Connectivity cost in Philippines weigh on consumer pockets (First of two parts)

Special report

MANILA, Philippines — It may be baffling at first to picture how a person can spend half a day browsing the internet, but for Filipinos, this is nothing out of the ordinary.

For instance, multimedia artist Dave Daniel Liwanes spends at least 10 hours a day shuffling his eyes between his computer and phone to edit photos and videos for clients.

Liwanes sets aside P2,000 monthly to pay for his internet bills, both prepaid and postpaid, noting that his job demands his staying online for as long as there is work to do.

Considering the frequent power outages and inconsistent internet speeds, Liwanes feels that he is paying more than what he is getting. And if data and experts are to be consulted, he is right: Filipinos pay one of the highest costs in Southeast Asia in connecting to the worldwide web.

This is the story of how a country’s archipelagic feature – considered a gift for tourism – is making life harder for everyone to access a right. This is also the story of a decades-old push to lift investment barriers to promote tighter competition and lower prices.

And this is the story of why only half of Filipinos can afford to subscribe to the internet in an age when opportunities, from education to livelihood, are abundant online.

The International Telecommunication Union (ITU) classifies affordable internet as costing below two percent of gross national income (GNI) per capita, or the average wealth of a citizen.

The ITU, which is backed by the United Nations, hopes countries can keep their internet rates within that affordability target to promote universal access.

Based on data from the Philippine Statistics Authority, per capita GNI in the Philippines stood at $3,837 in 2022. Using the ITU standard, Filipinos should allocate only $76.74 a year, or about P4,200, to subscribe to basic internet.

However, the ITU estimates that getting a broadband connection in the Philippines requires 11.26 percent of GNI per capita, or $432.04 annually. This ranks as the third highest in Southeast Asia next to Myanmar’s 15.33 percent and Cambodia’s 11.61 percent.

Meanwhile, mobile internet in the Philippines costs 1.98 percent of per capita GNI, or $75.97 a year, nearly crossing the ITU’s affordability threshold.

Industry experts and players blame the lack of energy sources in the Philippines for the high cost of connectivity services, as power accounts for up to 40 percent of telco expenses and as much as 90 percent of network spending.

Opensignal principal analyst Sam Fenwick said that since fuel is imported abroad, telcos contend with electricity prices dictated by market conditions overseas.

“Energy accounts for a high percentage of mobile operators’ operating costs, [and] this matters a great deal in the Philippines, given its high electricity prices and status as a net energy importer. As a lot of fuel has to be imported abroad, energy costs are affected by the purchasing power of the peso relative to other currencies,” Fenwick told the STAR.

In an analysis, the Groupe Speciale Mobile Association said telcos consumed an average of 0.17 kilowatt per hour for every gigabyte of data they provided in 2022. Although the efficiency improved from 0.24 kWh per GB in 2021, this remains particularly painful for the Philippines.

Globe Telecom Inc. vice president for brand management Raymond Policarpio pointed out that the Philippines maintains the second highest industrial power rates in Southeast Asia at $0.12 per kWh compared to Indonesia and Thailand’s $0.10/kWh and Malaysia’s $0.05/kWh.

“Such high electricity prices put pressure on operating costs not just for telcos, but across many Philippine businesses,” Policarpio told the STAR.

Telcos also shoulder nearly all of the network infrastructure required to connect Filipinos to the internet, with Globe spending at least P255 billion for capital expenditures from 2020 to 2022.

Apart from this, Opensignal and Globe both agreed that the Philippines suffers from topographic disadvantages unlike its landlocked neighbors in the region. The country being an archipelago is said to be one of the reasons that close to 12 million families have no access to the internet.

Latest government data showed that of the 26.37 million families in the Philippines, 56.1 percent of them, or 14.79 million, have an internet connection. As expected, Metro Manila registered the highest internet penetration at 74.6 percent.

However, the situation differs in Mindanao where internet penetration stood below 50 percent in all regions, with Zamboanga Peninsula having the worst rate nationwide at 28.5 percent.

“In addition, the Philippines’ status as an archipelago makes it more difficult and more costly to roll out networks that would otherwise be the case,” Fenwick said.

Policarpio agreed with Fenwick on this assessment, saying connectivity prices are affected by the cost of bringing an infrastructure to a location.

“Another factor to our high operating costs is the Philippines’ geography. Being an archipelagic country with varying topographical features, the cost to roll out services are higher compared to other countries,” Policarpo said.

Worse, some islands are too challenging to reach that it requires satellite connection, such as the one offered by Starlink, to bring internet access to their communities. Starlink deploys low earth orbit (LEO) satellites that hover close to the planet to beam internet onto the ground.

Owned by the world’s richest man Elon Musk, Starlink offers broadband from space for $99 per month, but the equipment has to be bought at $599 each.

When computed, a Filipino subscribing to Starlink has to invest $1,787, or over P99,000, on the first year of availing the LEO-based service.

Although Starlink provides uninterrupted service with its LEO satellites flying around the globe, its product is priced way above the affordability target that ITU has set.

With this, the question remains: How can internet prices in the Philippines be made affordable at a time when almost everything is going digital? Or are Filipinos doomed to forever pay one of the most expensive connectivity costs in Southeast Asia?

Experts insist that internet rates can be cut to a level affordable to everyone. However, they said it will demand a combination of legislative work and private investments, and missing just one of them would mean no change at all for consumers.

To be concluded