Meeting with DICT Acting Secretary Eliseo M. Rio Department of Information and Communications Technology

January 11, 2018 Joint Foreign Chambers Meeting Reports

L-R: Usec. Dennis Villaforte, Florian Gottein, John Forbes, Sec. Rio, Atty. Mimi Malvar, Nobuo Fujii, Hoik Lee, and Donald Felbaum

Attendees:

  1. John D. Forbes, Senior Adviser, AmCham-TAPP
  2. Florian Gottein, Executive Director, ECCP
  3. Nobuo Fujii, Vice President, JCCIPI
  4. Hoik Lee, President, KCCP
  5. Atty. Mimi Lopez Malvar, Director, PAMURI
  6. Donald Felbaum, Chairman, AmCham ICT committee
  7. Eliseo M. Rio, Secretary, DICT
  8. Monchito Ibrahim, Undersecretary, DICT
  9. Denis Villaforte, Undersecretary, DICT

Attending Staff:

  1. Bettina Bautista, Advocacy and Research Specialist, AmCham-TAPP

Summary of discussion:

The JFC met with DICT Acting Sec. Eliseo Rio to discuss issues plans and programs of the DICT, the National Broadband Plan, and increasing competition in telecommunications, cybersecurity, and donation of computers from PEZA locators. He arrived late since he came from the joint session of Congress considering the president’s request to extend martial law in Mindanao. While waiting for him, we conversed with Usec. Ibrahim.

Rio explained that the government’s intention to have a third telco involving a foreign partner operating in competition with the present duopoly is not limited to state-owned China Telecom, which has been selected by the PRC in response to an invitation from President Duterte.

I. Plans and Programs of DICT

Rio opened the meeting by underlining President Duterte instructions to DICT to implement policies to increase internet speed while keeping costs low and also to improve e-governance to reduce citizens lining up to conduct business at government offices. He noted these were directives of the president during the 1st and 2nd SONAs.

Besides improving broadband in the country the DICT is focusing on programs such as the Technology for Education, Employment, Entrepreneurs, and Economic Development (Tech4ED), a national digital inclusion initiative establishing eCenters that provide e-government and ICTenabled services in communities with minimal or no access to information and government services. Tech4Ed is a DICT initiative to expand ICT to rural areas.

Another development Rio discussed is a high-speed information highway that the government wants to put in place to improve the speed, affordability, and accessibility of broadband internet across the country, involving BCDA and Facebook. Under the agreement, BCDA will bid out the infrastructure across Central Luzon that connects the two cable landing stations to be built by BCDA in 2019 at Poro Point, La Union and Baler, Aurora, where the “loop” of the trans-Pacific cable of the Facebook consortium will connect. The landing stations will be government-owned and the new fiber line will have capacity for a speed of 2tbps. According to Rio, the reason why Facebook was interested in the deal is because the company is currently installing submarine cables starting from Los Angeles to other parts of the world. Facebook did not want the cables to pass through the Luzon straight due to many earthquake movements in the area which can damage the cables and affect service.

Sec. Rio stated that the project will cost the government Php 975 million, but the investment can be recovered in a year and will continue to yield revenue. The DICT will also be spending around Php 100 million for the next 25 years on the project. Rio said that the government plans to do more projects similar to the Facebook deal to improve connectivity in rural areas. However, Rio emphasized that there are four components needed in laying out such telecommunications infrastructure. First, is the international cable connection, which is what Facebook will provide at Poro Point, La Union and Baler, Aurora. The GPH will pay for and operate the two gateway landing stations. BCDA will bid out the 250 land-based cable connecting the two gateways.

II. National Broadband Plan

Pursuant to the goals of the National Broadband Plan of the DICT, Rio said DICT is finalizing a MOA with the PRC-operated concessionaire National Grid Corp. of the Philippines (which operates the transmission lines) and the GPH-owned National Transmission Corp. (which owns the transmission network) for use of the fiber optic cable along the network to serve as the main backbone for the Domestic Wideband Information Network to deliver services in unserved remote areas, especially in Mindanao. The fiber optic cable will serve as the second component of telecom infrastructure which is the backbone. Forbes raised a question asking how the fiber optic cables will reach underserved areas, especially Mindanao. Rio responded by discussing that although the fiber optic cables will reach Mindanao, the problem is how the spectrum will be brought to farther regional areas or provinces within Mindanao, which is where the middle mile infrastructure is needed. According to Usec. Villaforte the DICT is currently undertaking initiatives to extend the fiber optic cables (with permission from the ERC) to Samar and Leyte and further south areas to northern Mindanao. This project will be completed in 3-5 years.

They are planning to extend the network, if needed, from Southern Luzon to Northern Samar and Southern Cebu to Northern Mindanao at an estimated cost of around 1.7 billion pesos. The 2018 DICT budget has funds to do the feasibility studies for these network extensions and will ask for full funding in 2019.

Another major project under the National Broadband Plan is the Free Wifi initiative being rolled out by DICT which will result in free wifi for public areas around the Philippines. MRT stations along EDSA already have free wifi, but the project plans as many as 100,000 wifi spots, mostly in provincial areas.

A satellite telecommunication service is also being encouraged through a consortium that will broadcast to surface VSAT receivers. He added that the Philippines has two orbital slots.

III. Increasing competition in telecommunications

Usec. Ibrahim chaired the meeting before Rio arrived from a joint session at the House of Representatives on the extension of martial law in Mindanao. He explained that at a regional conference in Cambodia in early December Rio held a bilateral meeting with his PRC counterpart. The agenda included the invitation of President Duterte to PRC Premier Li, when they met during the ASEAN Summit in mid-November, for a PRC telecommunications firm to invest in the Philippines as the third provider. The PRC minister told Rio that China is interested but only under the condition of having 100% ownership.

Rio added more details from his early December meeting with his PRC counterpart. The PRC informed the GPH that China Telecom will be the PRC company to invest in the Philippines. Rio told the PRC officials that current Philippine law limits foreign ownership in telecommunications projects to 40%Given the current foreign equity restrictions in Philippine law, Rio elaborated that the GPH plans to build a consortium of Filipino companies who will partner with a foreign investor(s) and enter the local market as a third provider. He hinted that foreign investors can exceed the 40% limit using workarounds, as the duopoly has done, and subsequently acquire direct majority control after enactment of the PSA and/or amendment of the constitutional restrictions.

Rio assured the JFC that China Telecom is not in any way an “official” third player, The GPH will allow the private sector (the Filipino companies) who will join the consortium to choose their foreign partner. Under this selection process,, the private sector should pick the foreign company that is the most “robust financially and tech-wise” and is competent enough to compete with Globe and PLDT. The winning consortium will be awarded the remaining spectrum owned by the government, which, when combined with that of the several small telcos amounts to around 22% while 70% of the spectrum are with Globe and PLDT. Felbaum inquired about franchising for foreign companies willing to enter the consortium. According to Sec. Rio, no new franchises will be needed as the current franchises which Filipino companies have will be valid.

Felbaum further inquired as to why the president invited PRC to enter the market in the first place. Rio replied (and asked that he NOT be quoted) the reason for the invitation is to make other countries and their firms “jealous” as a strategy to encourage them to consider competing in the competition to be the third telco in the Philippines.

Rio hopes amendments to the Public Services Act will be passed so that foreign investors in telecommunications can enter legally at up to 100% equity. However, he agreed with Mr. Forbes that the legislation might be challenged at the Supreme Court and delay the entry of a third provider. Sec. Rio is also confident that the administration will uphold its “political will”. Mr. Lee also inquired if the GPH is open to players like Korean telco companies and was assured that it is. An interested Korean firm could consider joining the investor consortium.

IV. Cybersecurity

Pertaining to cybersecurity, Rio explained the main goal of the department is to improve effectiveness. DICT is receiving some G to G assistance from friendly countries such as Israel, and the US). The DICT is planning to outsource its cybersecurity initiatives to a cybersecurity organization. Although Sec. Rio did not reveal the organization, he is hopeful that the DICT will come up with terms of reference within the first quarter of 2018.

V. Donation of computers by PEZA locators

Mr. Forbes raised the difficulty companies in IPAs have to donate computers and equipment to public schools since they are asked to pay VAT and tariffs based on the original import value and not the depreciated value after several years of use. Rio said he recognizes the problem and assured the JFC that th DICT plans to include PEZA locators who want to donate under a program called “PCs for Public Schools” program to exempt them from paying VAT and tariffs.