Software exec: ‘Real’ competition among telcos can fix PHL’s slow, pricey Internet

Neither geography nor poverty is to blame for the Philippines' expensive yet slow Internet connections, but the lack of "real" competition in the local telcommunications business, a software executive said on Friday.

Restrictive rules in applying for licensing to interested Internet Service Providers (ISPs) and lack of regulation in pricing backhaul use have halted the development of real competition among telcos, said Rhett Jones, CEO of Synacy, a software development house, and Monopond, a wholesale telecom service provider based in Cebu, in a talk during the Philippine Network Operators Group meeting.

This leaves the public with a limited list of telcos to subscribe to.

"Competition gives people options. At the moment [...] people don't have a lot of great options," he said.

In the Philippines there are two major ISPs – Globe Telecom, with around 32 percent of the market share; and PLDT, whose market share of about 68 percent makes it the largest telco in the country. 

But there are numerous other ISPs who account for a minuscule percentage of the market. Some are members of the Philippine Open Internet Exchange.

The solution to better and faster Internet in the Philippines is to create a landscape that encourages competition by approving more telcos and by regulating key aspects of the industry such as bandwidth wholesale pricing, said Jones.

“It's either you fix the conditions to allow competition to thrive or you accept that that is just the way it is here. I think it's just one or the other. Create a condition where competition will thrive or you accept that you will be the top bottom 10 percent of the world,” he said.

Telco licensing

The first obstacle to creating a landscape for healthy competition, according to Jones, is the stringent requirements imposed by NTC to aspiring telco owners.

He compared the procedure in the Philippines to that in Australia when applying for a license to establish a telecommunications provider. He learned this difference when he tried to apply for a telco license in the Philippines.

“It turns out I'm not welcome,” quipped Jones, an Australian.

When a Filipino citizen decides to establish a telco locally, he or she would need an act of congress to establish a franchise, which would then need to be activated by the National Telecommunications Commission (NTC). This process can last around four and a half years or longer, he said.

It's almost like "an act of God," commented Winthrop Yu of Internet Society (ISOC) Philippines and convenor of the PhNOG meeting.

Moreover, existing telco companies like PLDT and Globe can protest your application.

In Australia, any company can become a telecommunications provider regardless of ownership, Jones said in his presentation. No special acts of congress are required, and nobody can prevent or protest one's application, he added.

"[In Australia], when you apply for a license, no other telco can complain about it. Obviously here [in the Philippines], when you apply, all the competition can weigh in and say 'No, this guy can't have a license.' Of course [they would], they don't want competition," he explained.

"In Australia, for example, if you break the rules and you're an Internet Service Provider, they might suspend your license," he added. The processing of one's application in Australia only takes 20 business days and US$2,076.

NTC Regulations Director Edgardo Cabarios said that the NTC also wants to foster better competition among telcos; however, it is bound by the Philippine Constitution and by law, specifically under Republic Act 7925 or the Public Telecommunications Policy.

Since Internet connection is considered a “public utility,” foreigners can only own up to 40 percent of an ISP. They cannot own an entire telecommunications company, Cabarios said in a phone interview with GMA News Online on Wednesday.

He stated that under RA 7925, an aspiring internet service provider would need to secure a franchise from the Congress in applying for a license to establish a telco. Part of the judicial process is to invite stakeholders, including already existing telcos, in meetings during the procurement of a congressional franchise. Also part of the judicial process is the stakeholders' right to oppose, Cabarios explained.

Fundamental problem in wholesale landscape

Cabarios also said that big telcos that own major fiber optic cables tend to charge more than dependent smaller ISPs that are also using fiber optic cables.

For instance, to buy 1 Gbps of bandwidth from a major telco in Manila, you have to pay $25 to $45 per mbps. In Cebu, a wholesale buyer would have to pay $70 per mbps. These rates are much more expensive than those of the United States (35 cents to $2 per mbps), Hong Kong ($5 per mbps), and Australia and New Zealand ($6 per mbps), Jones said.

What these big companies do is that they charge small dependent companies more in order to maximize their profits and give them a more difficult time.

“A cable from Manila to Cebu might be in the range of $5 million. But what's the capacity of that cable actually? If you think about it, it's very high. Theoretically, it could be three terabytes per second. But if I want to buy from that backhaul, they will want to charge a [fee] that will make [business] very difficult [for dependent ISPs],” he explained.

Under Section 18 of RA 7925, which deals with interconnection charges (wholesale prices), it is stated that interconnecting carriers (both major telcos and smaller purchasing ISPs) shall negotiate and agree with each other and submit the agreement to the NTC.

"Hindi categorically stated sa batas na subject to our approval ang agreement. [Pero] pag di sila nagkaintindihan, we can intervene. Pero kasi most of the time they agree," Cabarios said in a phone interview with GMA News Online on Wednesday.

"Walang magawa yung maliliit. Big players impose the price. Yung mga may market power ka, ikaw nagdidictate ng price," he added.

However, the NTC recognizes the fact that this is one of the reasons why the price of Internet in the Philippines is high.

"Puwede siguro kami magset ng maximum prices, pero pinag-aaralan pa namin ang batas. [Titingnan namin] kung puwede naming [gawin iyon]," he said.

Healthy competition, price regulation

“We have to understand that all over the world where they don't regulate telcos, people are getting screwed. They get crappy service. If there's no regulation in key aspects, like backhaul, or making it easy to become a telco, it leads to a situation that we have right now,” Jones said.

For instance, Australia's Northern Territory government back in 2008 complained about the near-monopoly of Telstra, one of the telecommunication companies in their country. They claimed that Telstra charged “three to five times more for some communication services” because of the lack of telco competition in their area.

“If you want to encourage competition, you kind of want to regulate certain access backhauls, what the pricing is, what can reasonably be extracted from some of my backhaul. Anywhere in the world, if you don't regulate that, telcos will charge as much as they want, and they'll do it in a way to prevent competition, not to represent the real cost of their network. And that's the same globally,” Jones said.

“The fundamental thing there is we need to understand that if you don't allow for there to be more telcos easily, and you don't regulate the backhaul, you're going to have the same ongoing problem,” he added. — BM, GMA News