3G, VoIP, Outsourcing Head 2005 Trends

HAVING survived the year 2004, local information technology executives are more upbeat about 2005 despite worries about the health of the Philippine economy for the coming year. The year 2004 became difficult because corporate and consumer high-tech spending picked up only toward the end of the year. Still, some local IT companies have reported growth and expansion despite last year’s hard times. As expected, big business came from the booming call center industry and the emerging business process outsourcing (BPO) market.

Moreover, the mobile telephone industry remained strong in 2004, as the number of mobile phone subscribers went past 30 million. Mobile services are also evolving, with innovations like ring-back tunes making their local debut.

Meanwhile the Philippines also saw the entry of more massively multiplayer online role playing games (MMORPGs) last year, following the success of pioneering game publisher Level-Up! that operates the popular online game “Ragnarok.”


Last year also saw companies and government pushing relatively new technologies such as voice over Internet Protocol (VoIP) and third-generation (3G) mobile service. However, regulatory issues have forced operators and technology providers to shelve plans of making these technologies available to the local market. This year, though, the National Telecommunications Commission (NTC) hopes to open up public discussions on these controversial technologies.

With the close of 2004, IT players see a better year for their business, and market research firm International Data Corp.’s report on improved IT spending in the Philippines reflects this trend.

For some local firms, 2004 was a year of slight hiccups as the election season pushed consumer spending toward the latter part of the year. Many technology firms anticipated this however.

Trends for 2005 seem to go toward the expansion of wireless communications, voice-over-IP and software development, according to IT companies. Still, the local outsourcing industry is foreseen to continue growing with an ever-increasing demand from the Unites States. Online games and multimedia services on mobile networks are also expected to emerge next year.

As the year 2005 unravels, Infotech asked local technology companies to give us a snapshot of what they think are in the offing for the high-tech industry.

Microsoft Philippines managing director Antonio Javier summed it up briefly: “We are pretty upbeat about the Philippine market. There will be some challenges especially if investor confidence goes down (this is highly dependent on Standard & Poor’s rating) and if inflation increases.”

Both factors, he said, will affect the purchasing power of consumers and of small- and medium-sized businesses.

3G and VoIP

IT executives agree that 3G and VoIP will attract more attention from the industry as well as government.

“Third-generation wireless communication (3G) and voice over Internet Protocol will most likely vie for market attention,” said Ronnie Latinazo, country manager for storage firm EMC (Philippines), noting that the market next year will be looking at new technologies that would provide faster, broader and more cost-effective solutions for both the enterprise and end-user markets.

There will be major deployments of 3G technologies next year as communications carriers in other countries start expanding their offerings to feature-rich services, according to Alan Halden, president of the Global Mobile Suppliers Association.

These deployments could include wideband CDMA and EDGE, both offering faster mobile networks on which new services could ride.

Halden said a level playing field among those involved in the telecommunications business would augur well for the industry. He stressed that carriers must consider where the need for 3G services would be strong, and make sure prices are affordable enough to give access to everyone.

Meanwhile, as the Philippines waits for the NTC to make a major, if not a drastic, move on VoIP regulation, a massive build-out of VoIP networks is expected in other countries across the region.

Brad Gray, vice president of Juniper Networks Asia South, said Asian countries will begin deploying VoIP networks next year.

In 2004, NTC was stumped by arguments between carriers and service providers, resulting in limited deployment of VoIP to enterprise-level companies. Gray is nonetheless optimistic that VoIP would soon be opened up to the mass market as well.

Software and Outsourcing

IT executives also believe that the software business will continue to outpace the hardware business in terms of revenues in 2005.

The performance of several software providers in 2004 is a barometer of the ability of the software industry to sustain growth even though the worldwide economy is struggling. Examples of these companies that made it big in 2004 -- and are forecasted to do better in 2005 -- are Microsoft, IBM, Oracle, SAP, Computer Associates, Electronic Arts, People Soft and EMC.

Because of this growth -- and unfortunately, because of the relative ease of copying software -- the software industry still faces difficulties in 2005, as reflected by the 72-percent piracy rate in the Philippines.

Ronald Chua, chairman of the Business Software Alliance, said copyright protection would still be an issue in 2005. However, he expects increased awareness from companies and end-users on the importance of using licensed software in 2005.

Microsoft Philippines’ Javier agreed.

“We are happy to note that there seems to be a growing appreciation for intellectual property rights among the public these days. Our commercial original equipment manufacturer (COEM) business experienced huge growth (in the second half of 2004),” said Javier.

COEM pertains to Microsoft’s business with local system builders. The software company has seen steady business growth in the Philippines.

“But since our fiscal year is from July to June, we’re currently in the middle of the year. Still, we’ve been experiencing steady growth here in the Philippines. Our headcount has doubled (from 2002) and we are actually expecting to grow by 10 percent this fiscal year,” the executive added.

Javier said growth areas for the local industry remain focused on services, which include call centers, business process outsourcing, manufacturing and retail.

Similar to the software industry, growth of the outsourcing business in the Philippines will continue to see an uptrend in 2005.

Computer manufacturer HP and telco equipment maker Nortel are among those that are cashing in on the outsourcing industry with their services.

HP Philippines Country Manager Nilo Cruz said they expect further growth in the call center and BPO areas, as the Philippines continues to be an alternative destination to India for this type of service.

On the other end, Tony Pio De Roda, head of Nortel Philippines, said BPO and call center outsourcing will continue to be very strong and will contribute significantly to the Philippine economy in general.

A local software engineering company also expects more “good news” for the IT industry in 2005.

“We expect about 50-percent year-on-year growth in revenues as well as headcount (in 2005). I also expect more good news for the Philippine IT industry, especially for companies engaged in providing e-services for the global market,” said Joey Gurango, chief executive officer of Webworks OS.

Meanwhile, Raymond Ricafort, owner and franchiser of Netopia -- the largest Internet café chain in the Philippines -- believes that IT services and the outsourcing business will continue to generate additional revenue and jobs for the Philippines.

Ricafort, who is also president of Digital Paradise Inc., said his company is preparing “for an even more aggressive expansion program in 2005.”

“Given the increasing number of Internet users and the improving relevance of the Internet in people’s lives, we believe that our expansion is both timely and necessary given our long-term strategy,” he said.

Brave predictions

Predictions are often dangerous. But Kar Wai Wong and Bernard Yu, chief solution architect and chief executive, respectively, of local IT firm Infoman, offered their brave predictions for the local IT industry in 2005.

As most IT executives have said, contact center services will continue growing, albeit at a more modest pace. Service providers, they said, will put more emphasis on business process outsourcing. More multinationals will consider establishing their back-office operations in the Philippines (following the examples of Procter & Gamble, Citibank, Caltex and Accenture).

Wong and Yu also said that huge IT projects and significant spending will still come from the government and public services sector. Government IT initiatives will also start becoming more concerted and there will be better overall directions in terms of IT due to efforts of the Commission on Information and Communications Technology.

The executives add that businesses will be more willing to invest in and adopt enterprise resource planning solutions, including financials and other business solutions. Many companies have put such projects on hold in the past two years. Some companies are looking at replacing their existing system or for re-implementation.

“In mid-2005, J.D. Edwards customers will better understand and decide on their future with Oracle,” the executives said. “More applications will be deployed to remote sites, home users and mobile users due to the faster pace of business and low-cost broadband Internet connections. Many IT initiatives will include extending applications to support such access. Related to this, more applications will be Web-enabled to support employees, customers and suppliers.”

Companies will be more security-conscious, as more servers are connected to the Internet (for remote access). Most will invest in firewalls, virtual private network appliances and anti-virus products. However, more serious investments and more holistic approaches to security are not expected in 2005. Wong and Yu also predict that most companies will deal with security reactively this year.

“Web-deployed applications, both packaged and custom-developed, will start to support the Firefox browser,” Wong and Yu said. “Linux will move beyond Web, e-mail and file servers into application and database servers, especially in Asian countries like the Philippines. Majority of companies and government agencies will accept Linux as a viable alternative to Windows and Unix. Marketing pushes by IBM, Intel and Oracle (and to a lesser degree by Dell, HP and Red Hat) will contribute to this acceptance. The increasing horsepower of Intel and AMD processors will also help Linux adoption.

“At the end of 2005, more than 5 percent of corporate desktops will be running the Linux-FireFox tandem, with some running OpenOffice. X86-based servers running Windows and Linux will continue to take market share away from Unix servers. The percentage share of server cost on IT projects will continue to decline, with software, services, network, security, support and training taking on increasing shares. Companies will start trying out technologies such as VMW.”

The executives said that developers will gain first-hand experience on the migration effort to Microsoft’s “.Net” platform. After such an experience, some will opt to stay with their old tool or look for an alternative. The 4GL developer community will stay loyal to the concept, and look at “C” and Java with skepticism.

“Though the use of network attached storage and storage attached networks are on the rise, the local enterprise storage market will still experience moderate growth in 2005,” they said. “(The Philippines) is not yet poised for the explosive growth in storage that happened in more developed countries. The local industry does not have the same strict regulatory requirements on data retention and business continuity. Use of data warehousing and business intelligence is also limited. However, there will be significant interest in IP SAN (iSCSI) technology.”

All in all, 2005 is expected to become an interesting year for IT, better than 2004, added Yu.

However, as Joaquin Quintos IV, president and general manager of IBM Philippines, stated: “We have consistently said that the next big thing in technology is not technology itself but a better way to make it work.”