Asean’s digital divide is an obstacle to Singapore’s regional market plan

Frederick Kuo says Singapore’s ambitions for a single digital market in the region will falter if gaps in the internet infrastructure of Asean’s member states are not addressed

Asean

Frederick Kuo

Published: 11:00am, 27 Jan 2018

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Singapore, in taking over the chairmanship of Asean, has big plans for making the region a global hub of technological progress and growth. Singaporean officials have spent the past weeks highlighting innovations such as a single digital market, and expectations are high that the city state will deliver the goods.

For that rosy forecast to come to fruition, though, Singapore and its fellow Association of Southeast Asian Nation members need to overcome the immense obstacles standing between them and a digital future. There are more than just trade barriers in the way; the region faces large gaps in development, human resources and infrastructure.

Singapore’s dreams of an integrated regional market won’t become reality unless Asean can bridge the divide between its haves and have-nots. To help, the Asian Development Bank and World Economic Forum released a road map in 2017 that urges Asean to seize opportunities to increase digital penetration and internet access.

World leaders attend Asean summit opening ceremony in November 2017

The main impediments are stark intra-regional gaps in internet connectivity. Singapore boasts one of world’s fastest internet connections, with average connection speeds of 20.3 megabits per second. The Philippines’ internet service is the slowest and most expensive in Southeast Asia.

While the challenge of linking 7,107 islands into a functional network is partially to blame, the main culprit is a duopoly of Philippine Long Distance Telephone and Globe Telecom. Together, they have barred competitors from entering the market and impeded the planned roll-out of 4G connections.

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Without competition, 4G coverage in the Philippines is only available in limited areas and is overpriced. While in Singapore the cost of internet services relative to gross income per capita stands at 0.2 per cent, the number is as high as 7.5 per cent in the Philippines – even though more than 26 million Filipinos live below the poverty line.

Philippine Long Distance Telephone and Globe Telecom have blocked new players from entering the internet service market. The country has the slowest and most expensive internet services in Southeast Asia. Photo: Reuters

Time is of the essence in fixing these structural issues. In 2015, Asean set forth plans to establish a common market based on the free flow of goods, services, skilled labour and capital through member states. Digitisation forms a central pillar, because the digital economy makes access to information nearly as paramount as access to clean air and water. With its telecoms sector actively hindering foreign investment, Manila is losing out on a chance to alleviate endemic poverty.

In contrast, Thailand announced ambitious plans in May 2017 to bring low-cost broadband access to all of the country’s 70,000 villages this year. To establish a 5G network throughout the country, Thai officials plan to hold a spectrum auction in 2018. Bidders are expected to place a bid guarantee, but spectrum prices will be set low in order to promote fair competition among operators.

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The auction’s design was already successfully tested in previous 4G spectrum auctions, where setting a low benchmark price encouraged bidding. While this increased costs for mobile operators, it also fuelled competition and spurred incentives to build telecoms infrastructure. By adopting the same market-based process of incentivising investments, Thailand’s mobile broadband penetration should increase by 133 per cent by 2020. Subsequent gains in cumulative GDP are expected to reach US$23 billion.

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Other countries in the region have unfortunately struggled to replicate this. Bangladesh, though not an Asean member, is trying to implement a digitisation programme that mirrors Thailand’s but is struggling to emulate its results. Bangladesh’s 4G auction, which came under fire for setting prices exceedingly high, was planned for 2017 but was halted by the Supreme Court. The auction now has the green light to proceed in February, with coverage possibly beginning in March this year.

Information technology outsourcing is booming business in Bangladesh. However, the country’s 4G auction faced setbacks. Photo: AFP

Pricing is a serious issue. Data from countries holding 4G spectrum auctions between 2008 to 2016 shows attempting to extract profits from spectrum pricing actively harms consumer welfare, reducing purchasing power and foreign investment inflows. Simply setting medium prices would have generated US$250 billion in additional purchasing power.

The experiences of Bangladesh and the Philippines aptly demonstrate the importance of a rational, market-based approach to improving internet coverage. Incentivising investments in broadband infrastructure will expand economic opportunity by letting Asean citizens plug into the global digital economy, but Asean leaders need to establish a comprehensive pan-regional plan to make this a reality.

Frederick Kuo is a San Francisco-based writer and broker

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