position paper - state of broadband in the philippines

Version 20160927

This position paper was prepared for the Mandaue Chamber of Commerce & Industry in aid of legislation by:

Contents

Executive Summary .............................................................................................................. 1

Introduction ........................................................................................................................... 2

Telecommunication Explained ........................................................................................... 2

Internet Explained .............................................................................................................. 2

Broadband Explained ........................................................................................................ 3

Economic Impact of Broadband ......................................................................................... 3

Current Legal Framework of Telecommunication............................................................... 4

The Present State of Broadband in the Philippines ............................................................... 7

Cost, Reach and Bandwidth of Existing Broadband Services ............................................ 7

Capacity and Capability of Telecommunications Regulator ............................................... 9

Competitive Environment in the Telecommunication Industry .......................................... 11

Legal Framework for Enforcement, Investment, Competition and Regulatory Oversight .. 12

The Desired State of Broadband in the Philippines ............................................................. 16

Philippine Broadband Services at the Top Rank of Asia Pacific ....................................... 16

National Telecommunications Commission as a Credible Regulator ............................... 16

A Competitive Telecommunications Industry ................................................................... 16

A Unified, Cohesive and Comprehensive Legal Framework Addressing National

Development ................................................................................................................... 16

Conclusion .......................................................................................................................... 17

The Program of Action towards the Desired State ............................................................... 18

Bringing the Philippine Broadband Services at the Top Rank of Asia Pacific ................... 18

Transform the National Telecommunications Commission into a Credible Regulator ...... 18

Develop a Competitive Telecommunications Industry ...................................................... 20

Develop a Unified, Cohesive and Comprehensive Legal Framework for National

Development ................................................................................................................... 21

Bibliography ........................................................................................................................ 23

Executive Summary The Present State of Broadband in the Philippines In 2013, there's only 22.9 out 100 Filipinos with access to broadband. 2.6 have fixed broadband and 20.3 have mobile broadband. The Philippines have one of the slowest average broadband speed in the Asia Pacific at 3.5 Mbps as compared to South Korea with 29 Mbps. 90% of internet users in the Philippines depend on mobile access but it has poor connectivity. The Philippines is also the most expensive in terms of broadband access at around US$7.10 per 1Gb of data. The National Telecommunications Commission (NTC) has failed to prevent non-competitive practices of dominant players and have not created the right environment for fresh investments from new players. Although there are laws supposedly enacted to encourage competition, it has not really created the climate because of regulatory enforcement failure by the NTC. The cost of licensing and red tape contribute to the low investments and players in the telecommunication sector. The Desired State of Broadband in the Philippines Stakeholders have almost the same desire for the country's broadband service. They need faster, cheap, reliable and higher penetration of broadband services. Stakeholders want the NTC to enforce the law without bias, encourage investments and protect players against anti-competitive and anti-trust practices. All stakeholders must participate to make a competitive environment for the telecommunications sector. A comprehensive, focused, unified, and cohesive legal framework must be designed to encourage new investments in telecommunications and to sustain a competitive market. The Program of Action The program of action aims to: bring the Philippine broadband services at the top rank of Asia-Pacific; transform the NTC into a credible regulator; develop a competitive telecommunications industry; and develop a legal framework for national development and not only for the telecommunications sector that is unified, cohesive and comprehensive.

Introduction Internet and broadband are becoming a large part of the telecommunication services available in the Philippines. Internet is part of what is referred to in the telecommunications or telecoms industry as "value-added services" or VAS. There have been many conferences, summits and strategic planning working towards improving internet access and broadband reach. The Cebu ICT Summit of 2001 and 2006 all emphasize the need to improve broadband technologies as part of its action agenda making possible gains in attracting business process outsourcing firms to Cebu City and its other chartered cities. Many nations see the investment in broadband technologies as a strategic move towards development.

Telecommunication Explained When we hear about telephones, mobile phones, internet, broadband, and even television broadcast, we are talking collectively of an industry we refer to as telecommunications. The IEEE dictionary (Ref. 2) defines telecommunications as “the transmission of signals over long distance, such as by telegraph, radio or television”." (Freeman, 1999, p. 1) "Think of telecommunications as the world's biggest machine. Strung together by complex networks, telephones, mobile phones and internet-linked PCs, the global system touches nearly all of us. It allows us to speak, share thoughts and do business with nearly anyone, regardless of where in the world they might be." (Investopedia) Section 3 of Republic Act No.7925 defines telecommunication as "any process which enables a telecommunications entity to relay and receive voice, data, electronic messages, written or printed matter, fixed or moving pictures, words, music or visible or audible signals or any control signals of any design and for any purpose by wire, radio or other electromagnetic, spectral, optical or technological means." It is by this definition that the National Telecommunications Commission relate, monitor, and enforce compliance to the law.

Internet Explained The word internet used to be spelled with a capital "I" was a word we thought we all knew and understood until we are ask "What is the internet?" "The Internet is a global wide area network that connects computer systems across the world. It includes several high-bandwidth data lines that comprise the Internet "backbone." These lines are connected to major Internet hubs that distribute data to other locations, such as web servers and ISPs." (TechTerms) The key words are "global, wide area network connecting computer systems across the world". So how do computer systems connect across the world? "In order to connect to the Internet, you must have access to an Internet service provider (ISP), which acts the middleman between you and the Internet. Most ISPs offer broadband Internet access via a cable, DSL, or fiber connection. When you connect to the Internet using a public Wi-Fi signal, the Wi-Fi router is still connected to an ISP that provides Internet access. Even cellular data towers must connect to an Internet service provider to provide connected devices with access to the Internet." (TechTerms)

Position Paper: State of Broadband in the Philippines

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In the Philippines, internet services are under the category "Value-Added Services" or VAS. Section 3 of Republic Act No.7925 defines "Value-added service provider (VAS) as an entity which relying on the transmission, switching and local distribution facilities of the local exchange and inter-exchange operators, and overseas carriers, offers enhanced services beyond those ordinarily provided for by such carriers."

Broadband Explained We always hear telecommunication networks or telecoms advertising their broadband services but what is really broadband. There are several definitions depending on availability, access or depth of service: "ITU and the OECD have defined broadband as a capacity of at least 256 kbps in the uplink or downlink speed. The Broadband Commission for Digital Development has defined broadband using a cluster of concepts, as high-speed Internet access which is always-on and capable of multiple service provision simultaneously." (Biggs, 2014, p. 16) "The term 'broadband' is a shortened name for 'broad bandwidth'. Broadband, or broad bandwidth, is what is required for the 'high speed' transmission of data. In the realm of computers and the internet, this data is in the form of digital information that is transmitted back and forth between your computer and the internet. So the terms 'broadband' and 'high speed' are actually equivalent terms as used in the context of internet connectivity, as they both mean the same thing." (DayCom Solutions) There is no standard definition of broadband in any of our laws not even in Republic Act 7925. For purposes of this position paper, the concept of internet and broadband will be mentioned here as a single concept. The internet will not be what it is without the infrastructure that broadband technologies provide. The whole existence of broadband evolved because of internet: One cannot evolve without the other.

Economic Impact of Broadband "In the ASEAN region, other factors being equal, a 1-percentage point increase in internet penetration rates translates into an additional 0.65 percentage point of GDP growth, on average. This would mean at least PHP 75 billion more in GDP for the Philippines based on 2013 values." (Santos, 2016, p.1) "According to the Organization of Economic Cooperation and Development, the benefits of broadband access to less developed countries (e.g., Brazil and China) are even greater. An entry-level connection of 0.5 Megabits per second (Mbps) has been found to increase household income by $800 per year." (Santos, 2016, p.1) Almost all studies conducted in many EU and OECD countries have demonstrated the direct correlation of telecommunication investment to GDP growth. China even during the most restrictive period in its economies also accrued gains from its investments in telecommunications. In a study conducted of 29 regions in China for a 17-year period, 1986-2002, revealed that investment in telecommunications infrastructure is both statistically significant and positively correlated to regional economic growth in real GDP per capita. (Ding & Haynes, 2006)


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It is therefore imperative that stakeholders from both government and the private sector take the initiative of framing the best mechanism in aid of legislation to improve investments in telecommunications. "The economic impact of broadband manifests itself through four types of effects: (Katz, 2012a)

The first effect results from the construction of broadband networks. In a way similar to any infrastructure project, the deployment of broadband networks creates jobs and acts over the economy by means of multipliers.

The second effect results from the “spill-over” externalities, which impact both enterprises and consumers. The adoption of broadband within firms leads to a multifactor productivity gain, which in turn contributes to growth of GDP. Third, residential adoption drives an increase in household real income as a function of a multiplier. Fourth, residential users receive a benefit in terms of consumer surplus, defined as the difference between what they would be willing to pay for broadband service and its price which contribute to GDP growth. This last parameter, while not being captured in the GDP statistics, can be significant, insofar that it represents benefits in terms of enhanced access to information, entertainment and public services.

Current Legal Framework of Telecommunication The Philippines telecommunication sector is regulated by the National Telecommunications Commission (NTC). The sector was originally regulated by the Public Service Commission that was established by Commonwealth Act No. 146 of 1936. "NTC regulated the industry when the Public Service Commission was abolished."(Espos, 2003, p. 42) The NTC was created in 1979 by Executive Order No. 546 issued by then President Ferdinand Marcos on July 23, 1979. The same executive order created the Ministry of Transportation and Communication under whose supervision and control it was placed. The Ministry therefore controlled both policy and regulation except for the quasi-judicial functions of the NTC that could only be appealed to the Supreme Court." (Espos, 2003, p. 42) "The Ministry of Transportation and Communication was reorganized again in 1987 into the Department of Transportation and Communication when the Philippine government reverted back into the presidential form. NTC remained under the supervision and control of the Department and its functions remained the same." (Espos, 2003, p. 42) The first law that specifically responded to the needs of the telecommunication industry was Republic Act 7925, "An Act to Promote and Govern the Development of Philippine Telecommunications and the Delivery of Public Telecommunications Services". RA 7925 designates NTC as the primary administrator of the law. The law defines among others the following functions of NTC: (Espos, 2003, p. 42-43)

a) facilitate the entry of qualified service providers, b) adopt a fair and reasonable pricing policy, c) mandate fair and reasonable interconnection,


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d) ensure quality and inter-operable telecommunication facilities, e) foster fair and efficient market conduct, and f) promote consumer welfare.

Note: "The law and its implementing rules and regulations (IRRs) do not define the terms fair and reasonable." (Espos, 2003, p. 43) NTC issues certificates of public convenience for “the operation of communication utilities and services, radio communications systems, wire or wireless telephone or telegraph systems, radio and television broadcasting systems and other similar public utilities” (EO 546), manages radio spectrum (Act No. 3846, as amended, and RA 7925); and performs quasi-judicial functions (RA 7925). "The law does not prohibit the DOTC under which the NTC remained attached from interfering with the regulation of the industry. It only reiterates the prohibition contained in previous laws against DOTC interfering in the Commission’s quasi-judicial functions." (Espos, 2003) The enforcement of RA 7925 is outlined in NTC's Memorandum Circular No. 08-09-95, "Implementing Rules and Regulations for Republic Act No. 7925 Re: An Act to Promote and Govern the Development of Philippine Telecommunications and the Delivery of Public Telecommunications Services". There are other Memorandum Circulars (MCs) supporting enforcement but some are more prominent than others in forming the core of enforcement, as follows:

NTC MC 09-07-93 Implementing Guidelines on the Interconnection of Authorized Public Telecommunications Carriers NTC MC 11-09-93 Implementing Guidelines on the Provisions of E. O. 109

NTC MC 03-03-96 Review, Allocation and Assignment of the Radio Spectrum NTC MC 14-07-2000 Implementing Rules and Regulations (IRR) for the Interconnection of Authorized Public Telecommunications Entities NTC MC_06-08-2005 Frequency Band Allocations for Broadband Wireless Access NTC MC_07-08-2005 Rules and Regulations on the Allocation and Assignment of 3G Radio Frequency Bands NTC MC 01-03-2010 Rules on the Assignment of the Remaining Allocated 3G Radio Frequency Band

Certain statutes are also affecting investments in the telecommunication sectors as follows:


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Republic Act 7925 An Act to Promote and Govern the Development of Philippine Telecommunications and the Delivery of Public Telecommunications Services Republic Act 6849 An Act Providing for the Installation, Operation, and Maintenance of Public Telephones in Each and Every Municipality in the Philippines, Appropriating Funds Therefor and for Other Purposes Republic Act 8799 The Securities Regulation Code Republic Act No. 7042 (As amended by RA 8179) An Act to Promote Foreign Investments, Prescribe the Procedures for Registering Enterprises Doing Business in the Philippines, and for Other Purposes

Republic Act 10667 An Act Providing for a National Competition Policy Prohibiting Anti-Competitive Agreements, Abuse of Dominant Position and Anti-Competitive Mergers and Acquisitions, Establishing the Philippine Competition Commission and Appropriating Funds Therefor

The above definitions and legal frameworks are meant to contextualize the position paper that is to follow. This document is organized as such that it starts with the current state of broadband in the Philippines, followed by broad discussion of the desired state as perceive by different stakeholders, followed by conclusions of what needs to be resolve to improve broadband services, and closing with recommendations for certain program of actions. The conclusions and recommendations are drawn from studies, research and consultations of different stakeholders, in the academe, international bodies, and private entities spanning years of accumulated data from 1998 to first quarter of 2016. Although, effort was exerted to get the most updated data, due diligence must be exercise in ascertaining facts by going back to original sources of data from published references listed in the Bibliography.

The Present State of Broadband in the Philippines Based on data from OECD countries two studies have evaluated the impact of broadband on GDP growth. The first study analyzed impact in 25 OECD countries between 1996 and 2007. The researchers determined that the adoption of broadband increased per capita GDP, with a ratio of 1.9% to 2.5%. (Katz, 2012b) In the Philippines the mobile broadband adoption was found out to be contributing to the GDP at an annual rate of 0.32%. This represents 6.9% GDP growth for the Philippine economy during the past decade. Philippine GDP grew at a compounded rate of 4.6%. Since 2005, broadband technology has doubled its impact on GDP reaching 0.61% and representing growth of 7.3% across the country. (Katz, 2012b) The existing experience of the country in the use of broadband technologies and access to the internet is defined by the following:

The cost, reach and bandwidth of existing broadband services.

The capacity and capability of the existing regulator, NTC, to enforce the enabling rules and regulations defined by existing statutes.

The competitive environment in the Philippine telecommunication industry.

The legal framework for enforcement, investment climate, pro-competition and oversight of regulatory administration and enforcement.

Cost, Reach and Bandwidth of Existing Broadband Services In 2014, 44 million Filipinos out of the 100 million used the Internet either subscribed or shared. In 2013 broadband access however is much lower with only 22.9 per 100 Filipinos. According to the UN Broadband Commission, there were 2.6 Filipinos for every 100 have subscribed to fixed broadband. 20.3 Filipinos per 100 have mobile broadband in the same year. (Santos, 2016). In the first quarter of 2016, South Korea leads the Asia-Pacific in the fastest average connection speed of 29 Mbps, Singapore is 16.5 Mbps while the Philippines is at 3.5 Mbps. The global rank of South Korea in this category is No.1, Singapore No. 13 while the Philippines is ranked No. 113. (Akamai, 2016). Peak connection speed is led by Singapore at 146.9 Mbps, South Korea at 103.6 Mbps while the Philippines is at 29.9 Mbps. The global rank of Singapore in this category is No. 1, South Korea No. 4, while the Philippines is No. 88. (Akamai, 2016). Based on 2013 estimates, about 90% of internet users depend on mobile access. There is a huge demand for mobile internet. (Santos, 2016, p. 4) Even with the rapid increase in the demand for mobile internet growing at a rate of 112% per year, the country still suffers from poor internet connectivity. (Santos, 2016). "In a 2012 survey, the Department of Education (DepEd) revealed that 79% of public schools across the country had no internet access in their area, wired or wireless." (Santos, 2016, p. 4)


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"A recent TechInAsia survey showed that 1 Gigabytes (GB) of data is “very expensive” in the Philippines (at $7.10) compared to other ASEAN countries. (Santos, 2016, p.5) A typical Filipino minimum wage earner is estimated to take in $0.69 per hour. To be able to pay for 1GB of data, he has to log in 10 hours of work. The Philippines is the second worst country in terms of data cost in the ASEAN. The cost of 1GB of data in Singapore is $7.11 but the minimum wage per hour is US$4.03. Brunei has a cost of US$7.09 per 1GB of data but the wage per hour is US$5.76. (Santos, 2016)

Ookla, a business that provides tools to measure network throughput, latency, packet loss and scan firewall ports, revealed that the Philippines offered the second most expensive internet service out of the 62 countries ranked. (Santos, 2016) The Philippines has also the most expensive in terms of wholesale price for business-grade bandwidth per 1 Gbps in the Asia-Pacific Region. Wholesale price of business-grade bandwidth per 1Gbps in Hong Kong is in the range of US$1.50 to US$6.00 while Australia and New Zealand ranges from US$6.00 to US$9.00. Wholesale price for business-grade bandwidth per 1Gbps in Manila is at the range of US$18.00 to US$45.00 while Cebu is in the range of US$25.00 to US50.00.


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Capacity and Capability of Telecommunications Regulator "The NTC is the government agency mandated to regulate and supervise the provision of public telecommunications and broadcasting services in the country (EO 546) and to enforce RA 7925. It issues certificates of public convenience for “the operation of communication utilities and services, radio communications systems, wire or wireless telephone or telegraph systems, radio and television broadcasting systems and other similar public utilities” (EO 546); manages radio spectrum (Act No. 3846, as amended, and RA 7925); and performs quasi-judicial functions (RA 7925). The NTC is under the Office of the President." (Santos, 2016, p.10) NTC issues a provisional authority (PA) to operate to the franchise applicant. The PA defines the conditions for the issuance of the CPCN, as follows: (Espos, 2003, p.45)

a) payment of performance bond, b) submission of construction schedules and related details, c) payment of required fees, d) roll-out schedules, e) reporting requirements, f) an indication of the price which the operator could charge for the service based

on the operator’s own cost and revenue projections. "The provisional authority is valid from 12 to 24 months but is extendable for longer periods." (Espos, 2003, p.45). Upon compliance of the requirements outlined in the PA and approval by Congress of the franchise, NTC issues the Certificate of Public Convenience and Necessity (CPCN) to applicant telco. "As a cabinet level agency, NTC belongs to the executive regulatory agencies whose heads are appointed by and whose terms are co-terminus with that of the President. As an executive branch of the government, the President has control over NTC's rule making power.” (Aldaba, 2000b). NTC has suffered setbacks in terms of its credibility as a regulatory agency. A lot of the decisions that NTC made have allegedly indicated biases towards a particular industry player. NTC often adopted a hands-off policy and leave the final decision to the President making the Office of the President a powerful interventionist. The practice of getting industry practitioners as regulatory officials have also contributed to the loss of credibility for the Commission. (Aldaba, 200b) Legal initiatives related to mergers and acquisitions in the telecommunications industry have not strengthened NTC's position as a regulator considering its ambivalence in taking action in spite of its mandate to adjudicate in mergers and acquisition. In the case of PLDT v. NTC (G.R. No. 88404), NTC argued that there are no legal barriers to approving telco mergers and acquisitions. There are also no set guidelines in place to help the regulator prove whether a merger or acquisition would be detrimental to public interest. (Santos, 2016, p. 11) This argument, however, is not in line with the antitrust mandate provided by RA 7925 and EO No. 546. It is within the NTC’s powers and functions to establish competition rules and the guidelines required for their effective implementation, similar to what other sector regulators, such as the Energy Regulatory Commission (ERC), have done. (Santos, 2016, p. 11)


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In NTC’s decisions to approve the two recent mergers, no official position papers for public review were circulated. Comments submitted by the oppositors as well as the final decision of the NTC on the two cases were not made public. In the NTC’s decisions, it made use of the public-interest criterion in evaluating the two mergers. However, it did not define what constitutes public interest. (Santos, 2016, p. 11) NTC’s hands-off policy with regards to interconnectivity have cause the dominant player PLDT to choke competition by invoking vague references to LRIC in computing interconnectivity charges, a calculation that NTC may not have taken due diligence to verify if legitimate. (Espos, 2003) NTC is handicapped in establishing baselines for costs or investments. The data required for financial modelling or the calculation of LRIC (long-term incremental cost) is difficult to gather with industry’s (meaning the dominant telcos) aversion to the submission of cost and financial information that can be used to align charges with costs especially when prevailing charges are excessive. (Espos, 2003) NTC even if it is within its mandate, do not demand the necessary data from telcos to enable an effective monitoring of telcos operation, investments and operating costs essential for its own financial modelling or the calculation of LRIC. "RA 7925 mandates the NTC to “establish rates and tariffs which are fair and reasonable and which provide for the economic viability of telecommunication entities and a fair return on their investment considering the prevailing cost of capital in the domestic and international markets.” NTC's current mechanisms for setting rates and tariffs deemed "fair and reasonable" may no longer be responsive to new realities or may not all be "fair and reasonable" in the context of these new realities. The rates are still set following a 12 percent return on rate base formula. The formula had been applied since 1935 when the Supreme Court ruled that a 12% return on revalued (net) book value of property, plant and equipment plus working capital covering two months average of operating expenses is a fair return to utility." (Espos, 2003, p. 51) "The NTC functions and decisions are subject to the review of the courts and limitations imposed by laws. Its decisions are appealable to the Court of Appeals and the Supreme Court. Dominant industry players have used this to delay or overturn decisions that do not favor them.” (Santos, 2016, p. 10) NTC does not generate its own revenues internally. Although as a regulatory agency it imposes fees like spectrum user fees, it does not retain them for its own operational use. “Spectrum user fees (SUF) collected by the NTC reach about P2.5 billion annually. This makes up over half of the regulator’s entire license revenues per year. However, the full SUF collection goes directly to the National Treasury. NTC does not keep any of its income. NTC’s annual budget in the General Appropriations Act is about P300 million." (Santos, 2016, p. 11) Although the enabling law is RA 7925, the penalties imposed for non-compliance is actually based on Commonwealth Act No. 146 or the "Public Service Act" that was passed in 1936. To date, violators are fined only PhP200 per day. The range of


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penalties is not sufficient for erring telcos to do the right thing since compliance is exponentially higher than the cost of the fine which was set 80 years ago. (Santos, 2016) As a consequence of this lack of funds, it cannot attract the right human resource. Owing to the dismal pay scale of personnel, NTC do not have high calibre experts and professionals in its staff. (Espos, 2003) The agency lost representation in the International Telecommunications Union (ITU) in 2001 because the government failed to pay membership dues. We lost access to information on international standards, best practices, and prevailing policies in other countries that are inputs to the formulation of our own regulatory policies. (Espos, 2003) NTC does not have a separate budget for staff training for skills and knowledge essential for regulating an industry with more than one player. Historically, there was only PLDT to deal with. Funds for training are largely source from grants offered by foreign governments and institutions. (Espos, 2003) NTC does not even have equipment for its own use to establish monitoring of telco performance but rely on the existing equipment of telcos. (Espos, 2003) NTC cannot initiate its own infrastructure project or propose program of development for capacity building.

Competitive Environment in the Telecommunication Industry There are two (2) major players in the Philippines: Philippine Long Distance Telephone (PLDT) Company (with 70% market share) and Globe Telecom, Incorporated (with 28% market share). PLDT and its main competitor Globe are the two major providers of fixed and mobile broadband services in the country. PLDT and Globe recorded the highest earnings before interest, tax, depreciation, and amortization (EBITDA) margins compared to other telecommunication companies globally. Both PLDT and Globe achieve EBITDA margins of 60% and 70% respectively in 2010 in spite of very low average revenue per user (ARPU). In past years, PLDT and Globe have recorded EBITDA margins from 40% to 45%. (Santos, 2016) PLDT and Globe are the Philippines' largest internet service providers (ISPs). Both control and own most of the existing internet infrastructure which includes submarine cables, the landing stations, the backhaul network referred to as the middle mile up to the last mile. Both PLDT and Globe dictate access to and the cost and quality of the internet and broadband service, both fixed and mobile in the whole country. (Santos, 2016) "The Philippine telecoms market has been tagged as “less competitive” and “effectively a duopoly” by various analyses. It lags behind in terms of contestability or the freedom of market entry and exit." (Santos, 2016), p.7) Philippine experience has shown that the combination of a weak regulatory authority, vague interconnection rules, and a large, dominant carrier capable of exercising monopoly power over access to networks have resulted in difficult and slow interconnection. The failure to implement smooth interconnection has serious adverse consequences such as unnecessary lengthy delays in competition associated with welfare losses to telephone subscribers and a high cost imposed to entrants. (Aldaba, 2000b, p. 23)


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Executive Order 59, issued in February 1993, obliged the compulsory interconnections of all public telecommunications carriers. Republic Act 7925 provided some interconnection guidelines, however, the rules were not explicitly spelled out and failed to sufficiently address the industry's interconnection problems. Hence, these weaknesses in the legislation inhibited true competition. (Aldaba, 2000b, p. 23)

Legal Framework for Enforcement, Investment, Competition and Regulatory Oversight The enabling law of regulatory enforcement for the telecommunication is Republic Act 7925, “An Act to Promote and Govern the Development of Philippine Telecommunications and the Delivery of Public Telecommunications Services”. The implementing rules for its enforcement is NTC MC 08-09-95, "Implementing Rules and Regulations for Republic Act No. 7925 Re: An Act to Promote and Govern the Development of Philippine Telecommunications and the Delivery of Public Telecommunications Services". There are still a core of memorandum circulars still in effect that form a body of enforcement guidelines for the telecommunications industry:

NTC MC 09-07-93 Implementing Guidelines on the Interconnection of Authorized Public Telecommunications Carriers NTC MC 11-09-93 Implementing Guidelines on the Provisions of E. O. 109 NTC MC 03-03-96 Review, Allocation and Assignment of the Radio Spectrum NTC MC 14-07-2000 Implementing Rules and Regulations (IRR) for the Interconnection of Authorized Public Telecommunications Entities NTC MC_06-08-2005 Frequency Band Allocations for Broadband Wireless Access NTC MC_07-08-2005 Rules and Regulations on the Allocation and Assignment of 3G Radio Frequency Bands NTC MC 01-03-2010 Rules on the Assignment of the Remaining Allocated 3G Radio Frequency Band

Another set of statutes envisioned to create competition and attract more players are as follows:


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Republic Act 10667 An Act Providing for a National Competition Policy Prohibiting Anti-Competitive Agreements, Abuse of Dominant Position and Anti-Competitive Mergers and Acquisitions, Establishing the Philippine Competition Commission and Appropriating Funds Therefor Republic Act 6849 An Act Providing for the Installation, Operation, and Maintenance of Public Telephones in Each and Every Municipality in the Philippines, Appropriating Funds Therefor and for Other Purposes Republic Act 7042 (As amended by RA 8179) An Act to Promote Foreign Investments, Prescribe the Procedures for Registering Enterprises Doing Business in the Philippines, and for Other Purposes Republic Act 8799 The Securities Regulation Code

In spite of the enactment of the above enabling laws and body of issuance, the legal framework still has not adequately address the following:

1. An investment climate that is pro-competition and allows greater foreign investment in the telecommunication sector.

2. The pro-active handling of the prevailing threat of monopoly through mergers and acquisitions. There are no clear provisions to handle business structure and conduct of business.

3. Simplicity and transparency in the licensing of telecommunications operators

including the mechanisms of rejecting applications. Current, there are too many layers for applying for a license from national agencies to local governments especially for internet service. (see tables)

4. Oversight of NTC in terms of enforcement, accountability, development, administration, and performance.

5. Strengthening of NTC in terms of technical capabilities, transparency, infrastructure, funding, and selection of personnel.

6. Addressing the aversion of telcos to compliance. Current laws are not punitive enough to threaten or hurt violators and forensic capabilities are not in place to ensure prosecution of violators.

7. Government’s commitment to invest in telecommunications infrastructure to lessen dependence on private-sector initiatives.

The Desired State of Broadband in the Philippines After all data, facts and information are absorbed, interpreted and organized, we are left with the question: What do we need to achieve to get to our desired state? The desired state should be understandable and more importantly measurable in the backdrop of a time frame within our national agenda of development. The following are the desired state most stakeholders have articulated in different studies, focus group discussions and conferences.

Philippine Broadband Services at the Top Rank of Asia Pacific The Philippines should achieve lower cost, faster speed and greater national penetration of broadband services comparable to Singapore, Korea or Australia by year 2020. By the time, this desired state is achieved the technology might have already changed. It is therefore more expedient to peg our objectives on what other countries are already trying to achieve. This means benchmarking our broadband services against our neighbors.

National Telecommunications Commission as a Credible Regulator The NTC shall be the most credible, transparent, intelligent, effective, and development-oriented regulatory body. The NTC may have to undertake a deliberate overhaul of its offices. A human resource inventory should be conducted more on the premise of competence and integrity than on civil service status. A development program should be in place for this purpose. A strategic plan represented by a logical framework matrix should be prepared based on NTC’s responsibilities mandated by RA 7925. An information, education and communication plan should be prepared for the benefit of all telecommunication stakeholders.

A Competitive Telecommunications Industry The only guarantee of a competitive environment for telecommunication players is to engage all stakeholders in a credible, transparent, and open process of consultation and conference to agree on the ground rules for the industry. NTC can no longer be a silo, dominant players cannot be apathetic, Congress and the Office of the President cannot be intervening, and subscribers can no longer stay on the sidelines. All stakeholders should ensure that mechanisms for competition, customer and investor protection, education, information sharing, and regulatory compliance are observed, and that forensic methodologies are designed and to ensure that non-compliance are detected and rectified. Deeper engagement with international bodies like the ITU and the Broadband Commission are encouraged.

A Unified, Cohesive and Comprehensive Legal Framework Addressing National Development The legal framework should be designed in such a way that it takes into consider all stakeholders not just the regulated. It must be in the context of the national development agenda and not just sectoral or industry to avoid silo or myopic concerns. It must take into consideration existing parallel, contradicting and supplemental legislation. The text of the legislation should be in the perspective of enforcement to avoid issues of confusion, misinterpretation, elite capture and work-arounds. The legislative must apprise its role from dispensing franchises to oversight.

Conclusion The Philippines must address the telecommunication agenda in the context of a national development agenda because development in this sector will affect and is affected by other economic agenda and the achievement of any positive outcome contributes to real GDP growth. Literature and results of studies both initiated by local researchers and international bodies all arrive with the same conclusions. This position paper forwards the following conclusions as to the state of the broandband/internet in the Philippines:

1. Broadband in the Philippines is expensive, low penetration and slow. Data from Akamai, USAID, ADB, ITU, Broadband Commission, OECD and UN all show the same numbers spread out to almost a decade of studies and data mining. Even if these studies never came to light, the concerns of our domestic stakeholders should already be enough to send signals what decades of apathy has successfully contained.

2. The National Telecommunications Commission has failed in its mandate.

NTC failed to create the environment envision by the framers of RA 7925. The result is a regulatory environment that favors the dominant players, restrict new players, expensive entry requirements, and a loss of credibility for NTC. The leadership of NTC has failed to demonstrate integrity and its actuations and transactions are devoid of transparency effectively eroding its credibility. It has failed to prevent the country’s loss of membership in the International Telecommunications Union (ITU).

3. The Philippine Telecommunications Industry is Restrictive

Contrary to government claims, the telecommunication industry restricts new players, making entry expensive and tedious. Entry may not be sustainable for new entrants. There is no fair treatment in the application and the enabling environment is not supportive of fresh investments. The weak regulator has made the industry even more restrictive with its decisions, proclamations and actions. This is further aggravated by dominant industry players that invest so much resource in ensuring knew players never get a fair share of the market.

4. The Legal Framework although present on paper failed to deliver on its

promise. The spirit of the laws intended to create the right environment of fair trade, fair competition, and protection of investments did not manifest in credible dealings with the government, in efficient processing of new entrants, low cost entry, more investment opportunities, etc. There is no argument that the laws are already out there but they are incoherent, scattered, and at times conflicting as a result the industry players are in a continuous of litigations at the expense of subscribers and investors.

The Program of Action towards the Desired State Studies on broadband technologies identified weaknesses and depth in countries in Europe, Asia-Pacific, and Middle East. Together with these weaknesses are recommendations as to how to either improve broadband or harness its potential. The OECD, the United Nations, the ITU, Broadband Commission including our very own stakeholders, have suggested broad and specific programs of action. The programs of actions in this position paper are organized under each of the category of desired states.

Bringing the Philippine Broadband Services at the Top Rank of Asia Pacific

1. Service Providers must be made accountable for quality and depth of broadband services a. Service providers must submit accurate and relevant data required by the

regulator regularly and on-time under oath. b. Service providers must clearly acknowledge sources of data and verifiable

evidence of its existence. c. All service providers must comply with the Payment Card Industry-Data

Security Standard (PCI-DSS) to protect customer data and must publish results of the PCI-DSS audit in their website.

d. Require service providers to implement a customer service management system to enable the regulator to monitor the service providers' response to customer complaints and service request.

e. Pre-paid customers who register in the service provider's website should receive the same depth and quality of service as post-paid subscribers to encourage pre-paid customers to share relevant data and give feedback about service quality and service response.

f. Service Providers must published information they submit to SEC and to the PSE in their website. These information should include the fees charge to other service providers interconnecting with their infrastructure.

2. Review and update the country's ICT agenda taking into consideration the strong

engagement of stakeholders to improve the administration, structural and legal framework of the program of action.

3. Improve spectrum management (Santos, 2016).

4. Empower consumers to make informed decisions through the development of online tools to check download speeds, quality-of-service and prices for access and data plans. (Biggs, 2014)

Transform the National Telecommunications Commission into a Credible Regulator

1. NTC Commissioners must acquire very technical knowledge and skills in determining incremental or stand-alone costs. (Bronckers & Larouche, 2008)

2. Increase the adoption of information and communications technology (ICT) by

national and local government units in order to improve the delivery of government services. Build on the innovation of local governments (e.g.,


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Valenzuela City) and raise the Philippine ranking in the United Nation’s E-Government Readiness index. (Montenegro & Araral, 2015)

3. Work closely with the technology sector to develop mechanisms for enhancing

cybersecurity, preventing cyberattacks, and creating a robust and trustworthy ICT ecosystem. (Montenegro & Araral, 2015)

4. NTC or any designated Regulator must not be given the discretion to enforce or

not to enforce the mandatory submission of report, financial data on costs or investments to allow a transparent computation of FL-LRIC or SAC and appropriate financial modelling necessary to implement any incremental costs or stand-alone costs. (Espos, 2003)

5. NTC must ensure public availability of licensing criteria, time periods required to

decide on a license application and terms and conditions of individual licenses. Reasons are to be given when licenses are denied. (Bronckers & Larouche, 2008)

6. NTC or any regulator as part of transparency must have a user friendly website

similar to Ofcom of the United Kingdom (http://www.ofcom.org.uk/).

7. Strengthen the capabilities of the regulator to set the right regulatory framework, standards and enforcement mechanisms a. Licensing criteria and application requirements must be published in the

regulator's website. b. All republic acts, executive orders and memorandum circulars regulating

telecommunications must be published in the regulator website. c. All active and adjudicated cases on licensing and enforcement must be

published in a separate web page in the regulator's website. d. Annual reports of activities, projects, and programs must be presented to the

legislative branch responsible for oversight prior to its publication in the regulator's website.

e. Regulator must proposed a new operating budget that covers enforcement, infrastructure development, investigation and surveillance, human resource development, compensation & benefits for personnel, relevant membership fees to international organizations related to telecommunications, website development and management, IEC, etc.

f. Review the qualifications of the commissioners and should include knowledge and skills in finance and economics related to cost-benefit-investment calculations and financial modelling culling knowledge from best practices from the International Telecommunications Union (ITU), Overseas Economic Co-operation and Development (OECD), and the Asian Development Bank (ADB) to name a few.

g. The regulator must identify and index all critical technical, operating and financial data relevant for monitoring, enforcement and forensic investigation.

h. Set aside a calendar for specifically educating the legislative oversight committee of the relevance of technical, operating, and financial data in monitoring, enforcement and forensic investigation.

i. Develop protocols for financial analysis, forensic investigation, monitoring, rules of engagement for enforcement, and preparation of reports to oversight, and prepare manuals for each.

j. Regulator must formulate a strategic/development plan that should establish measurable outcomes to cover infrastructure, broadband penetration, affordability of broadband vis-a-vis per capita of GDP (for example 5% of


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GDP), personnel development, interconnectivity cost, e-governance penetration, etc.

8. Four urgent tasks were identified that the NTC needs to accomplish as

mandated by RA 7925:(i) assume a proactive regulatory stance on competition-related issues; (ii) enforce strict reporting requirements on regulatees (industry players); (iii) strive to restore regulatees’ confidence in the Commission; and (iv) work with the legislature to introduce changes in the regulatory structure. (Santos, 2016)

9. In August 2006, the NTC issued a consultative document on significant market power (SMP) obligations, with funding support from USAID. Under the said document, certain obligations are proposed to be imposed on carriers with SMP by using a roadmap, consisting of the following critical processes: (i) defining markets to be used as basis for regulatory intervention; (ii) determining if one or several operators in the defined markets have the degree of market power that merit regulatory intervention; (iii) identifying appropriate SMP obligations to achieve policy objectives; and (iv) determining conditions that justify withdrawal of regulation. (Santos, 2016)

10. Adopt an open access model. Instead of a single, vertically integrated network, an “open access” approach is recommended. Open Access Model is the separation of the physical infrastructure from service provisioning (Alcatel-Lucent, 2010). This means identifying the various segments in the infrastructure and opening them up to more and different players without requiring a Congressional franchise. (Santos, 2016)

11. Update and upgrade the country’s ICT strategy and plan (Santos, 2016). Consider the vital issue of enforceability/execution. Who is responsible for enacting the Plan? Who will monitor progress? How will implementation be funded? (Biggs, 2014)

12. Monitor the use of traffic management techniques to ensure they do not unfairly

discriminate between market players. (Biggs, 2014)

13. Encourage network and facility sharing through “soft” measures (e.g. cross-sector mapping of infrastructure that enables the coordination of civil works). (Biggs, 2014)

14. Work with all stakeholders to reduce or remove practical barriers to broadband deployment. (Biggs, 2014)

Develop a Competitive Telecommunications Industry

1. Impose local loop unbundling, or the process requiring the incumbent operator to provide competitors with access to the “local loop” or the telecoms network, is also mandated. This is done especially in cases where the incumbent has a large market share in order to give new entrants a fair chance at competing. In the Philippines, there is no specific policy on local loop unbundling and areas of regulatory intervention are not clearly defined. (Santos, 2016)

2. Implement additional reforms in the educational system to improve the

competencies and compensation of teachers. This should include stepping up


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science, technology, engineering and mathematics (STEM) education and enhancing the digital literacy of educators. (Montenegro & Araral, 2015)

3. Lessen the number and cost of permits and clearances imposed by the local government of each area that will be affected by the construction of telecoms infrastructure (Santos, 2016)

4. Remove all forms of prohibitive bureaucratic requirements, arbitrary fees and permits, or simply too much discretion on the part of government officials. (Santos, 2016).

5. Level the playing field through: (Santos, 2016) a. Local IP peering. Support the growth of open and neutral internet exchange

points, such as PHOpenIX that allows local IP peering. Non-commercial IXPs give an alternative for smaller players to buy uplinks (international bandwidth) as they are allowed to access locally hosted content and cached data in a local IXP.

b. Shared infrastructure. Promote open access policy for infrastructure through (i) a shared utility corridor to coordinate one-time civil works and (ii) secure right of way and LGU permits. Allow and encourage tower co-location in order to lower cost for smaller players, especially for networks outside urban centers. This also includes sharing of radio spectrum and allowing the use of unlicensed frequencies at the community level.

Develop a Unified, Cohesive and Comprehensive Legal Framework for National Development

1. Update the country's obsolete telecommunications laws. The speed of innovation favors a light-touch approach and regular review to ensure that laws remain relevant. New legislation can include sunset clauses to trigger automatic review, while older legislation that overly restrict competition should be liberalized. (Montenegro & Araral, 2015)

2. Update laws and regulatory framework to promote investment and innovation in

communications and connectivity. The following legislative agenda are recommended: (Santos, 2016) a. Amendments to RA 7925 b. Enactment of the Department of ICT Act c. Amendments to CA 146 d. Passage of the NTC Reorganization Act

3. Set up an effective, independent, transparent, accountable and unified

government body to oversee the development of ICT and related services. This body should be resourced properly with people, technology and financing so that it can build a strong ICT foundation as a pillar of long-term shared prosperity for all Filipinos. (Montenegro & Araral, 2015)

4. Legislative branch shifts from approval of franchises to oversight and

improvement of legal framework of licensing, regulatory enforcement, pro-competition investment and transparency in administration. a. Remove the legislative branch from the application loop by removing the

franchising component of the process to eliminate the perception that the


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process of allowing investments in telecommunications as a political or elite capture rather than a purely economic agenda.

b. Legislative must convert its role to oversight of enforcement and administration of the regulator.

c. Legislative must review and update Republic Act No. 7925 and the regulatory framework of enforcement.

d. Increase the number of commissioners from three to five: one (1) with electronics and communications background, two (2) with specialization in economics and two (2) with expertise in finance. The ideal is to have all commissioners have academic or operating experience in electronics and communications engineering. All commissioners should have training in forensic accounting and finance.

e. Legislative must review licensing process with the view of making the application process pro-competitive, pro-consumer, transparent, and ensure accountability of all stakeholders.

f. Legislative must review cost-benefit-investment formulas and financial modelling use by NTC to ensure that it is based on international best-practices.

g. Improve the flow of investments in telecommunications by reviewing and updating the legal and structural framework of the country's general investment climate.

h. Legislators must allow the regulator NTC to retain 70% to 80% of its collected fees to give it some latitude in fiscal independence and upgrade its capabilities without having to depend on the Office of the President or the Legislative for operating funds. This insulates the Commission from political machinations or pressure.

i. Amend RA 7925 to provide fixed terms for the Commissioners and restructure competitive compensation similar to agencies like BSP, DBP, etc. with corresponding upgrading of qualifications.


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