Summary Bullets:

• While the Philippines is a rapidly growing cloud market, hyperscalers have not yet announced any plans for a Philippines region.
• However, digital transformation, increased cloud usage, edge computing, and growing international connectivity offer opportunity for Philippine vendors to work with hyperscale providers.

GlobalData expects the Philippines to be a strong market for growth in cloud-based services that serve the enterprise (including IaaS, PaaS, and SaaS) as well as the consumer segment (e.g., streaming video, social media, and e-commerce). Based on our “GlobalData Market Opportunity Forecasts to 2024: ICT in Philippines” (August 28, 2020), enterprise spending on cloud services will grow from USD 1.8 billion in 2020 to USD 2.6 billion in 2024. Furthermore, cloud-based service usage is booming in the consumer segment as well, with social media and content streaming growing rapidly. Based on our “Philippines Mobile Broadband Forecast” (December 24, 2020), streaming mobile video users will grow from 53 million in 2020 to 80 million in 2024, while mobile social media users will grow from 75 million to 80 million over the same period.

As such, we expect the leading hyperscale providers like Azure, AWS, and GCP as well as leading webscale companies and OTTPs like Facebook, Google, and Netflix to view the Philippines as an important market. However none have announced any major plans to develop in-country cloud regions/zones. Outside of a few instances, when the large hyperscale and webscale companies look to expand their data center presence to new regions, they don’t typically build their own facilities. They lease from high-quality DCs (e.g., those operated by ePLDT, Globe, or NTT). The Philippines may not yet be a target for hyperscalers due to a few factors:

• Proximity to Other Regions: The big three cloud providers all have cloud regions in Singapore and Hong Kong, while AWS and Google are also building out regions in Jakarta. Using direct connect into these platforms, latency between a data center in Manila connecting to an Azure Zone in Singapore or Hong Kong is manageable for most applications.
• New Cloud Options: Furthermore, the hyperscalers are developing new solutions for deploying cloud services closer to customers. As more and more companies undergo digital transformation, new requirements are emerging related to privacy, latency, security, etc. Cloud providers now offer options for services to be hosted in private facilities (e.g., AWS Outposts, Google Anthos, Azure Stack), addressing these concerns by deploying hyperscale-style environments on enterprise or local third-party data centers.
• Power Efficiency: When considering a large hyperscale facility build, often the most critical factor is the cost and efficiency of power usage. Hyperscale data centers draw huge resources from the power grid to run compute resources as well as cooling systems. While the Philippines has a similar climate compared to regional neighbors (i.e., similar cooling requirements), according to a 2019 study by the Institute for Energy Economics and Financial Analysis (IEEFA), the Philippines has the highest cost of electricity in all of ASEAN due to reliance on imports of coal and diesel.

Despite some roadblocks to attracting hyperscale data center clients into the Philippines, there is still plenty of opportunity for the country to grow business from the largest webscale players. Each of the hyperscalers is trying to grow adoption of their services within the market through local partners. Each company is building partner ecosystems within the Philippines and targeting specific verticals such as technology, telecoms, and financial services for their IaaS, PaaS, and SaaS services. Hyperscalers are also expanding their partners to include colocation providers to push their edge services (e.g., AWS Outposts, Azure Edge Zones). This allows them to assess the demand before investing in building a cloud region.

The Philippines may in the future prove to be a valuable cloud region as the country’s growing digital economy is driving increased cloud usage. The Philippines is one of the fastest IT business process outsourcing (IT-BPO) markets in the region, with BPO companies using cloud-based services to support their operations. For example, Inspiro, a Philippine IT-BPO, signed a deal with Microsoft to leverage its Microsoft Virtual Desktop and Microsoft Teams over Azure to enable 3,000 agents to work remotely.

Beyond data center capacity, international connectivity is also important in building a cloud hub, offering redundant connectivity to global data centers to ensure resilience of operations. To this end, providers like PLDT have been doing a good job of increasing their attractiveness to global cloud providers. The company has built ten carrier-neutral data centers across the Philippines and connected them to its international network, which connects to 16 different international cabling systems. While the hyperscalers may not yet have any plans for a Philippines region, it is a rapidly growing cloud market with several players interested in growing data center activities. Beyond the traditional data center, Philippine players have an opportunity to build relationships with the major hyperscalers around multi-access edge compute (MEC). The Philippines is one of the early countries in the region to launch commercial 5G services, with coverage expanding fast across the country. Carriers like PLDT can build in compute and storage capabilities at their own network edges, whether that be in local exchange offices, mobile towers, or their own data centers. Integrating edge compute into a wider WAN deployment gives enterprises even more flexibility in terms of where they move applications. The public cloud providers are already working with carriers to develop carrier edge-specific versions of their own cloud environments (e.g. AWS Wavelength, Azure for Operators/Azure Edge Zones, Google Mobile Edge Cloud).