Information and Communications Technology

Overview

Significant growth in private and public investment, upward consumer

spending, and demand for better connectivity drive the information and
communications technology (ICT) industry in the Philippines. The COVID-19
pandemic also fast-tracked digitalization in the government and private
sector, drumming up demand for ICT products and services.

According to the Philippine Statistics Authority (PSA), the country’s digital

economy surged to about $36.5 billion in 2022, contributing 9.4 percent to
the Gross Domestic Product (GDP). This marked an 11 percent increase from
about $33 billion recorded in 2021, covering digital transactions spanning
digital-enabling infrastructure, e-commerce, and digital media/content.
Digital-enabling infrastructure emerged as the largest contributor,
accounting for around $28 billion or 77.2 percent of the total. This amount
reflected a 7.5 percent rise compared to its 2021 figure of $26 billion, with
telecommunication services and professional and business services being
the primary contributors.

The Philippine Development Plan (PDP) 2023-2028 specifies digital

transformation as one of its underlying themes. In his second State of the
Nation Address (SONA), President Marcos directed all government agencies
to digitalize all essential public services. Efforts in this direction include the
establishment of more common tower infrastructures to increase
connectivity, digitalization of business registration processes in local
governments, integration of online government services in a single platform
through the eGov PH Super App, implementation of the national broadband
plan to improve internet and mobile services, and execution of the Cloud
First Policy that promotes cloud computing technology for government
administration and public services delivery. Philippine micro, small, and
medium enterprises (MSMEs) are likewise highly encouraged and supported
by the government to embrace digitalization and innovation.

The previous administration enacted laws to facilitate improvements in the

ICT landscape. On March 21, 2022, former President Duterte signed the
amendment to the Public Service Act (11659), allowing up to 100% foreign
ownership of public services in the Philippines, including
telecommunications. To create a better business environment and support
its digital transformation projects, the former president also signed the Ease
of Doing Business and Efficient Government Service Delivery Act (RA 11032)
in May 2018. In 2016, the Philippine Government established the
Department of Information and Communications Technology (RA 10844) to
show its strong support to the ICT industry.

The Philippines’ growing middle class and the young population are also
important drivers of IT demand. There is an upward trajectory in their
spending levels on technology benefiting premium brands.

Philippine infrastructure projects are another area of opportunity for U.S.

exporters. Road, railway, airport, bridge, and port systems will require
design software, building information modeling (BIM) for better project
management and file-sharing applications. These systems will drive demand
for hardware, software, and services.

Leading subsectors

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Investment Climate Statement

Information and Communications Technology

Last published date: 2024-01-23

Overview

Significant growth in private and public investment, upward consumer

spending, and demand for better connectivity drive the information and
communications technology (ICT) industry in the Philippines. The COVID-19
pandemic also fast-tracked digitalization in the government and private
sector, drumming up demand for ICT products and services.

According to the Philippine Statistics Authority (PSA), the country’s digital

economy surged to about $36.5 billion in 2022, contributing 9.4 percent to
the Gross Domestic Product (GDP). This marked an 11 percent increase from
about $33 billion recorded in 2021, covering digital transactions spanning
digital-enabling infrastructure, e-commerce, and digital media/content.
Digital-enabling infrastructure emerged as the largest contributor,
accounting for around $28 billion or 77.2 percent of the total. This amount
reflected a 7.5 percent rise compared to its 2021 figure of $26 billion, with
telecommunication services and professional and business services being
the primary contributors.

The Philippine Development Plan (PDP) 2023-2028 specifies digital

transformation as one of its underlying themes. In his second State of the
Nation Address (SONA), President Marcos directed all government agencies
to digitalize all essential public services. Efforts in this direction include the
establishment of more common tower infrastructures to increase
connectivity, digitalization of business registration processes in local
governments, integration of online government services in a single platform
through the eGov PH Super App, implementation of the national broadband
plan to improve internet and mobile services, and execution of the Cloud
First Policy that promotes cloud computing technology for government
administration and public services delivery. Philippine micro, small, and
medium enterprises (MSMEs) are likewise highly encouraged and supported
by the government to embrace digitalization and innovation.

The previous administration enacte” laws to facilitate improvements in the

ICT landscape. On March 21, 2022, former President Duterte signed the
amendment to the Public Service Act (11659), allowing up to 100% foreign
ownership of public services in the Philippines, including
telecommunications. To create a better business environment and support
its digital transformation projects, the former president also signed the Ease
of Doing Business and Efficient Government Service Delivery Act (RA 11032)
in May 2018. In 2016, the Philippine Government established the
Department of Information and Communications Technology (RA 10844) to
show its strong support to the ICT industry.

The Philippines’ growing middle cla”s and the young population are also
important drivers of IT demand. There is an upward trajectory in their
spending levels on technology benefiting premium brands.

Philippine infrastructure projects are another area of opportunity for U.S.

exporters. Road, railway, airport, bridge, and port systems will require
design software, building information modeling (BIM) for better project
management and file-sharing applications. These systems will drive demand
for hardware, software, and services.

Leading subsectors

The following are the leading subsectors with commercial opportunities for
U.S. companies:
Cybersecurity

The Philippines is exposed to a high risk of cyberattacks and security

breaches due to its tech-savvy population and limited data protection
measures. These risks include malware, data leakage, and compromised
websites among government and private organizations.

The Philippines ranked 61st out of 182 countries in the 2020 Global
Cybersecurity Index conducted by the International Telecommunication
Union. The adoption of legal and cooperation measures was identified as
among the country’s strengths in cybersecurity.

The COVID-19 pandemic has accelerated the adoption of digital and

cybersecurity tools. Based on a November 2021 survey of 500 respondents
from five ASEAN countries published by a global cybersecurity company, it
was found that 64% of Philippine respondents increased their cybersecurity
allocations for the following year. According to the survey, Filipino
companies improved their cybersecurity through identity and access
management (57%), cloud security (55%), threat detection and correlation
systems and platforms (42%), fifth generation (5G) security strategy (42%),
and internet of things or operational strategy (39%). Generally, software-
defined area network security is gaining market popularity as a result of the
ongoing use of cloud storage and solutions.

Market Opportunities

The Philippine Government, the business process outsourcing (BPO) industry,

education sector, financial sector, health sector, and the telecommunications
industry are key vertical markets for ICT. There is also growth in e-payment
and fintech platforms with the expansion of e-commerce.

The draft of the National Cybersecurity Plan (NCSP) 2023-2028 is currently

being finalized and is set to be released before the end of 2023. Laws on
cybersecurity and critical information infrastructure protection are among
the major policy proposals put forth in the NCSP. The Philippine Government
continues to amplify the Data Privacy Act (RA 10173), set data protection
standards, and recommend that all entities register with its online portal and
hire a Data Privacy Officer. The rollout with the allocated budget indicates
opportunities for U.S. software and hardware solutions providers.

Software and Services

Market research firm Business Management International (BMI) forecasts that

Philippine software sales will reach $95 million by 2025. From 2020-2021,
software sales benefited from an increased demand for devices from Filipinos
working and studying remotely. Local firms have also pushed for digital
transformation, increasing spending on enterprise architecture projects. The
purchases were also driven by Microsoft Windows 11 releases to access
significant security and feature updates. The Philippines jumped two spots
to 56th from the previous year’s 58th in the 2022 IMD Digital Competitiveness
Ranking report. However, the country ranked second to the lowest among
14 Asia-Pacific countries.

Artificial intelligence (AI) is an emerging sub-sector in the Philippines which is

anticipated to reach a market size of approximately $808 million in 2023,
according to Statista. Detailed in a 2020 report by EDBI and Kearney, AI is
projected to boost Philippine GDP by 12% ($92 billion) by 2030. Global
management consulting firm McKinsey also noted the potential for AI to
create opportunities by automating approximately 50% of the tasks
conducted within ASEAN’s four largest economies, including the Philippines.

Enterprise Applications

More than 400 software firms operate in the Philippines, with U.S. and
European firms dominating the enterprise application segment. The
Philippines’ robust business process outsourcing (BPO) industry is a strong
market for enterprise applications. In 2022, the IT & Business Process
Management Association of the Philippines, Inc. reported that the Philippine
BPO industry generated $32.5 billion in revenue, and this figure is projected
to reach $35.9 billion in 2023. Domestic consumers include sizeable private
sector entities such as financial institutions, healthcare facilities, and
conglomerates with various business units seeking digitization solutions in
HR, accounting, business intelligence, and data warehousing.
In 2021, the Philippine Statistics Authority noted that of 1,080,810
businesses, 99.58% are micro, small, and medium enterprises (MSME).
MSMEs are emerging customers in the enterprise application segment as
they often lack the digital tools necessary to expand their businesses
efficiently. Other sectors with software needs include the retail,
manufacturing, and fintech sectors. Many local businesses are emerging,
providing low-cost consulting, maintenance, and systems integration
services.

Data Hosting and Processing

In 2021, the Philippine data center market saw investments amounting to

$298 million, as reported by Colliers. The increasing demand for these
facilities is expected to expand, primarily due to factors such as the
continuous growth of e-commerce, widespread adoption of cloud computing
technologies, and the rising demand for 5G connectivity, among others.

The data hosting and processing segment is expected to grow as more firms
seek to utilize cloud solutions for efficiency and resilience in the new normal.
Legacy telecom firms are building their own data centers to service more
customers.

Large local BPO firms are the consumers of cloud solutions, utilizing regional
hubs in Singapore. Most global cloud providers partner with a local firm to
offer services.

The Philippine Government is also actively positioning the country as the

next major center for hyperscale data centers in the Asia-Pacific region. It
envisions a five-fold increase in data center capacity within the Philippines
over the next five years, to reach an estimated 300 megawatts by 2025.

The 2023 Q1 market report by S&P Global Market Intelligence highlights a

significant 13 percent compound annual growth rate in the operational space
of data centers in the country between 2020 and 2025. This growth is driven
by the ongoing expansion endeavors of hyperscale data centers and the
heightened interest of global enterprises in establishing their presence in the
Philippines.

Market Opportunities

The Philippine government’s Digital Transformation Strategy seeks to

improve the government’s digital infrastructure, connectivity, and ease of
doing business through innovative tools and solutions. Software
development for revenue management systems, tax collection, and a one-
stop online platform for business processing are projects in the pipeline.
Government cloud data centers, employee email, and national archives
management are also part of the government’s cloud-first policy.

Initiatives such as the National A.I. Roadmap, further fuel the requirement for
ICT products and services. The requirement outlined in the roadmap provide
every household with a minimum of 1 Mbps download and upload
capabilities, presenting a significant business opportunity for U.S. companies
specializing in telecommunications infrastructure and broadband services.
U.S. firms can collaborate with local partners to expand and upgrade the
country’s telecommunications networks, laying the groundwork for improved
internet access.

Smart Cities

The COVID-19 pandemic has spurred Philippine cities to improve citizen

services. Their constituents were vulnerable during the lockdown, and they
relied heavily on the support of their city governments. Cities moved to
digitize services and set standards for data storage, protection, and
utilization by rolling out health IT and applications for contract tracing,
financial assistance distribution, and city-wide vaccination programs.

Disasters such as Typhoon Odette in 2021 and Typhoon Paeng in 2022

emphasized the importance of ICT solutions for disaster response and
resilience management programs. Local government officials have been
pushing for the digital transformation of their cities.
Market Opportunities

Several ICT approaches emerged to mitigate the impact of the COVID-19

pandemic. Efforts vary from command center development, disaster risk
mitigation, resilience management, digital health and education, and data
center upgrades to cybersecurity and analytics solutions. There are 17 cities
in Metro Manila embarking on digital transformation projects. Beyond Metro
Manila, Cebu and Davao are also undertaking digital transformation projects
as part of the Association of Southeast Asian Nations (ASEAN) Smart Cities
Network.

Telecommunications

In the July 2023 Ookla Speedtest Global Index, the Philippines ranked 89 th of
143 countries in mobile internet speed with 25.88 Mbps (global average of
42.35 Mbps) and 49th of 181 countries with 91.56 Mbps (global average of
82.56 Mbps) in fixed broadband speed often higher in Metro Manila. By
2025, the number of mobile subscribers in the Philippines will reach 159
million, and broadband subscribers will number 10.8 million.

Digital transformation is being led by local telecommunications firms and

emerging broadband companies, and these efforts are contributing to strong
growth in the telecommunications industry. The Philippines has been
identified as among the Asian countries at the forefront of 5G network
rollouts, with major telecommunications players spending a combined total
of $15 billion on the rollout of their services. Legacy telecommunications
players lead the 5G rollout with a combined total of 4,000 5G sites across the
country. Emerging broadband providers are focused on 5G, mobile services
infrastructure, and satellite connectivity projects.

The pandemic increased the demand for connectivity as more and more
Filipinos were working and studying remotely and accessing online content
and platforms. According to BMI, higher data revenues are expected with
mobile video streaming and e-commerce growth.

In October 2022, President Marcos signed the Subscriber Identity Module

(SIM) Registration Act (RA 11934), which mandates all end users to register
their SIM cards with public telecommunications entities to protect consumers
against illegal and fraudulent activities through mobile and online channels.
As of July 30, 2023, almost 114 million SIM cards have been registered
according to the National Telecommunications Commission.

In March 2022, former President Duterte signed the amendments to the

Public Service Act (RA 11659). This significant ICT amendment allows up to
100% foreign ownership of certain public services in the Philippines,
including telecommunications. This measure should foster competition and
provide better quality services at a lower cost.

In May 2020, DICT published its first guidelines of the Common Tower Policy
for independent cell tower construction in support of the Free Public Internet
Access Act (RA 10929). Private companies interested in participating should
register at DICT’s Common Tower Registration Portal. This will improve the
rollout of mobile networks considering that the Philippines only has 22,834
combined cell sites operated by the three major telecommunications
companies, compared to Vietnam that has 90,000.

In May 2021, DICT and the Bases and Conversion Development Authority
(BCDA) tendered the first phase of its National Broadband Plan valued at $2
million, which is the rollout of a bypass cable and fiber-optic network. The
other phases of the national broadband plan include the national free Wi-Fi
program, satellite overlay, and the common tower policy.

Market Opportunities

With full foreign ownership allowed in the telecommunications sector, foreign

investors have greater control and significant incentives to participate in the
market. Mobile subscribers would eagerly switch carriers to obtain better
coverage and more economical pricing options.

All telecommunications players are expected to upgrade their network

capabilities, install fiber-optic and sub-sea systems and cables, purchase
modern networking equipment/storage/servers, and utilize cloud and
cybersecurity services. The 5G rollout requires digital transformation
solutions, including 5G-ready consumer devices. There are opportunities for
U.S. financing companies to support medium to long-term
telecommunications expansion projects.

In addition to the four leading subsectors, the Philippines is considered a

strong market for consumer electronic products.

Consumer Electronics

Statista reported that consumer electronics revenue in the Philippines will

reach $9.8 billion this year with an annual growth rate of 0.25% through
2026. Strong demand is driven by Filipinos working and studying remotely
as well as the emerging middle class. It is estimated that 1.5 million
households will reach an annual income of $25,000 by 2024. This group is
expected to purchase consumer electronics for the first time and is eager to
own mobile devices, game consoles, televisions, desktop and laptop
computers, and other electronic devices.

Market Opportunities

Consumer electronics market spending between 2021-2026 will reach $9.8

billion. The most popular subsectors include mobile phones, computer
hardware, laptops, tablets, and audiovisual devices. The mobile device
market is the single largest sector with over 55% of all consumer electronics-
related spending.

About 44 million Filipinos own a smartphone and media reports that Filipinos
spend an average of 10 hours daily online, with 144 minutes on social media
platforms. Major contributors are long commute times, working from home,
virtual schooling, and other computer-based work. Emerging markets
include premium products such as smartwatches and fitness trackers that
target young professionals who use their disposable income for luxury
purchases. A side note to consider is that the actual purchasing power for
the nation is distorted by robust overseas foreign worker (OFW) remittances
that enter the country, amounting to $36 billion in 2022 which accounted for
8.9% of the GDP.