced in US$. Speed is 512 kbps both ways.
Source: ITU adapted from operators.


Philippines Internet Case Study

means that no extra usage charges are incurred for dial-up access, mitigating the cost saving of migrating to broadband. Third, availability is essentially limited to Metro Manila.

“a) prior approval of the Commission is secured to ensure that such VAS offerings are not cross-subsidized from the proceeds of their utility operations; It is estimated that there were some
10’000 broadband subscribers by
October 2001, a figure projected to grow to 88’000 by 2005.22

b) other providers of VAS are not discriminated against in rates nor denied equitable access to their facilities; and


c) separate books of accounts are maintained for the VAS”

Rules & regulations

3.6.1 The Value-Added World

The Philippine Constitution prohibits telecommunications entities, including
ISPs, from having more than 40 per cent of their share capital owned by persons who are not citizens of the
Philippines and from appointing any executive managing officer that is not a citizen of the Philippines.

Internet access provision is considered a va l u e -a d d e d s e r v i c e i n t h e
Philippines and regulated under
Republic Act No. 7925.23 ISPs need only register with the NTC to provide service. The registration is valid for a period of five years. There is a one time processing fee of 100 pesos
(US$ 2) and an annual fee of 6’000 pesos (US$ 120) per year. The latter amount is payable at the time of registration for the full five years (i.e.,
30’000 pesos (US$ 600)). This also means that there is no incentive to follow-up whether a VAS actually starts up its business. There is no limit on the number of registrations. At the end of 2000, there were 156 ValueAdded Service (VAS) registrations.
Note that a VAS registration could be for any service and not necessarily
Internet access. Also, as mentioned, even though a company has obtained a VAS registration, it does not mean that it is necessarily in operation.

3.6.2 Content
There is no Internet content control in the Philippines. An Internet content provider can establish a web site without any formal application.
Nonetheless content is a concern, p a r t i c u l a r l y p o r n o g ra p h y. T h e
Catholic Church operates an ISP service that blocks out access to pornographic sites (see Box 3.1).
Some ISPs provide ‘family’ type s u b s c r i p t i o n s t h a t a l s o p r ov i d e firewalls to pornographic sites.
3.6.3 .PH
The Advanced Science and Technology
I n s t i t u t e <d n s . g ov. p h> o f t h e
Technology is responsible for the
.GOV.PH domain. The Philippine
N e t w o r k Fo u n d a t i o n ( P H N E T )
<> manages the .EDU.PH domain. Only academic institutions operating in the Philippines can register under the EDU.PH domain and m u s t b e r e c o g n i ze d b y t h e
Department of Education or the
Council of Higher Education. Fees are
US$ 35/year or 1715 pesos/year.
Registration must be for a period of two years. dotPH <
. p h> manages all other domain names. Second level domain names are not required. The cost is US$ 70 for two years.

A value-added service is one that is provided over existing telecommunications infrastructure. That definition is strictly applied so that technically,
ISPs are not allowed to supply their own infrastructure but must lease it from a franchised telecommunication provider. In order to provide their own infrastructure, ISPs would have to obtain a franchise (officially known as
“A Franchise to Construct, Install,
Establish, Operate and Maintain
Te l e c o m m u n i c a t i o n s
Sy s t e m s throughout the Philippines”). The franchise has a term of 25 years. Note that franchised telecommunication entities can provide value-added services subject to:


3. Internet in the Philippines

3.6.4 VoIP

even though the capital only accounts for 13 per cent of the population.24
Another report estimates that there are 20 million potential Internet users in the country but less than two million were actually using it. Despite these gaps, there are few practical measures to remedy it. Though programmes called for telecom operators to install four million telephone lines, or for so many municipalities to be provided with telephone service, there are still many parts of the country without a basic telephone service upon which to pin Internet access.

Voice over Internet Protocol (VoIP) is illegal e xc e p t by licensed telecommunication operators. The argument is that VoIP is a voice service for which a license is required.
This applies to telephone-to-telephone and PC-to-telephone VoIP but not PCto-PC Internet calls. There is no separate category of license of VoIP.
At this time, none of the major telecom carriers were offering a discounted VoIP service. However, it is likely that VoIP traffic is widespread, particularly in Cebu, which has a thriving cybercafé culture. One reason to believe that VoIP traffic is high is the fact that calls to the United States, the main source of VoIP traffic, are no cheaper than to other international destinations. The number of PCs is also low. It is estimated that some 2.7 per cent of households have a PC.25 Thus for the majority, access via public locations is the only immediate short-term option. Most surveys agree that outside Manila, the predominant form of access is via public locations such as schools or Internet cafés.

3.6.5 Quality of Service
Complaints about Internet quality of service are widespread. This includes slow speed and inability to dial-in.
Another growing problem is the release of prepaid cards that offer poor quality service, or in some cases, no service at all, if the supplier of the cards takes the money and then disappears. Although the NTC collects some quality of service information submitted in quarterly reports by VAS, this information is not published. Nor has the NTC thus far investigated allegations of poor service quality.

Private and voluntary efforts are helping to enhance public access.
There are between 1’500 - 5’000
Internet cafés around the nation.
Cyberworld, a chain of branded
Internet cafés that launched in 2000, had twelve outlets in April 2001 and plans to create thousands more.26 The
Catholic Church has emerged as a leading ISP and is planning to connect all churches and parochial schools (see
B ox 3 . 1 ) , t h o u g h t h e l a c k o f profitability of its services may slowdown its expansion plans.

Universal access

One idea being contemplated by the
NTC is a proposal to allow ISPs a license for procuring their own i n f ra s t r u c t u r e i n e x c h a n g e f o r providing service in remote areas.

Just like the economic divide in the
Philippines, there is also a digital one.
According to one survey, over half the country’s Internet users are in Manila


Philippines Internet Case Study

Box 3.1: E-vangelism
With a population that is over four-fifths Catholic, the Church is a large and powerful organization in the Philippines. Furthermore, it has a pool of wellqualified members with compelling zeal. If these resources could be applied to ICTs, miraculous things might happen.
Indeed, the Catholic Bishops Conference of the
Philippines (CBCP) <> is aiming to become the Philippines’ leading Internet Service
Provider (ISP). The CBCP has a five-year project to wire each of the nation’s 79 dioceses and
2’900 parochial schools in the country. 27 It has strung together an Internet backbone (CBCPNet) running the length of the archipelago. The CBCP is also working with private companies to set up over
1’000 Internet cafés in poor neighbourhoods. 28
This so-called ‘e-vangelization’ not only uses ICT for development, but also as a tool to spread the


gospel. Applications are being developed to deliver marriage guidance, the catechism and even to celebrate Mass, online through video streaming.
Potential services include providing Internet telephony to the nation’s large overseas population so they can stay in touch with relatives back home
(technically illegal at present, though if the Catholic
Church supported it, the official stance may shift).
Another idea is to provide e-commerce services for farmers. Another reason for the Church’s interest in the
Internet is to provide pornography-free ISP access. 29 It has installed a firewall on its server that blocks access to pornographic sites. Violent games, however, are not filtered since they are often the most popular application at most Internet cafés.
This would discourage customers and reduce the revenues needed for expansion.

3. Internet in the Philippines

Box 3.2: Txting Nation
Beep. Beep. The sound of an incoming GSM mobile
Short Message Service (SMS). A sound becoming as prevalent as cars honking in the Philippines.
The nation is crazy about txting, the term used to refer to SMS. In December 2000, Filipinos were sending almost 50 million SMS a day or around nine per subscriber. They are the world leader in per capita SMS usage, accounting for some ten per cent of all SMS messages sent around the world (see Box Figure 1.1, left chart). What’s behind the craze?

Mobile growth. The Philippines had 8.5 million mobile subscribers at June 2001. Mobile passed fixed back in January 2000 and shows no sign of slowing down. Estimates of the potential subscriber base over the next few years range from 15-20 million. SMS is also a source of information for those that do not have a computer; mobile subscribers outnumber PCs in the Philippines 4:1.


Pricing. An SMS is much cheaper than a phone call. SMS was initially free. Although a nominal
P1 per message charge was introduced in
October 1999, a number of free messages are included with both post-paid and pre-paid subscriptions. The charge was introduced to encourage ‘responsible txting’ but equally for operators to cash in on the craze. Despite the free messages, SMS constitutes a growing

portion of mobile revenues. After exceeding the monthly free messages (150 for prepaid and 400 for a basic post-paid package), the cost of an SMS message is still eight times cheaper than a one minute peak period voice call. For every call made on a mobilephone, an average of ten SMS are sent. Mobilephones are no longer a device for phone calls, but a
‘SMS terminal with voice capability’. 30

Culture. The Filipino language Tagalog uses
Roman characters and can thus be used with any mobilephone. Many Filipinos also speak
English and indeed a hybrid ‘Taglish’ has emerged for sending SMS messages. Txting may also be supplementing the traditional
Filipino love of writing. In a country in which courting was traditionally conducted via love letters, sending txting is said to be a natural progression. Though most SMS in the Philippines are personal messages, there are other interesting applications.
Users can send a request for virtually any kind of information ranging from stock quotes and help with students’ homework, to astrological predictions, or passages from the Bible. SMS is also attributed with accelerating the fall of former President Estrada by facilitating the arrangement of rallies.31 Txting has now expanded to fixed-lines so that regular telephones can send messages to mobile ones.32

Box figure 3.2: The global SMS champ
SMS per subscriber,
December 2000

SMS as % of world 280



Wireless data revenue in the Philippines,
US$ million
As % of total wireless revenue









SMS per month 282





Note: The left chart shows the average number of SMS sent per subscriber in the month of December 2000.
It is obtained by dividing the number of SMS messages by the number of cellular subscribers. ‘SMS as % of world’ is obtained by dividing the number of SMS messages (in December 2000) for the countries shown by the total number of SMS messages sent around the world (in December 2000).
Source: ITU adapted from Globe Telecom, PLDT and GSM Association.


Philippines Internet Case Study














Miguel A. L. Paraz. “Developing a Viable Framework for Commercial Internet Operations in the Asia-Pacific
Region: The Philippine Experience.”
AS stands for Autonomous System (AS) number used to identify an IP network. An ISP needs this number to offer services. ISPs with AS numbers were retrieved from the site. Members of PISO are listed on the PISO web site at: A search on AS numbers assigned to Philippine organizations by the regional organization that assigns these numbers turned up 31, which suggests that the number of ISPs is even less than expected. See Asia Pacific Network Information Centre at
National Economic and Development Authority. The Medium Term Philippine Development Plan 2001-2004.
Available at: puts the number of Internet users at around two million.
Some telecom operators use usage-based local calls but these are a small minority of telephone connections in the country. Some users may be better off moving to usage-based charges, as they would pay much lower fixed monthly charges, but there is strong consumer pressure against giving up “free” local call charges.
Adam Creed. “PLDT Telephone Metering Plans Suspended.” Newsbytes. 27 January 1999.
“’The Philippines’ Own AOL-Time Warner Deal.” Pyramid Research. Perspective. 9 February 2001.
“An Act to Promote and Govern the Development of Philippines’ Telecommunications and the Delivery of
Public Telecommunications Services.” The Act defines a Value-added Service Provider as “an entity which relying on the transmission, switching and local distribution facilities of the local exchange and interexchange operators, and overseas carriers, offers enhanced services beyond those ordinarily provided for by such carriers.” This is a projection based on the NSO 1994 Functional Literacy, Education and Mass Media Survey, which put the number of households with a PC at 1.15 per cent. “CyberWorld Opens Five New Outlets.” Press Release. 23 April 2001. Michael Zielenziger. “The Internet is Divine. Catholic Church Expands Reach as Philippines’ Top ISP.” San Jose
Mercury News. 28 December 2000.
Philweb, CBCPNet Forge Strategic Alliance.” Press Release. 21 June 2000. Melvin Calimag. “Philippines’ Catholic Church In Fight Against Net Porn.” Newsbytes. 27 January 2000. “Multimedia to spur Asia GPRS handset uptake.” Total Telecom. 5 September 2001. Michael Zielenziger. “Across the Philippines, Fast-Flying Fingers Type Messages on Cell Phones, Fuelling a
Middle-Class Revolt Against President Who is Charged With Graft. Movement to Impeach Estrada Accelerated by New Technology.” San Jose Mercury News. 12 December 2000.
For example PLDT’s TXT 135 service had 100’000 subscribers in April 2001, just two months after launching.
TXT 135 allows customers to send text messages to PLDT’s mobile subscribers (i.e., those on the SMART and
Piltel networks). “PLDT’s TXT 135 Now has more than 100’000 subscribers.” Press Release. 26 April 2001.


4. ICT in Government, Education, Health and Business


ICT in Government, Education, Health and



prioritising requests. Nor has there been sustained allocation of resources. An allocation made one year could be denied the next, midway through a project.

Government computerization in the
Philippines goes as far back as 1959, when an IBM mainframe computer was installed in the Bureau of Lands.
Computerization reached a peak in the late 1960s and early 1970s through the ‘evangelistic’ efforts of then
E xe c u t i ve S e c r e t a r y A l e j a n d r o
Melchor. 33 The National Computer
Centre (NCC) <> was established on 12 June 1971 for government computerization. The early Information and Communication
Technologies (ICT) drive subsequently lacked a champion and the Philippines fell behind other South East Asian nations. In an attempt to place the Philippines at the centre of South East Asian ICT d e v e l o p m e n t , a n ove r h a u l o f government strategies and plans is underway. The year 2000 saw:

The Electronic Commerce Act passed36; and


More recent attempts to reinvigorate
ICT have had mixed success. In
1994, the government adopted the
National Information Technology Plan
2000 (NITP2000) its first ICT strategic plan. The National Information
Technology Council was created to serve as the nation’s top ICT policy organ and to implement NITP2000. In
February 1998, IT21 was launched as a g u i d e t o t h e n a t i o n ’s I C T development through the early part of the 21st century. A Government
Information Infrastructure was to be developed via an online network for government agencies and eventually extended to academia and the public, the Republic of the Philippines Web

The Government Information
Systems Plan (GISP) adopted35;

The National Information
Te c h n o l o g y
Electronic Commerce Promotion
Council merged into the
Information Technology and
Electronic Commerce Council
(ITECC) <w w w.i-philippines

4.1.1 Online Deadline
The Electronic Commerce Act covers more than just electronic business transactions. It also has a section entitled “Electronic Transactions in
Government.” It stipulates that all government agencies must accept electronic documents within two years from the passage of the Act
(i.e., by June 2002). It also calls for the completion of the RPWEB (the name for the online network of government agencies) by the same date. The Act also specifies that funding for getting the government online shall be included in the annual budget. There is a loophole in that the acceptance of online transactions by government agencies is dependent on public hearings and the publication of guidelines.

Fe w o f t h e s e p l a n s l i ve d u p t o expectations due to ongoing funding shortages, infighting and security issues. There is no overall government b u d g e t p o l i c y f o r I C T. E a c h department (in the Philippines ministries are called departments) has to apply annually to the Department of Budget and Management (DBM).
Thus, there is no coordinated e va l u a t i o n o f g ov e r n m e n t I C T expenditures and no framework for

The GISP or Philippine Government
Online was approved in July 2000. It


Philippines Internet Case Study

is the nation’s masterplan for ICT in government. It lays out strategies and goals as well as specific projects to be implemented. It also discusses financial implications and established deadlines. Specifically, the GISP calls for the necessary infrastructure to be in place and operational before 2010.
That deadline is also set for ensuring that every Filipino shall have online access to government information.

actually working and 75 per cent were actually being used. Some 44 per cent of agencies had a Local Area Network
(LAN) while only twelve per cent had a
Wide Area Network (WAN), suggesting that few are connected to their regional offices. Some three quarters had
Internet access, around a third had email and 38 per cent had a web site.
Only one per cent supported some type of e-commerce application. It should be noted that the survey is based on results of less than half of government agencies and is likely to have been completed by those most active in ICT. Therefore, the actual level of government computerization is undoubtedly lower.
The government invested around seven billion pesos (US$ 136 million) during the 1990s for ICT equipment and projects.39 In order to implement the
GISP, funding at least three times greater (around 23 billion pesos
(US$ 447 million)) will be needed over the next six years.

ITECC is charged with executing the nation’s various ICT strategic plans such as IT21 and GISP as well as providing periodic updates and revising existing plans or establishing new ones as needed. The Council is composed of the Secretaries (i.e., m i n i s t e r s ) o f ke y d e p a r t m e n t s involved with ICT and is the ICT advisor to the President and Congress.
It is chaired by the President of the
Republic of the Philippines and cochaired by the Department of Trade and Industry and a representative of the private sector. Other members include the Secretaries of the
Department of Management and
Budget; Department of Transportation and Communication; Department of
Education, Culture and Sports;
Department of Interior and Local
Government; Director-General of the
National Economic and Development
Agency and the Managing Director of the National Computer Centre. There are also six representatives from the private sector representing academia, consumer and business organizations involved with ICT.

Eliminating graft and corruption is a major concern of the government and it feels ICT can help in this area by making t ra n s a c t i o n s more transparent. The Department of
Budget and Management’s Electronic
Procurement System (EPS) <http:// w w w. p r o c u r e m e n t s e r v i c e . n e t /
Default.Asp> provides Internet-based services such as a “Public Tender
Board” for procurement notices; a catalogue and virtual store for tra n s a c t i o n s w i t h g ov e r n m e n t agencies; and a suppliers registry to provide agencies with a common source list of approved vendors. A related effort to reduce corruption is the Tra n s p a r e n t
Government project (see Box 4.1).

The Electronic Commerce Act and
GISP are ambitious in their goal of getting the Philippine government online as quickly as possible. For most departments and agencies, this will be very difficult to achieve, as their current ICT status is low. Around one per cent of national government personnel work in ICT.37 A survey by
NCC in 1999, based on 300 out of
8 1 9 g o ve r n m e n t a g e n c i e s t h a t replied, found varying levels of computerization in the government and suggests that there has been underinvestment by the government for informatin infrastructure.38 Some 80 per cent of computers installed were


Budding applications for the e-Citizen

While the government has mostly relegated the role of ICT infrastructure provision to the private sector, it is the key player in terms of providing its own information and services online to citizens. Though there are many informal listings of Philippine public sector web sites, the official government portal is at At
December 2000, t h e r e w e r e


4. ICT in Government, Education, Health and Business

Box 4.1: e-whistleblower
Transparent Accountable Government (TAG, is an anti-corruption site that collects anecdotes, runs surveys, investigates and reports on corruption. The investigative reports range from local issues such as ‘Local Officials
Profit from Garbage’, to national issues such as
‘Estrada and Associates Monopolize Gambling’.
The case studies and public opinion surveys are equally wide in their purview. Jointly organized by the Asia Foundation, Social Weather Station, the Philippine Centre for Policy Studied at the
University of the Philippines, the Philippine Centre for Investigative Journalism and the Makati
Business Club, TAG has been calling for the transparency that e-government can bring for years. TAG’s objectives are to:


Document perspectives among various sectors of the business community and general public concerning corruption as it relates to doing business in the Philippines;


Identify and analyse key areas of corruption and quantify their economic costs; and


Focus business and public attention on how particular areas of corruption affect the conduct of business and economic growth in the
Philippines, and build consensus on a concrete agenda for counter-corruption reform.

The TAG is not alone. Its site lists 70 other anticorruption organizations active in the Philippines.

used at special kiosks to obtain information (see Box 4.2). This will eventually be extended to ATMs.
The SSS web site also allows users to download popular forms.

232 government agencies with an
Internet connection; 115 had their own web sites. This is out of a total of 415 federal government agencies. There is a tremendous amount of potential in this area to get more agencies online and applications developed, perhaps led by a new ICT ministry.


There is a number of budding public e-services available for Philippine citizens: •


In addition to providing traditional statistical information on its web site, the National
Statistics Office (NSO) <http:// ph> is in the midst of a project to digitise over
100 million civil registry documents such as birth, marriage and death certificates.40
2.1 billion pesos
(US$ 40.7 million) project will allow citizens to obtain records much more quickly than in the past. The Department currently provides online information about how citizens can go about obtaining records including fees to be paid and maps to the NSO offices. Citizens can also fill in the request online and have the relevant records mailed to them.

The Filipino tax authority, the
Bureau of Internal Revenue, is implementing e-filing, an online tax payment system. The initial trial of the five million pesos
(US$ 163’000) system allows
750 large taxpayers and
2’000 employees of the agency to pay their taxes online. The system will eventually be extended so that theoretically all of the Philippines’ eleven million tax payers could file their returns online.

4.1.3 Ecozones
The Government’s role in promoting ICT includes the establishment of laws, regulations and incentives to encourage the use of ICT as well as encourage private investment in ICT. The Philippine
Government has promulgated a series of laws that establish an environment in which ICT-intensive activities can flourish. One area that the government is particularly keen to promote is the establishment of the Philippines as the
“e-services hub of Asia.” Specifically this means attracting high-tech companies to invest in specially designated IT

The Social Security System
(SSS) is in the process of issuing national ID cards that can be


Philippines Internet Case Study

Figure 4.1: Philippine IT Ecozones

economic zones (ecozones).
There are tax holidays and other incentives for companies locating in the IT ecozones. 41 The ecozones h ave advanced ICT infrastructure such as broadband access and topnotch human resources. Of the nine IT ecozones, seven are in Manila, and two are in
Cebu. All are privately owned and run. One vision is to use the ecozones to complete in the offshore software development market, leveraging its abundant supply of skilled human resources. 4.2


The Department of Health
(DOH, ph/) must not only deal with

Source: Board of Trade.

Box 4.2: Computerizing social security
The second largest database in the Philippines belongs to the
(SSS, SSS is charged with protecting those employed in the private sector
(including the self employed but not in the informal economy) from hazards of disability, sickness, maternity, old age, death and other contingencies resulting in loss of income or financial burden. The
SSS also provides soft loans to members for investment purposes. With 4’000 employees in
146 regional and extension offices, and a budget of
7 billion pesos, the work of the SSS is extensive and the ICT operation critical.
In 1962, the need for a computerised system was recognised in order to automate members’ contributions. The first SSS computer had a tiny memory and no built in operating system. The lease of a mainframe in 1970 provided greater sophistication and more extensive processing of loans and benefits. However, branch offices still only served as receiving stations for claims and applications that were forwarded to the head office for processing. In
1990, the system was upgraded again to a clientserver environment on a LAN, which is now being extended to a wide area backbone.
The 1998-2002 Information System Plan identifies
26 systems to be developed and integrated to insure interoperability. These include management, financial,


investment, member information and personnel system. One partially implemented application is the biometric ID card (a thumbprint identifies the member).42 The card enables links to database listings for the individual. Some members can interrogate themselves via the Internet. As at September 2001, three million cards had been distributed. With
23 million members, it was deemed essential to start this slowly.
The SSS currently employs some 4’000 regular staff.
Its computing power includes 2’356 workstations; 129 notebooks; 23 processing centres. It process over one million transactions a day on a database with almost 350 million records. Total SSS operating expenses (last 8 yrs) were 16.5 billion pesos, total IT expenditure was 4.5 billion pesos (70% hardware,
18% software, maintenance 9% supplies 2%, and training 0.18%).
Transactions with employers are largely undertaken through EDI (400’000) or via ‘sneaker net’ (hand delivery of disks for the 10 per cent of employers with computers, but without EDI or Internet). SSS
‘seeded’ the use of computers among employers by offering loans at favourable conditions for buying computers and computerising payrolls in order to automate deductions to SSS). Relationships with banks are not as smooth. Wherever possible, benefits are paid by direct credit; cheques are almost a thing of the past.

4. ICT in Government, Education, Health and Business

will benefit the hospitals’ operations as well as its reporting functions to DOH.
It will also enable links through to academic institutions and private health institutions pioneering telemedicine.

Figure 4.2: Proposed Social Security Wide Area

The DOH web site contains a variety of useful information including statistics, description of policies and programmes,
Frequently Asked Questions (FAQs) on diseases and listings of health institutions and practitioners in the country. It also provides information about doing business with DOH with forms for procurement of supplies and equipment and licensing provided online. It also provides a chat and message board service.
There are some private and public initiatives to use ICT in health services.
One initiative is that of a local ISP,
PhilWeb, and its partnership with a US telemedicine firm, MDVista, to offer medical services online to doctors including test results and information.43
The National Telehealth Centre, part of the University of the Philippines (UP) in
Manila, was established in June 1998 to explore ICT health applications. The
Philippine General Hospital has been involved in a telemedicine project with the UP College of Medicine for a number of years. The project offers tele-like applications for dermatology, pathology, radiology and surgery.44 In 1999, an electronic claims processing system was launched that links hospitals, insurers, health maintenance organizations, clinics and physicians. Funds and claims are transferred and processed electronically. Source: Board of Trade.

primary and preventative health measures but also with chronic and emergency care. This role would be much easier with automated information systems but with only 30 per cent of the staff using computers, and these mostly in the head office, the task is daunting. The aim of the DOH in using ICT is to achieve better efficiency and effectiveness in enforcing health regulations. The limited manpower and geographical presence compared to the pervasiveness of health institutions requires appropriate systems to store and update information to improve supervision and monitoring. The proposed system will provide computer-aided hospital management that

There are seve ral portals being developed under the auspices of the
Department of Science Technology


Philippines Internet Case Study

and the Philippine Council for Health
Research and Development (PCHRD).
T h e e - H e a l t h V i l l a g e <h t t p : / /> aims to provide researchers with information. The cute, bi-lingual village-like graphical environment aims to give the site a more Filipinolike feel. The PCHRD has also launched a web page-Health Research and
Development Information Network
(HERDIN)-that provides extensive bibliographic referencing information.
It is based on their award winning CDROM that contained a list of all medical papers published by Filipino specialists since 1906 as well as full-text from over fifty journals.45

1600s and Spanish colonisation where a network of parochial schools was established across the nation. Today seven per cent of children at elementary and 23 per cent at high school enrolled in private schools; 79 per cent of all tertiary schools are private. These are largely Catholic schools that range from single rooms at the village level to expensive schools catering to the children of the elite. The Catholic
(CEAP represents 1’173, approximately half of the Catholic schools in the Philippines. Catholic schools in the barangays have more in common with the strapped-for-cash public schools than with the wealthy schools in the cities.


4.3.1 Higher education

Public education in the Philippines suffers from chronic shortages (e.g., lack of classrooms, textbooks, electricity, etc.), not least of which are computers and Internet access. 46
While these shortages are most severe at the elementary level, they continue through high schools, and to a lesser extent to the universities. The educational system also faces debates over policy. For example there is conflict about whether education should be in English or local languages. One drawback with the
English only policy is that there are not enough qualified teachers. The quality of the education system is also questioned with Filipino students ra n k i n g l o w o n n a t i o n a l a n d international tests. Keeping youth in school is also a challenge. According to one educator, “… of every 100 sixyear olds in the Philippines, only
97 enter first grade, only 60 complete their elementary education, only
50 enrol in secondary education, only
30 complete their secondary education, only 20 enrol in higher education, only 12 earn a collegiate degree, and only 4 are later employed in a job aligned with the degree they have earned.”47 One consequence is that those that can afford to, send their children to private schools.

There are some 1’300 tertiary institutions enrolling over two million students. Information about how m a ny h ave computers, Internet access or web sites is not centrally collected. There was a Commission on
Higher Education (CHED project started in
1996 to computerize public and p r i va t e u n i ve r s i t i e s . 48
973 institutions benefited from the
251 million pesos (US$ 4.8 million) project, which came to a close in
January 1998. A second phase was allocated 15 million pesos
(US$ 291’000) while a third phase was cancelled because of a lack of government funding. Those that can afford to, generally private universities, often establish their own leased line
Internet connectivity directly via ISPs.
One trend has been partnership between universities and ISPs to set up
Internet cafés at campuses.49
A number of leading universities first became connected to the Internet as part of the Philippine Network
Foundation project coordinated by the
Technology (DOST). Indeed the first institution to establish a connection was the University of San Carlos in
Cebu. However, this early effort has not evolved into the sort of broadband academic networks found in other countries where the educational sector

P r i va t e s c h o o l s h a ve p l ay e d a historically significant role in the
Philippines. This dates back to the


4. ICT in Government, Education, Health and Business

was an early promoter of the Internet.
There is a proposal to build the
Philippine Research, Education, and
Government Information Network
(PREGINET), a high-powered research and academic network.50

national centres listed as DEPED organizations have web sites. DEPED employs 500’000 nationally, of which
400’000 are teachers. There are
1’000 staff in the head office, which has some 500 computers, 15 of which are connected to a LAN.

Some universities have implemented online features such as downloading application forms, checking test scores and exchanging e-mails with teachers.
Philcampus, a site of the ISP Philweb, enables students to enrol, buy books and reserve accommodation online.
Universities in Cebu and Visayas are partners. The Government does not have a master plan for ICT in the classroom.
At the elementary level, there are no policies for either ICT infrastructure or curriculum. While the twelve million students at public elementary schools have no government-implemented access to ICT, the some one million pupils at private schools may have a c c e s s t h r o u g h c o m m u n i ty a n d voluntary initiatives. For example, the
Catholic Church is working to wire some of its elementary schools while private charities such as the Ayala
Foundation provide some schools with computers. The large spread out area of the
Philippines make distance education attractive. The University of the
Philippines launched its Open University
(UPOU) <> programme in 1995. Consisting of 17 branches across the country, UPOU has graduated over 1’600 students since it was established. UPOU offers some
100 courses in 17 degree programmes from bachelors through doctorate.

An ICT curriculum is being designed for high school. The content has not been finalised, but is planned to be part of a revised Technology and Home
Economics curriculum. The plan is for students to receive hands on training in the use of software applications including word processing, spreadsheets and use of the Internet.
One priority for the success of the curriculum is to increase the number of high schools with computers and
Internet access.

4.3.2 Primary and secondary
The Department of Education, Culture and Sport (DECS), now Department of
Education (DEPED), http://www.deped. is charged with overseeing primary and secondary education in the nation. All of the 16 offices, bureaus and
Table 4.1: Philippines@High School

There are several programmes to increase the number of PCs in secondary schools. Of some 4’209
(1998/99) public high schools,
3’000 have no computers and only two per cent have access to the Internet.51
A 1996-2000 programme (Department of Education, Culture and Sports
Computerization Programme) is illustrative of the gap between goals and achievements that beset Philippines government funded projects. The 1996 allocation of 375 million pesos
(US$ 7.2 million) was partly spent on training 656 teachers and partly unspent. The 1997 allocation was cut to 40 million pesos (US$ 770’000) while the cost of computers soared due to exchange rate depreciation. The number of computers to be purchased was reduced by 60 per cent. The

Secondary schools, 2000-2001 academic year, latest estimates





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Source: ITU adapted from DECS, ITECC.


Philippines Internet Case Study

number of recipient schools wa s reduced to 624 high schools (from
3’900); the number of computers to each school was reduced to twelve per school in 1999. The schools selected were leading schools and the science high schools and those with electricity and air conditioning for the PCs.

4.3.3 ICT human resources
The government regularly touts the attraction of the Philippines as a software development location. It often cites a report ranking Filipino ICT workers high in a global comparison.57
Other attractions include the third largest English speaking country in the world and low wage rates. The quality of Filipino computer workers is such that perhaps as many as 100’000
Filipino IT workers were engaged outside the country in 2000.58 While this presents an opportunity to the individual, it is a challenge to
Philippine companies and for the government. There is something of a hierarchy with the governmenttrained staff being headhunted by industry where they are exposed to more commercial ideas, and then the international brain drain taking some of the most able.

Another project under the Adopt a
S c h o o l P r o g ra m m e i s P e r s o n a l
Computers (PCs) for Public Schools.
Launched by the Department of Trade and Industry in May 2000, the project is aimed at ameliorating the low level of ICT equipment and access in the nation’s public high schools. Starting with a 600 pesos (US$ 11.75) million grant from Japan, the government is seeking additional donations of new or used computers and related equipment from private companies and foreign donors.52 One thousand high schools are expected to benefit from this scheme. In addition to 20
PCs each, the schools will receive tra i n i n g and IT curriculum d e ve l o p m e n t s u p p o r t . 53
Fo u n d a t i o n for Information
Te c h n o l o g y
Development (FIT-ED) is encouraging telecommunications firms to provide free Internet connectivity to 1’000 schools.54 There are a number of ways the country hopes to expand and improve its ICT training. This will help boost its attraction as a venue for foreign
I C T i nve s t m e n t s , a s s i s t i n g t h e propulsion of the nation into a Newly
Industrialized Country (NIC). In 1993, the number of IT workers was put at
30’000 and the Philippines is currently churning out the same amount each year.59 Nevertheless, with the brain d ra i n a n d e s t i m a t e d d o m e s t i c requirement of over 350’000 hightech workers, urgent measures are needed.60 Another programme through which under-privileged high schools are receiving PCs is the Microsoft
Philippines’ Connected Learning
Community (CLC) programme. 55 The programme started in 1999 when three high schools were given PCs.
Since then an additional five have been added to the list. Each school receives eight PCs, digital camera, printer, scanner and one-year free subscription to the Internet.

At the vocational and higher education level, there around 200 training centres that offer popular short-term training courses in Information Technology.
Some 30 universities have degree programmes in computer-related disciplines. The number of college and university students taking ICT courses has risen dramatically from less than
200’000 during the 1998/1999 school year to over 300’000 in 2000/2001.
There is concern that the quality of the courses needs to be improved. One way is to apply and improve certification such as ISO 9001. The CHED plans to revise standards for information technology education to take place for the 2002-2003 school year.

One way of penetrating more schools with ICT is through mobility. The DOST has four mobile IT classroom buses built by Daewoo at a cost of 7.3 million pesos (US$ 142’000) each.56 They can accommodate 32 students each.
Started in 1998, the buses go to p r i m a r i l y r u ra l a r e a s a n d h ave exposed over 18’000 students at some
300 elementary and secondary schools to computer technology.


4. ICT in Government, Education, Health and Business

Box 4.3: "I Love You" and Filipino computer programming talent
The infamous May 2000 “I Love You” virus caused an estimated US $ 10 billion of damage to computer systems worldwide. The source of the virus was traced back to the Philippines making some in the country proud of being able to prove their programming skills to the world. It also caused a

rush of enrolments in Filipino computer courses.62
A more formal recognition of the country’s software skills was the Microsoft 2001 All-Star Award to a
24-year old Filipino programmer. He beat out some
500 other software developers from around the world.63 There are a number of public and private initiatives to increase IT training. The Department of Science and Technology and Information
Te c h n o l o g y Fo u n d a t i o n o f t h e
Philippines have a joint Virtual Centre for Technology Innovation in IT that plans to churn out 10’000 certified professionals in five years. IBM established a training programme with a local university as far back as 1991.
Cisco established its first Networking
Academies in the Philippines in 1998 and now has 49 local and seven regional ones in the country. They p r ov i d e a s t r u c t u r e d t r a i n i n g p r o g ra m m e i n n e t w o r k i n g a n d
Internet technology. They are mostly established in vocational high schools a n d u n i ve r s i t i e s . C i s c o i s a l s o participating in an Ayala Foundation project to bring out-of-school youth up-to-speed to enable them to enter the Networking Academies.61 India’s
NIIT has also recently opened in the

Specifically the DBM is charged with coming up with funding for implementation while the Central Bank is responsible for banking-related aspects. The three organizations must provide quarterly reports to Congress on implementation of the Act.
E-commerce revenues in the
were pegged at
US$ 250 million in 2000, estimated at
US$ 770 million in 2001 and forecast to rise to US$ twelve billion by 2004.65
The National Statistical Office plans to overcome the lack of official statistics on e-commerce activity by introducing relevant questions in future surveys.
The financial sector has been an early embracer of on-line business. The
<> is online, as is the
Securities and Exchange Commission
<>. By the end of
June 2001, 155 banks (out of 938) had e-mail addresses or their own web sites and some 30 were offering eb a n k i n g s e r v i c e s . 66 Given the popularity of mobile text messaging, some financial institutions provide mobile banking services. For those without Internet access, First e-Bank provides customers special kiosks at branches to conduct online banking.67

Electronic commerce

E-commerce in the Philippines received a big boost in June 2000 with passage of the Electronic Commerce Act.64 The
Act facilitates computerized transactions by giving electronic messages and electronic signatures legal status. The
Act makes hacking and software piracy a crime and provides for privacy and confidentiality. It is modelled on the UN
Commission for International Trade Law
(UNICTRAL) Model Law on Electronic
Commerce to enhance international uniformity and enforcement. The
Department of Trade and Industry,
Management (DPM) and the Central
Bank are charged with carrying out the provisions and enforcement of the Act.

Business to business (B2B) ecommerce got a big push with the c r e a t i o n o f B a y a n T r a d e < w w w.> a consortium of s o m e o f t h e c o u n t r y ’s b i g g e s t c o n g l o m e ra t e s : A b o i t i z E q u i t y
Ventures, Ayala, BenPres, JG Summit,
PLDT and United Laboratories.68 Since
BayanTrade was established in June
2000, it has spent a year linking up and consolidating online relationships between the six consortium founders


Philippines Internet Case Study

and 150 member companies.
B aya n Tra d e h o p e s t o w a r d o f f competition by offering non-members the same efficiency savings that the m e m b e r s e n j o y. A n o t h e r B 2 B development is the launching of a g r i c u l t u ra l i n f o r m a t i o n f o r t h e nation’s farmers on the B2BPriceNow web site <>.
They can obtain commodity pricing information or offer to supply goods at local Internet access centres or over mobilephones. Filipinos working abroad. 69 They h ave higher incomes and better access to the Internet than the a v e r a g e c i t i z e n a t h o m e . Fo r example, it is estimated that around thirty per cent of Filipinos in the US are Internet users. PhilWeb, a local dot-com, hopes to cash in on this group through the provision of online remittance services (overseas
Filipinos transferred US$ 6 billion back home in 2 0 0 0 ) . 70 Its site allows users to transfer cash to family anywhere in the Philippines in between one hour to three days.

An attractive Business to Consumer
(B2C) market is the some one million




Administrative Order 332 and House of Representatives Resolution 890.
This figure is derived based on the number of government agencies that responded to a survey. See
Philippines Statistical Yearbook. NSO. “Information Technology Manpower Resources in the National
NCC. 1999 Survey on the Level of Computerization in the Government.” May Catherine C. Ciriaco. Developing and Implementing The Philippine Social Security ID System: A LargeScale ID Application Using Biometrics.
“Philippines to expect first On-line Diagnostic Clinic for teleradiology with US university hospitals.” Virtual
Medical Worlds Monthly. 14 August 2000. Alvin B. Marcelo. “Telemedicine: the UP-PGH Approach.” Symposium on Developing the Next Generation
Internet in the Philippines. 25 April 2001. Quezon City.


4. ICT in Government, Education, Health and Business




















“PCHRD CD-ROM Development Team wins first health IT innovation award.” For a summary of some of the problems and possible solutions see the Executive Summary of the 2000
Philippine Human Development Report at
Eloisa P. Tinio. « E-education and the Philippine Infrastructure.” See Personal Computers for Public Schools at
“Japan PC fund outfits Philippine schools.” ZDNet Asia. 11 January 2001.
Department of Education, Culture and Sports. “1,000 schools nationwide benefit from PCs for Public High
Schools Programme.” Education News. January 2001.
“GLOBE/ISLA, FIT-ED Sign MOA on Internet Connectivity.” Press Release. “Microsoft adds five to its CLC list, gears up for provincial launches.” Press Release. 29 March 2001. “New Mobile IT Classrooms to Roll Off.” Press Release. 27 September 2001. According to the META group in New York (, the Philippines is the world’s best source for ICT workers.
According to one report, there are 65’000 Filipino IT specialists working in Silicon Valley alone. “Philippines faces IT manpower shortage.” ZDNet Asia. 1 February 2001.
The figure for IT workers comes from “Information Technology” on the Philippine Council for Advanced
Science and Technology Research and Development web site at infoservices/primers/prmr_infotech.htm.“How do companies choose from the 30’000 IT graduates annually from over 600 schools in the country?” See Delma L. Peyra. “The Right Graduates. What does it take to produce industry-ready IT professionals?” Philippine Business. Volume 8 Number 3. “Over 350’000 information technology (IT) job vacancies in the Philippines need to be filled…” See
“Philippines faces IT manpower shortage.” ZDNet Asia. 2 January 2001.
“Ayala Foundation Launches Bridge Project to Cisco Networking Academy Programme for Out-of-School
Youth.” Cisco Press Release. 31 August 2001.
“…has been inundated with students enrolling for computer courses.” See “Love Bug suspect speaks.” BBC
News. 3 July 2000.
“Young Filipino programmer bags global development award given by Microsoft Great Plains Business
Solutions.” Press Release. 20 April 2001.
Vincent S. Pérez, Jr. “Gearing up for the Knowledge Economy: The Role and Policies of the Government.”
25 April 2001.
Status Report on the Philippine Financial System. 1st Semester 2001. “First e-Bank Implements Internet Banking Applications over Cisco Infrastructure.” Cisco Press Release.
30 August 2001.
For more on B2B marketplaces in the Philippines see: Maricar T. Manuzon. “Trading Places: Electronic marketplaces are changing the way businesses manage their supply chain.” Philippine Business. Volume 8
Number 4.
See “Index of Overseas Worker Statistics” on the NSO web site at: See “Overseas Filipino Workers’ Remittances by Country & by Type of Worker” on the Bangko Sentral ng
Pilipinas web site:


Philippines Internet Case Study




State of the Internet


The Mosaic Group < gdi97/gdi97.html>, has developed a framework for characterizing the state of the Internet in a nation. They consider six dimensions, each of which has five ordinal values ranging from zero (non-existent) to four (highly developed). The dimensions are as follow: Connectivity infrastructure: a measure based on international and domestic backbone bandwidth, exchange points, and last-mile access methods.


Organizational infrastructure: a measure based on the state of the ISP industry and market conditions. •

Sophistication of use: a measure characterizing usage from conventional to highly sophisticated and driving innovation. •

Pervasiveness: a measure based on users per capita and the degree to which non-technicians are using the Internet.


Geographic dispersion: a measure of the concentration of the Internet within a nation, from n o n e o r a s i n g l e c i ty t o nationwide availability.


Philippine values for these dimensions are shown in Figure 5.1.
Pervasiveness is rated at level 3,
Common. At December 2000, there were an estimated 1.54 million
Internet users in the country or two per cent of the population.71

Sector absorption: a measure of the degree of utilization of the
Internet in the education, commercial, health care and public sectors.

Geographic dispersion is rated at level 2.5, between Moderately and

Figure 5.1: State of Internet in the Philippines


Geographic Dispersion
Sectoral Absorption
Connectivity Infrastructure






Organizational Infrastructure


Sophistication of Use






Note: The higher the value, the better. 0 = lowest, 4 = highest.
Source: ITU.





5. Conclusions

Highly dispersed. Internet access is available in cities and municipalities in most provinces, generally as a local call. However, it is not widely available i n r u ra l a r e a s d u e t o a l a c k o f telecommunication infrastructure.



In the Philippines, the first steps towards market deregulation actually preceded the large-scale development of the Internet. This situation is relatively unusual in developing countries. Market deregulation has benefited the industry, which is characterised by relatively unfettered market entry and exit, and a vibrant s p i r i t o f c o m p e t i t i o n . M a r ke t development has been characterised by innovation, both in pricing and in methods of network deployment.
There is also a high degree of crossplatform competition, with fixed-line, dial-up, leased line, DSL, cable modems, GSM dial-up, WAP, LMDS,
MMDS, satellite and other platforms being used to support Internet services. Sector Absorption is rated at level
2, Moderate. This ranking is a function o f t h e ty p e o f c o n n e c t i v i t y i n education, government, health care and business. Internet access is available from all universities and approximately one third of public secondary schools.
230 gov e r n m e n t a g e n c i e s h ave
Internet access of which around half have web pages. The Ministry of
Health has its own web site. Usage in the business sector is growing.
The Connectivity Infrastructure is at level 2.5, between Expanded and
Broad. International connectivity is estimated at over 250 Mbit/s. There are a number of POPs outside of the capital but there is no nationwide public Internet backbone. There are several domestic Internet exchanges but none that connects all ISPs.
Leased lines, fixed wireless, ADSL and cable modem for broadband local access are available.

One consequence of this highly competitive environment is that
Internet prices have been forced down to levels at which it is hard to make a profit. At the low-end of the market, in particular pre-paid cards, quantity has triumphed over quality, and consumers have come to associate the
Internet with low speed and unreliable access. Consequently, even though
Internet access can be purchased for as little as 20 pesos (around US$ 0.4) per hour, with no additional metered dial-up costs, the main form of messaging between Philippine consumers is not e-mail or chat, but rather mobile Short Message Service
(SMS), where service quality is more reliable (albeit limited in scope).
Another consequence of the wild west style market is that there has been no serious attempt to measure the volume of Internet usage in the country and market estimates range from as few as 500’000 to as many as six million users.

The Organizational Infrastructure is at level 3, Competitive. There are an estimated 50 operational Internet
S e r v i c e P r ov i d e r s ( I S P s ) i n t h e c o u n t r y.
M a r ke t entry is stra i g h t f o r wa r d , r e q u i r i n g o n l y r e g i s t ra t i o n with the telecommunication regulator and payment of a nominal fee. However,
ISPs are not allowed to provide their own infrastructure and must lease it from licensed telecommunication carriers. Sophistication of Use is at level 2,
Conventional. The most popular applications among most users appear to be e-mail, browsing and chatting.
G a m e s a r e a l s o p o p u l a r. M o r e sophisticated applications are in use or being developed, for example emarketplaces for electronic commerce or offshore software development.
However, they tend to be limited to niche areas.

Although the Internet in the
Philippines is currently going through a tough phase of m a r ke t consolidation, and intensive price competition, there are good reasons to be hopeful about the future. A number of schemes for enhancing access in rural areas and outlying islands are being launched, and bodies


Philippines Internet Case Study

with a nationwide presence, such as the Catholic Church or the school system, are becoming involved. There is strong potential for mobile Internet and there is already a large number of Internet cafés. The Philippines has the potential to emerge as a regional market leader for Internet access as it already has done for SMS use.

Internet users or subscribers in the nation. Both the National Telecommunication
Commission (NTC) and the National
Statistical Office (NSO) compile some statistics on the ICT sector. The NTC publishes data on the number of telephone and mobile cellular subscribers on its web site. The NSO carried out surveys in 1990 and 1994 on household ownership of ICT equipment such as radio, television,
PCs and telephones. However, these data are now o u t- o f- d a t e .
Unfortunately, the NSO missed an excellent opportunity to update this information in the 2000 Census. It is recommended that the NTC and NSO partner to improve the quality, scope and timeliness of data on the
Philippines ICT sector. This should include quarterly updates of industry statistics such as fixed, mobile and
Internet subscribers and annual updates of household ICT penetration for television, cable television, fixed and mobile telephones, PCs and
Internet subscribership.

5.2.1 Fully liberalize the ISP market A l t h o u g h t h e r e a r e n o m a r ke t restrictions on ISPs, in reality they are little more than resellers. Those ISPs that are not part of a telecommunication group cannot build their own infrastructure. One result is that many regions of the country remain poorly served for Internet access. Another outcome is that those
ISPs linked to telecommunications operators have an unfair market advantage. The distinction between an
ISP and telecommunication operator should be erased. ISPs should be allowed to construct their own networks and permission for doing so should be simplified. In exchange, they would be expected to contribute to universal access goals.

5.2.3 Internet Exchange
The Philippines has several Internet exchanges. However, they are not interconnected with consequent repercussions on efficiency and resources. These exchanges should be connected, or combined. The g overnment might also want to consider the establishment of a public, neutral peering point where all ISPs could connect to. This would help drive national e-commerce in the nation by making Philippine web sites easier and faster to get to. The government should also promote the establishment of a nationwide, high-speed public Internet backbone that would boost research and development efforts, local broadband access and connectivity of public institutions such as government offices and schools.

5.2.2 Market research
Reliable and timely information on ICT is lacking in the Philippines. Statistics are often misleading. The use of unreliable and improper statistics is causing serious harm in terms of proper policy analysis. Examples include use of simple rather than f u n c t i o n a l l i t e ra c y t h a t g i ve s a distorted account of true literacy in the country. Another example is the prevalent use of telephone capacity rather than telephone lines in service penetration that overstates the true level of telephone access in the country. Data are also incomplete.
Data are also widely contradictory as
Table 2.6 on mass media access in the country shows. Finally, data are incomplete or lacking in key areas. For example, a 1999 survey of the level of computerization in government only had results from less than half of government agencies. There is no reliable information on the number of

5.2.4 Universal access and public training
Though the government has several policies for promoting universal telephone access (e.g., plans that


5. Conclusions

ICT courses beyond the schools will also help to increase awareness among a broader part of the population. called for the installation of telephone lines, subsidized tariffs, providing a public telephone office in all m u n i c i p a l i t i e s , t h e A l t e r n a t i ve
Communications Programme (ACP), etc.), it does not have a coherent and m e a s u ra b l e p l a n f o r e x p a n d i n g
Internet access. Instead, most public access to the Internet has been met by Internet cafés. Policies should be designed for expanding Internet access such as a clear funding timetable for providing Internet access in schools. Internet cafés should be provided with incentives to expand, particularly in underserved areas. ISPs should be encouraged to extend infrastructure into unserved and underserved areas.

5.2.5 Coordination
Better coordination is needed to r e d u c e wa s t e f u l d u p l i c a t i o n o f resources and simplify procedures. For example, there are numerous agencies responsible for government
ICT actions; there are at least three different Internet exchanges and there are three different organizations responsible for domain names.72 All this causes considerable confusion and overlap. It is recommended that ICT activities dispersed across various government agencies be united in a new Department. Furthermore, the scope of the NTC’s regulatory activities should be expanded to cover the entire ICT industry. Distinctions between broadcasting and telecommunications should be erased, at least for the carriage of information.

Access alone cannot always slove the problem, though. Since a large part of the working age population is not computer literate, the government should also look into the possibility of providing basic computer and Internet training in public locations. Expanding



This is according to government sources. Another source puts the figure at “around 2 million Filipino Internet
Users” which would raise the penetration to 2.6 per cent of the population. See Janette Toral. “DigitalFilipino
Philippine Internet Demographics.” December 3, 2000.\statistics\demographics.ini. According to one Congressman, a single government ICT entity would “virtually eliminate redundant functions and overlapping responsibilities of some government agencies such as the Department of
Transportation and Communications (DOTC), the National Computer Centre (NCC), the Department of Public
Works and Highways (DPWH), the Department of Science and Technology (DOST) and the National
Information Technology Council (NITC).” Note that the NITC has since been merged into the IETTC but the argument still holds true. Joel D. Pinaroc. “Philippines – State of IT in Gov’t.” Newsbytes. 6 November 1998.


Philippines Internet Case Study

Annex 1: List of meetings



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Philippines Internet Case Study

Annex 2: Acronyms and abbreviations

Asymmetric Digital Subscriber Line


Advanced Mobile Phone System


Association of South East Asian Nations


Business to Consumer


Bayan Telecommunications Incorporated


Broadband Philippines


Capitol Wireless, Inc.


Catholic Bishops Conference of the Philippines


Code Division Multiple Access


Catholic Education Association


Commission on Higher Education


Connected Learning Community program


Cellular Mobile Telephone Service


Common Routing Exchange


Department of Education, Culture and Sport


Department of Education


Digital Telecommunications Phils., Inc.


Department of Health


Department of Science and Technology


Department of Transportation and Communications


Direct-To-Home satellite


Executive Order


Electronic Procurement System


Eastern Telecommunications Philippines, Inc


Express Telecom


Federal Communications Commission


Foundation for Information Technology Education and Development


Government Information Systems Plan


Globe-Mackay Cable and Radio (Globe)


Global Mobile Personal Communications by Satellite


General Packet Radio Service


Global System for Mobile Communication


Human Development Index


Health Research and Development Information Network


Information and Communication Technology


International Gateway Facility


Isla Communications




Internet Service Provider


Information Technology


Information Technology and Electronic Commerce Council


Local Area Network


Local (or Low-power) Multi-point Distribution System


Manila Internet Exchange


Microwave Multipoint Distribution System


Mosaic Communications


Multi-tenanted units


National Computer Center


National Economic and Development Authority


Newly Industrialized Country


National Statistical Coordination Board


National Statistics Office


National Telecommunication Commission


Philippine Association of Private Telephone Companies


Personal Computer


Philippine Council for Health Research and Development


Philippines National Currency. At 30 June 2001 one United States dollar
(US$) was equivalent to 51.5 pesos


Philippine Electronics and Telecommunications Federation, Inc.


Philippine Global Communications, Inc.


Philippines Internet Exchange


Philippine Network Foundation


Pilipino Telephone Corporation


Philippine Internet Service Organization


Philippine Long Distance Telephone Company


Philippine Research, Education, and Government Information Network


Philippine Telegraph and Telephone Corporation


Republic Telecommunications


Radio Philippines Network


Special Areas Scheme


Subscriber Identity Module Card


Smart Communications Incorporated


Short Messaging System


Social Security System


Total Access Communication System


Transparent Accountable Government


Philippines Internet Case Study


Telecommunication Infrastructure Corporation of the Philippines


United Nations Educational, Scientific and Cultural Organization


University of the Philippines - Open University


University of the Philippines – Philippine General Hospital


Value-Added Service


Voice over Internet Protocol


Very Small Aperture Terminals


Wireless Application Protocol



Annex 3: Useful links



































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