In a report published in 2021, the Asian Development Bank (ADB) described the year since the pandemic’s onset as one characterized by hyper-acceleration in the digital economy, spurred forward by the rapid adoption of new technologies made necessary by COVID-19. From a pre-pandemic valuation of over $100 billion, Southeast Asia’s digital economy is only rising, they said—and this is due in large part to the startups innovating across the region. “New business models, technology innovations, novel combinations of digital technologies, and international trade have provided opportunities for startups to introduce new solutions, win market share, and disrupt legacy businesses and industries.”
But this potential to drive the digital economy is largely contingent on one thing: Access to cloud computing infrastructure. “Flexible and easily scalable cloud services greatly enhance the typical innovation journey of startups, which includes prototyping, testing, iterating, and adjusting rapidly to customer needs,” the ADB report reads. “Later-stage scale-ups benefit from the ability to scale rapidly as their user base expands, and to handle peaks in demand.”
With a number of rising homegrown tech companies and increasing attention from investors both local and regional, the Philippines sits on an inflection point. While the government invests heavily in its mandate to build, build, build the roads, bridges, and tunnels meant to carry us into a decade of growth, the cloud-enabled future requires an investment in a different kind of infrastructure. In the words of Back to the Future’s Dr. Emmet Brown, where we’re going, we don’t need roads.
Instead, we need cloud enablers. At least, that’s the model that tech titans like Amazon, Alibaba, and Microsoft are finding massive success in across the APAC region. More specifically, we would need a hyperscaler—a large company that provides cloud, networking, and internet services at scale by offering organizations access to infrastructure on a subscription model, often referred to as IaaS (infrastructure-as-a-service). APAC revenues from cloud infrastructure services reached almost $17 billion in Q4 2021 and are growing at over 40% per year, with public IaaS as the largest segment in the region by far.
Local demand for this type of infrastructure has been largely driven by the financial services sector, followed by the business process outsourcing (BPO) sector. Cellular towers, terrestrial and subsea cables, and data centers form the triumvirate of the nation’s current digital infrastructure. Driven by the many boons a hyperscaler may present to the Philippine’s digital economy, local players are racing to attract these enablers by augmenting the current triumvirate and laying the groundwork for them.
Late last year, ePLDT, the information technology arm of PLDT, announced it would be investing in the nation’s first “world-class ‘hyperscaler’ data center facility”. While details on the facilities themselves were light, this is almost certainly a massive undertaking. On average, today’s hyperscale data centers operate at about 30 megawatts on the low-end (for context, one megawatt can power about 700 homes). With industry-standard construction costs of roughly $10 million per megawatt, an average hyperscale data center could cost upwards of $300 million to build. That’s a firm investment in the future of the nation’s digital economy.
However, it may prove to be a premature one.
Policy, security, legislation, and pricing strategy are still very much the main factors when it comes to establishing large-scale data centers. As the International Energy Agency (IEA) outlined, these data centers are highly dependent on:
- Strong connections to data infrastructure and networks. (What real use is a 523% increase in internet speeds, when your network conks out in the middle of your only Zoom call that day?)
- Favorable environmental conditions: low risk of natural hazards (e.g. extreme weather, flooding, seismic activity) and cooler climates requiring less energy for cooling. (Tough luck.)
- Access to a stable supply of cost-competitive electricity, preferably from renewable sources. (While ePLDT did say they were looking to green energy sources for their planned hyperscaler facility, the Philippines at large has among the highest average industrial electricity rates in Southeast Asia. This is due to, among other things, a dependence on imported fossil fuels, heavy taxes, and distribution losses, bringing us to the last factor…)
- Favorable regulatory and market conditions, including proximity to major markets, political stability, and low taxation. (No comment.)
The IEA went on to note that the sheer size and power demand of hyperscale data centers can also have significant impacts on the local power grids. In certain parts of the US, Amazon’s data facilities have been a blessing to local business, but one that’s increasingly driving up utility costs, with private citizens footing the bill.
As the market leader, ePLDT currently runs at 72MW across 10 facilities, with an 11th in Santa Rosa recently announced. Five of ePLDT’s facilities—in Makati, Pasig, Paranaque, Clark and Cebu—are part of global service provider NTT Communication’s network of Nexcenter-accredited facilities. Launched in 2016, VITRO Makati 2 remains ePLDT’s key facility, due to its location in Makati. Even then, ePLDT says VITRO Makati has yet to reach capacity, despite growing demand and bullish sentiment on the Philippine market.
Earlier this month, Globe announced its own hyperscale data center roadmap, with a $350-M joint venture with ST Telemedia Global Data Centres (STT GDC) and Ayala Corporation (AC). This deal will see “a data center business, which has the potential to expand by up to 100 megawatts in capacity in the mid to long term,” Globe said in a disclosure to the stock exchange.
These massive investments won’t only be catering to financial services, BPOs, and startups. The offshore online gaming sector, also known as Philippine Offshore Gaming Operators (POGOs), stands to benefit greatly from these infrastructural investments. TechGlobal Data Center, a facility in Makati set up under a joint venture between Globe Telecom and TechZone Philippines, caters specifically to the “IT Gaming” sector.
Calling to mind the Senate’s recent passage of legislation allowing full foreign ownership across several industries, including telecoms, perhaps there is indeed an impending wave of hyperscaler investments on the horizon. In time, these data centers may even start supporting a more sustainable electric grid by using their electricity management systems to smoothen out the often unpredictable nature of renewable energy sources.
This highlights the powerful role that both the public sector and the incumbents of the private sector play in shaping the nation’s digital economy. Hyperscaler partners like Amazon and Alibaba offer a wealth of resources for innovators to utilize. But the groundwork must first be laid for those resources to be put to work. If startups are expected to drive the nation’s digital economy forward into the future, industry incumbents and government offices need to first pave the digital roadways.
“Startups face a number of barriers to using cloud technologies, particularly where government policies for infrastructure development and data governance are lagging behind,” the ADB concluded in their 2021 report. According to them, governments and incumbents “have a clear role in providing an enabling environment and in laying the groundwork for local, regional, and global growth of homegrown technology startups.”