9.

6
VOLUME

REAPING THE
BENEFITS OF THE
DIGITAL REVOLUTION

OCCASIONAL
PAPER JUNE 2016
 OCCASIONAL PAPER JUNE 2016

02

REAPING THE
BENEFITS OF THE
DIGITAL
REVOLUTION
DIGITAL TECHNOLOGY
creates opportunities to accelerate growth. It allows firms to compete more intensively
and effectively, allows businesses to become productive, enables people to find more
opportunities, and deliver better public services for the government

Years ago the Philippines was dubbed the
texting capital of the world, now it has earned a
new distinction: the “selfie capital” of the world.
According to statistics1, every single Filipino owns at
least one cellphone, undoubtedly each with its own
front facing camera just waiting to capture
that next self-portrait. It should then come as no
surprise where all those selfies end up: 94% of
Filipino internet users are on Facebook, where
they spend more hours a day than any other
populace2 on the globe does.
But while digital technologies both here and around
the world have allowed people to share
pictures of their food with friends and followers,
but the true benefits of these digital
technologies remain wanting.
Digital technologies allow businesses to become
more productive. They enable people to find more
opportunities and governments to deliver better
public services. But according to the World Bank
report, ‘World Development Report 2016: Digital
Dividends,’ the benefits of rapid digital expansion
have been skewed towards the wealthy, skilled,
and influential around the world, who are better

Image Credit: faithandleadership.com

C 2016 ADRiNSTITUTE for Strategic and International Studies. All rights reserved.
* The views and opinions expressed in this Paper are those of the author and do not necessarily reflect those of the Institute.
OCCASIONAL PAPER JUNE 2016

03

positioned to take advantage of the new technologies.

While developing countries, like the Philippines, miss out.
FIGURE 1. The internet remains unavailable, inaccesible, and unaffordable
to a majority of the world’s population
According to the report, a key indicator that may explain
this is how 60 percent of the world’s population --
including 63 million Filipinos -- remains offline even
amid the rapid spread of digital technologies.

The Philippines must bridge the digital divide if it wants to

reap the full benefits of this digital revolution. This paper
seeks to take a closer look at the Philippines’ situation
and put forth policy recommendations for government to
address this digital divide and create the foundation for
long-term inclusive development for all Filipinos.

The Benefits of Digital Technology

Accelerating Growth
Digital technology creates opportunities to accelerate
growth. It allows firms to compete more intensively and
effectively. More specifically, according to the World
Bank, digital technology impacts economic growth
by: (1) promoting the inclusion of firms in the world
economy by enabling more firms to trade new products
to new destinations; (2) raising efficiency by allowing
firms to make better use of their capital and labor, and
(3) enhancing innovation by enabling firms to exploit

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OCCASIONAL PAPER JUNE 2016

04
economies of scale through online platforms and services. “These three mechanisms thus boost growth by
expanding trade, increasing capital and labor utilization, and intensifying competition,” the report said.

The contribution of digital technology to economic growth is attested by several studies. For example, one study3 found that in low-income
and middle-income countries each 10 percent increase in broadband penetration translated into a 1.38-percentage point increase in GDP.
In another study, which likewise looked into the extensive benefits of broadband for emerging markets, it estimated that a 10-percent
increase in broadband household penetration delivers a boost to a country’s GDP ranging from 0.1 percent to 1.4 percent.4

Source:WEARESOCIAL

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OCCASIONAL PAPER JUNE 2016
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When it comes to internet penetration and its speed and quality, the
Philippines has much room for improvement. With a population
of 101 million, there are 119 million mobile phone subscriptions, but
only 47.13 Million, or 46%, are active internet users.
The Philippine Government, through the Department of Science and
Technology, has launched a project that will provide free WiFi Internet
access to various public spaces in the country and help bring Internet
Source:ASEAN DNA
C 2016 ADRiNSTITUTE for Strategic and International Studies. All rights reserved.
connection to even more Filipinos. According to the Department,
the project will cover public plazas and parks, public primary and
secondary central schools, public libraries, rural health units &
government hospitals, state universities & colleges, train stations
of the MRT and LRT systems, airports and seaports, city and
municipal halls, and national government offices. While free, users
are provided with mere 256 kpbs of capacity. This dire situation
calls for immediate solutions to improve internet speed.
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OCCASIONAL PAPER JUNE 2016

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In 2015, the Philippine Senate launched an

investigation into the poor quality of internet
in the Philippines after an infographic
circulated on social media showing that the
Philippines had the slowest internet speed
in the whole Association of Southeast Asian
Nations (ASEAN) region, at 3.6 Mbps
(while Singapore led at 61 Mbps).

That same year, Internet metrics provider

Ookla’s household download index
revealed that the Philippines is at the
bottom of the pack in terms of internet
speed in the whole of Asia. Only one Asian
country, war-torn Afghanistan, had slower
speeds compared to the Philippines.

The index also showed that the country
had one of the highest cost per Mbps in
the world, with Filipinos paying a bit over
18 USD per Mbps, compared to an
average of 5.21 USD worldwide.5
Without its own national broadband
network, the Philippines relies on
private telecommunication companies
to continue to improve and expand its
network infrastructure by building cell
sites and expanding internet penetration.
If the number of cell sites alone was an
indication of internet penetration, the
number of unique physical cell sites in the
Philippines is one of the lowest in Asia with
a combined 15,000 cell sites. China has
the highest number with 1.18 million cell
sites, followed by India with 450,000 and
Indonesia with 76,477 cell sites. Countries
such as Vietnam and Malaysia who have
land areas similar to that of the Philippines
have 55,000 and 22,000 respectively.6
Source: TOWER EXCHANGE
In addition to the challenges posed by
the Philippines’ archipelagic geography,
expanding connectivity throughout the
country is also bogged down by red tape
when telecommunications companies
deal with the different local government
units (LGUs). During the same Senate
hearing, industry resource speakers said
that anywhere from 10 to 25 permits are
required by some LGUs before a cell site
is cleared for construction. These permits
include getting consent from neighboring
residents, barangay resolutions, a
certificate of non-coverage, environmental
clearance, zoning clearance, as well as
clearances from the National Commission
on Indigenous Peoples if the proposed cell
site sits on an ancestral domain. In addition
to the lengthy permitting processes,
industry players are also crying foul over

C 2016 ADRiNSTITUTE for Strategic and International Studies. All rights reserved. www.stratbase.com.ph
OCCASIONAL PAPER JUNE 2016
07
the irregular and sometime unreasonable permit and
regulatory fees imposed by some LGUs.7
By addressing these and other roadblocks, the
benefits of the internet and digital technologies
will reach far more Filipinos. By reducing the cost
of acquiring information, more opportunities for
sustained economic growth will open up.
Expanding Opportunities
While it is surely not the only example, the
Business Process Outsourcing (BPO) industry
in the Philippines perhaps best illustrates the
positive effects of digital technology on growth and
expanding opportunities for Filipinos. According
to the Information Technology and Business Process
Association of the Philippines (IBPAP), jobs
created by the BPO surpassed the 1 million mark
in 2014, hitting 1.2 million in 2015 and is
expected to create at least a couple hundred
thousand more new jobs in 2016.8
In terms of revenue, it estimates revenue from the
sector in 2014 to have expanded by 15% year-on-
year to $15.3billion. IBPAP further estimated that
revenue from the sector could reach $25 billion
by 2016 and match the economic contribution of
remittances from Overseas Filipino Workers (OFWs).
According to IBPAP, in addition to the revenue
directly generated by the industry, each
new outsourcing job created is estimated to
generate 2.5 additional jobs in retail, public
transportation and other support services because
BPO workers spend all of their earnings onshore.
C 2016 ADRiNSTITUTE for Strategic and International Studies. All rights reserved.
According to the Arangkada Philippines project,
an advocacy of the Joint Foreign Chamber of
the Philippines, the BPO sector needs a robust
talent supply to sustain its growth. However,
supply continues to pose a formidable challenge
in both quantitative and qualitative terms since the
Philippine educational institutions are not providing
a sufficient number of suitable graduates to meet
the sector’s labor demands. While an adequate
number of graduates produced by higher
educational institutions, many graduates take
courses not directly related or complementary to
outsourcing, requiring companies to invest in
training and retraining of personnel so that
skill sets better match industry needs.
IBPAP estimates that call centers or voice
operations make up two thirds of the Philippine
BPO industry. However, as demands from the global
market evolve, there will be an ever increasing
demand for more non-routine high value-added
services, or Knowledge Process Outsourcing (KPO).
According to the World Bank Report, in 2012 the
average annual compensation for a BPO worker in
the Philippines was US$8,301. On the other hand,
a software developer earns US$17,383, a potential
higher value added in the KPO industry.
There is clearly a benefit for transitioning into such
high value services. India, once the top destination
for outsourced call center operations, has recently
shifted its focus to more lucrative non-voice services
like financial, medical, editorial, and engineering
services. However, if the Philippines wishes to
follow suit, the World Bank said it would require a
concerted effort of the BPO industry, academia, and
government to make systemic improvements across
the IT-BPO ecosystem in the Philippines.
Delivering Services
Digital technologies can strengthen government
capabilities and promote wider citizen participation.
According to the World Bank, many governments
around the globe have invested heavily in digital
technology over the past two decades. These
efforts have made it easier in many countries for
government to deliver frontline services and receive
regular feedback from service users, thus improving
service quality. The report notes, however, that
all too often the successes are isolated—limited
to a few activities, sectors, or locales, with most
e-government investments failing to have any impact
other than wasting scarce fiscal resources. In some
cases, these new technologies have even enhanced
the capacity of unaccountable governments for
surveillance and control over its citizens.
Using the United Nations Public Administration
Network E-government readiness index as
indicator, we can see that the Philippines has
generally failed to maximize digital technologies
to improve government services. The UN
E-government readiness index gives a comparative
ranking of 183 countries based on two primary
indicators: state of e-governance readiness and
extent of e-participation. In 2014, the Philippines
overall E-Government Readiness ranking
plummeted from 45th to 95th place.
www.stratbase.com.ph
OCCASIONAL PAPER JUNE 2016

08
The study “Shared Prosperity: An ICT Manifesto
for the Philippines for 2016 and Beyond,” however,
argues that despite the drop in ranking, there
have nonetheless been recent efforts to tap digital
technologies to improve government services. At
the national level, the Open Budget System of the
Department of Budget and Management (DBM) has
increased budget transparency by providing detailed
and timely information on public sector revenue
collection and allocation. At the local government
level, Valenzuela City successfully set up electronic
terminals, online billing and payment, mobile
payment, and Geographic Information System
(GIS) technologies to improve the local permit
application processes. The GIS implemented by
the City has been credited for increasing
Valenzuela’s local tax revenues by more than
11 times the cost of its initial investment.

While these are examples of successful

e-governance initiatives at the national and local
level, the Philippines needs a ministry level ICT
Department that can sustain the effort to integrate
ICT into services across the government. Currently,
the implementation of ICT programs is spread
across the Department of Science and Technology,
Department of Transport and Communications,
and several other government agencies like the
Department of Education and Department
of Budget and Management.

Now that President Benigno Aquino has signed into

law the creation a Department of Information and
Communications Technology, the country could
finally have a ministry level body to spearhead ICT
Image Credit:businessbecause.com

C 2016 ADRiNSTITUTE for Strategic and International Studies. All rights reserved. www.stratbase.com.ph
OCCASIONAL PAPER may 2016
09
policy direction in the country. Under the new law,
all of the DOTC’s operating units with
communication functions will be transferred to
the DICT, including other related agencies like
the National Computer Center (NCC), National
Telecommunications Training Institute (NTTI),
Information and Communications Technology Office
(ICTO), Telecommunications Office (TELOF)
and the National Computer Institute (NCI).
The law further provides that among the DICT’s
powers and functions include formulating,
recommending and implementing national policies,
C 2016 ADRiNSTITUTE for Strategic and International Studies. All rights reserved.
plans, programs and guidelines that will
promote the development and use of ICT;
formulating policies and initiatives to develop and
promote ICT education; as well as providing an
integrated framework to optimize state
ICT resources and networks.
Before the DICT law was passed, the measure had
languished with the legislative for several years.
It can be recalled that the DICT bill was almost
passed back in 2012 with both Houses of the
15th Congress approving their own versions of the
bill. However, President Aquino, was vocal in his
Image Credit:kumaralok.com
opposition to the creation of the DICT, leading his
allies in both Houses to halt its progress.
Now that it has passed, the DICT law provides a
six-month transition period from effectivity for the
full implementation of the transfer of functions,
personnel and assets. Majority of this transition
would occur during the next administration,
which comes in on June 30th. Appointing the
first set of DICT officials and allocation of needed
resources will be among the most important
tasks of President-elect Rody Duterte.
www.stratbase.com.ph
OCCASIONAL PAPER may 2016
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Recommendations
By connecting people across the globe, digital technologies
are expanding inclusion, raising efficiency, and enhancing
innovation. The positive impact of such technologies, i.e.
the direct effect of internet penetration on a country’s GDP
is proof that governments should give more weight to the
role of ICT in pursuit of national development.
The national government should consider developing a long
term National Broadband Plan. One of the objectives of the
plan should be to determine areas where government itself
must invest in necessary telecommunication infrastructure.
Furthermore, the plan should also factor in how to
encourage the private sector to improve and expand
its network. To do so, the government could consider
removing the barriers currently stymying the growth of
telecommunication infrastructure throughout the country.
To facilitate the expansion of telecommunication networks,
the process for the construction of additional cell sites
should be streamlined, necessary permits and required fees
should be standardized to avoid bureaucratic red tape and
opportunities for corruption. Another route towards this
objective is the passage of an Open Access Law for
the telecommunications industry in Congress.
Lastly, the National Broadband Plan should also consider
Public-Private Partnerships. PPPs have driven network
investment throughout the world. In South Korea, their
fiber-based ultrafast broadband was funded through
a combination of government spending and private
investment and management. The Korea Information
C 2016 ADRiNSTITUTE for Strategic and International Studies. All rights reserved.
Infrastructure Program in partnership with the Broadband
Convergence Network synergized their efforts from 1995
to 2014, with private investment leading during the
initial phase by developing the backbone network that
connected larger cities, and government spending
assuming the lead role during the later phase by
reaching out to the rural areas.
While continuing to develop the necessary technological
infrastructure is key to bridging the digital divide, the other
half of the equation cannot be ignored. Developing the
human component is equally necessary. This means digital
literacy and knowledge driven skills must be developed.
By collaborating with industry and academia, the Philippine
educational system can produce graduates that fit the labor
demands of growing ICT driven sectors. The Philippine
government recently introduced K-12 reforms in the
educational system which aims to harmonize Philippine
education with global standards by lengthening the duration
of the primary and secondary schooling. However, further
reforms to upgrade science, technology, engineering and
mathematics education (STEM) at all levels and increase of
the number of STEM graduates could lead to
future generations of Filipinos who can thrive in
a higher value knowledge driven services.
In terms of improving government services, there has to be
a shift towards openness to technology at an institutional
level. In the age of social media, smart phones and mobile
internet, concepts like cloud computing and big data
are still foreign to many government offices. However,
recent successes such as the Open Budget Initiative of
the DBM at the national level and the GIS technologies in
Valenzuela City at the local level show that embracing digital
technologies are applicable in the Philippine setting.
Now that the DICT law has been passed, the Philippines
has a central government body to champion and
give direction to the ICT policies and practices within
government. The developmental potential of effectively
deploying the most advanced technologies to transform
the government bureaucracy in terms of delivering world-
class public services, information, transparency and even
addressing national security concerns will need
heroic efforts from the new government.
The challenge for the new Secretary of the DICT will not
be the availability of ICT solutions but in the changing the
old mindset of old bureaucrats. DICT will encounter many
policy roadblocks that will need to be updated to adopt to
the streamlining and speed that ICT technologies are ready
to provide. Hence, the strong support of the President
will be crucial in fulfilling the DICT’s mandate.
The new government of President-elect Duterte has an
opportunity to learn from the costly mistakes of past
governments and play a key role in the country’s adoption
and development of ICT. Through partnerships with different
sectors, long term strategic plans and the political will to
implement, the Philippines could slowly bridge the digital
divide and take a step closer towards reaping the full
economic benefits of this digital revolution.
www.stratbase.com.ph
OCCASIONAL PAPER JUNE 2016

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Image Credit:factor-tech.com

endnotes
1
“Digital In 2016 - We Are Social Singapore”.
We Are Social Singapore. N.p., 2016. Web. 10
June 2016.
2
Ibid
3
Kim, Yoongso, Tim Kelly, and Sidhartha
Raja. Building Broadband : Strategies And Policies
For The Developing World. Global Information and
Communication Technologies (GICT) Department
World Bank, 2010. Print.
4
Sören Buttkereit, Luis Enriquez, Ferry Gri-
jpink, Suraj Moraje, Wim Torfs & Tanja Vaheri-
Delmulle, Mobile Broadband for the Masses:
Regulatory Levers to Make It Happen, McKinsey &
Company (Feb. 2009),
5
LIST: Philippines Ranks 21St Of 22 Asian
Countries In Internet Download Speed”. GMA
News Online. N.p., 2016. Web. 10 June 2016.
6
“Telcos To Gov’t: Help Improve Broadband
Service, Enable Industry To Build More Cell Sites”.
www.globe.com.ph. N.p., 2016. Web. 14 June
2016.
7
“Slow Internet? Blame Red Tape – Telcos”.
Rappler. N.p., 2016. Web. 14 June 2016.
8
“BPO Industry Eyeing 225,000 New Jobs In
2016 – DOLE”. Rappler. N.p., 2016. Web. 14 June
2016.

C 2016 ADRiNSTITUTE for Strategic and International Studies. All rights reserved. www.stratbase.com.ph
9.6
VOLUME

ABOUT
Francesco Javier Pangalangan
Is the Information and Communications Technology Fellow of ADRI
and is the Research Manager for Phil. Stratbase Consultancy. He is
one of Stratbase’s experts for Telecommunications, Information
Technology and Power & Energy sectors.

Mr. Pangalangan graduated from the Universirty of the Philippines with

a degree in Public Administartion and is currently pursuing an MA in
Technology Management from the same university.

Stratbase’s Albert Del Rosario Institute

is an independent international and strategic research
organization with the principal goal of addressing the
issues affecting the Philippines and East Asia
9F 6780 Ayala Avenue, Makati City
Philippines 1200
V 8921751
F 8921754
www.stratbase.com.ph

C 2016 ADRiNSTITUTE for Strategic and International Studies. All rights reserved. Image Credit:factor-tech.com