A study by the National Economic and Development Authority (NEDA) has raised the need for a comprehensive telecommunications sector overhaul to address the negative effects of costly and slow Internet connectivity on the country's digital economy.

In a policy note, the NEDA revealed that the digital economy's share of the country's gross domestic product (GDP) has dwindled to single digits over the past five years, from 10.1 percent in 2018 to 9.4 percent in 2022.

This declining trend runs counter to the expanding economic impact of digital businesses and related services in country, which posted a seven percent increase in gross value added (GVA) from P1.84 trillion to P2.08 trillion during the same period.

“This decline [in GDP share] indicates there is substantial untapped potential in the digital economy,” the NEDA said.

The agency said the anemic growth was primarily attributed to the high costs of Internet services, slower speeds, and limited coverage provided by a few major players in the telecommunications sector.

The NEDA said these systemic challenges are driven by market barriers such as franchise and licensing restrictions, interconnection and access rules, infrastructure limitations, and unclear, fragmented policies on spectrum management.

The agency said that the current legislative franchise requirement for telecommunications service providers represents a significant obstacle to market entry, impeding innovation and competition.

“By removing this requirement and transitioning to a general authorization regime, the sector can attract more investment and encourage new entrants,” the NEDA said.

“This move, in line with global best practices, is expected to stimulate growth and development in the telecommunications industry,” the agency added.

The NEDA further noted that the dominance of Globe Telecom and Smart Communications has resulted in an uneven playing field, particularly disadvantaging independent internet service providers (ISPs) and smaller industry players.

The NEDA called for the National Telecommunications Commission (NTC) to strengthen its regulatory oversight and enhance transparency in interconnection processes among industry players, to promote fair competition and a level playing field.

“Empowering the NTC to impose fair, reasonable, and non-discriminatory access obligations on operators with Significant Market Power (SMP) will help create a more balanced market, encouraging competition and improving service quality,” the NEDA said.

Furthermore, the agency underscored the necessity of infrastructure sharing among service providers, citing it as a fundamental aspect of open access policies.

“This approach, which aligns with international practices, can lead to more efficient use of network resources, reduce costs, and facilitate the entry of new players,” the agency said.

Lastly, the NEDA said that the current approach to spectrum management in the country is marked by unclear and fragmented policies, and is inadequately equipped to support the evolving landscape of internet technologies.

“Proposed reforms include revising spectrum user fees, developing a comprehensive spectrum management framework, and introducing competitive auctions for spectrum allocation,” the NNEDA said.

“These changes aim to promote a more equitable distribution of spectrum, encourage the adoption of new technologies, and enhance transparency in spectrum management,” it concluded.