Cellular business softening

As we have said in a recent column, the cellular-phone business is rapidly maturing, PLDT Smart now has 20.8 million subscribers; Globe has 13.62 million, for a total of 34.42 million. Sun Cellular is estimated to have two million. So the cellular population is 36.42 million, 42.8 percent of 85 million Filipinos. With penetration approaching 50 percent, enrollment is slowing down.

That is why the Ayalas in Globe Telecom have accelerated the declaration of cash dividends from their cellular subsidiary to recover equity investments in the company. Globe has already declared some P30 billion over the years as cash dividends. Globe has about P48 billion in capital, leaving P18 billion still to be recovered as cash dividends in the coming years.

Getting the P18 billion may take longer than the release of the first P30 billion.

If you annualize Globe’s profits in the first two quarters of 2005, whole year net income may skid to just P10 billion, down significantly from the record P11.25 billion made in 2004. Ayala Corp. received P4.6 billion in cash dividends from Globe last year.

Globe Telecom’s net profits fell to a worrisome P1.2 billion in the second quarter from P3.02 billion in the first three months of 2005 and P4.2 billion in the second quarter of 2004. The drop was 60.2 percent from the first quarter, and 71.4 percent from the second quarter of last year.

On a first-semester basis, the profit decline was also dramatic, by 38 percent to P4.2 billion this year from P6.8 billion in the first half of 2004.

Globe Telecom president and CEO Gerardo Ablaza blames higher taxes (which grew four-fold to P1.2 billion), higher operating expenses (by 21 percent), and slower revenues that failed to keep pace with growth in costs and expenses.

The number of Globe’s wireless subscribers increased by 671,000 from the first quarter to 13.6 million. The bulk or 65 percent (433,000) of that came from the revitalized low-end TM brand, which was heavily promoted by Globe.

Ablaza has vowed to “work harder to improve short-term operating performance” even as the company pursues “a sound, long-term growth strategy.”

The softening also hit PLDT and its cellular subsidiary, Smart. Only 537,000 new subscribers came in during the second quarter, down by 49 percent from the more than one million in the first quarter 2005 and by 68 percent from the 1.7 million activations in the second quarter of 2004.

This is good for cellular users. To attract more users, Smart and Globe will have to lower pricing further, improve the quality of their service, and add more value to their products, perhaps, even give them away. This explains why Globe beginning this August has offered unlimited texting practically for free.

Smart is expected to follow suit.

In effect, Globe and Smart will be going back to what they were doing before in the first place—offer free texting and charge for voice calls. They will make a little money but the volume will be so huge as to create a financially sound business. Globe and Smart will also encourage users to make use of or buy content like ring tones (a $1 billion business abroad), news and views in a flash and music (Apple Computer started the genre).

This may also explain why PLDT chair Manny Pangilinan keeps being rumored as buying this and that television channel. Last time, ABS-CBN denied it was for sale. Channel 7 said it will sell out provided the price is right (is P30 billion the right price?).

Channels 9 and 13 have been on the auction block but paying their unions will cost the buyer a fortune.

As for improving service, Globe is spending P18 billion this year to put up more cell sites. The company has nearly doubled its cell sites to 4,555 in just 18 months, and expanded coverage to 96 percent of towns in the country. That’s a terrific commitment in infrastructure for a conglomerate to which every centavo—mind you, every centavo—counts.

PLDT-Smart claims to have 5,600 base stations covering 98 percent of the country’s population. Did you know that there are certain towns in the Philippines, near urban areas, without cell signals? One example is Tanay town. My good friend Erap cannot use Globe because it has no signal in Tanay. He uses Smart whose signal can be erratic. (Maybe, it is not the signal but the “Hello, Garci” tapes).

PLDT revenues rose modestly by 3 percent to P59.52 billion in the first half. Net income increased 35 percent to P16.8 billion from P12.43 billion.

On the other hand, Globe Telecom first half revenues increased 1 percent to P23.59 billion from P23.43 billion. Net income declined 38 percent to P4.2 billion from P6.8 billion

VIRTUAL BUSINESS By Tony Lopez

Courts exempt Smart, Piltel from local taxes

THE Court of Appeals has exempted Smart Communications Inc. from paying local franchise taxes.

Considered the country’s leading mobile-phone service provider in terms of subscriber base, Smart said the appellate court’s decision upholds a lower court’s ruling, which would spare the company from having to pay P312 million in back taxes to the Makati City government.

In a notice of resolution dated June 9, the 11th Division of the Court of Appeals deemed the case “abandoned and dismissed” after no petition for review within the period of extension was filed by the city of Makati and its representatives.

Early this year, the Court of Appeals gave the Makati City government a 15-day extension or until March 9 to file a petition for review. However, no petition was filed as of May 30.

The Supreme Court also decided on April 6 to uphold a Court of Appeals decision exempting Smart subsidiary Pilipino Telephone Corp. (Piltel) from having to pay local franchise taxes to the Makati City government on similar grounds.

On August 3, 2004, Branch 61 of the Makati Regional Trial Court declared Smart exempt from paying the local franchise taxes charged by the Makati City Miscellaneous Taxes, Fees and Charges Division worth P196.227 million for calendar years 2000 and 2001, and P115.828 million for 1995, 1998 and 1999, which included surcharges and interests.

'Darknets' to cloak identities of computer file swappers

SAN FRANCISCO -- Internet rebels on Tuesday began testing a new weapon that threatens to scuttle efforts to stop illicit online music swapping.

Internet privacy activists at Freenet Project posted word on their website that they were looking for savvy programmers to test a refined version "darknet" software designed to keep file swappers anonymous.

Freenet's call for stealth software test pilots came slightly more than a month after the US Supreme Court struck a blow for the entertainment industry by equating internet sharing of music with "garden variety theft."

The court ruled that services, such as Grokster, that abet rogue swapping of music can be held accountable as accomplices.

The decision was proclaimed a landmark victory by Recording Industry Association of America (RIAA).

"There will always be a degree of piracy online, as there is piracy on the street," said Jonathan Lamy of the RIAA.

"Our objective is to bring piracy under sufficient control where legitimate services can compete and flourish."

Hip technophiles tuned into life in Silicon Valley and San Francisco scoffed, saying file swappers would only get sneakier.

Freenet's new software was heralded as "scalable," which means it would enable large numbers of stealth users to freely share files online, Doug Tygar, a computer professor at the University of California, Berkeley, told Agence Franc-Presse.

Previous versions of secret file sharing software were seen as manageable by the recording industry because the programs were unwieldy and limited in the numbers of people who could use them.

"Even if this version of Freenet doesn't met its goals, I can assure you they will continue to refine their software," Tygar said.

"It is just a matter of time before anonymous file sharing networks become available."

The recording industry will need to evolve to keep its grip on copyrighted material, Tygar said.

Copyright holders must build better technological locks to guard their property, he said.

"The onus is on the people producing copyrighted material to protect that material," Tygar said.

"That has always been the case," he continued. "It was the case when the Xerox was invented, and you might argue it was the case when the pencil and paper were invented."

The test software is "neither user-friendly nor secure at this point," Freenet reported on its website.

The project's stated intent is "making a globally scalable friend-to-friend darknet which eliminates a swathe of attacks and makes Freenet far more usable in the short term in hostile regimes such as China and the Middle East."

China uses Internet "fire walls" to block secret sharing of computer files on the Internet, Tygar said. The US recording industry endorses similar online obstacles, Tygar said.

If Freenet's darknet software lives up to its promise, then "techniques used today to trace individual users simply will not work," Tygar said.

"The only way to ensure that a democracy will remain effective is to ensure that the government cannot control its population's ability to share information, to communicate," the Freenet website philosophy page states.

"The core problem with copyright is that enforcement of it requires monitoring of communications, and you cannot be guaranteed free speech if someone is monitoring everything you say."

3 caught in Cebu raids for alleged violation of Access Devices Act

By Ryan Borinaga The Philippine STAR

CEBU — The Criminal Investigation and Detection Group (CIDG) has arrested three people during simultaneous raids in the cities of Cebu and Lapu-Lapu for allegedly violating the Access Devices Act.

The three – Ana Marie Litrada of RDP Marine Telecom Management, Ailyn Cuevas of Zenith Telecommunications, and Elmer Cabarrubias of Sealand Telecommunications – were arrested by virtue of a search warrant issued by Judge Ireneo Lee Gako Jr.

Their arrest stemmed from a complaint lodged by Globe Telecom with the CIDG last June 8 accusing the three companies of violating the Access Devices Act.

Jerome Yntig, Globe Telecom external affairs head for the Visayas and Mindanao, said the firms, which are their regular subscribers, paid only the monthly amortization of P400 for residential and P700 for business connections.

But once they had installed a landline, they then allegedly engaged in facilitating long-distance calls for overseas Filipino workers who wanted to contact their families in the Philippines.

Under normal circumstances, Yntig said the calls would supposedly pass through the international gateway facility using Globelines, but because these firms have a converter, the calls are only reflected as domestic calls, enabling them to pay Globe Telecom P400 or P700 every month.

However, the firms allegedly charged their clients the regular rates for international calls, thus defrauding Globe Telecom millions of pesos.

Yntig said the illegal transactions were recently discovered due to excessive calls made by the three companies even during unusual hours.

According to him, the simultaneous raids were the first major operation in the Philippines as far as Globe Telecom is concerned.

Litrada’s office reportedly operates two branches in Cebu – one along Pelaez street and another on Sanciangko street.

Cabarrubias said they have been in operation since 1989 under the name Manila Marine, which was changed to Sealand Telecommunications in 1995.

Zenith Telecommunications has three branches: Mahayahay Road, Bangkal; Pusok, Lapu-Lapu City; and Sanciangko st., Cebu City.

Cuevas, who is in charge of the billing and collection for Zenith Telecommunications, expressed surprised over the raid, claiming that they have the necessary papers issued by the National Telecommunications Commission.

Lawyer Isidoro Atoc, the legal counsel of the accused, told The Freeman that he would file a motion to quash the search warrant because his clients did not violate the law and have the necessary licenses from the NTC.

Atoc said the respondents should not have been the ones arrested because they were mere employees since the alleged violation was only against their companies.

The Access Devices Regulation Act is the law regulating the issuance and use of access devices. — Freeman News Service

Now, you can purchase cellphone load online

After years of getting cellphone cards and load from sari-sari stores, the malls, or from enterprising office workers and students, finally we can buy electronic load from the Internet.

It seems like an upside down paradigm. Electronic load for prepaid mobiles seem more likely to be obtained from the Internet first considering the nature of the product. But blame it on the low uptake of Internet connection in this country and you have the sari-sari store pioneering the selling of a digital product that was supposed to have been the domain of the Internet.

Online loading for cellphones, game cards, Internet prepaid cards and landline cards was introduced last January by load.com.ph, a company formed by First Telecom Phils. Inc. and Telecom Concepts – both distributors of SIM cards, cellcards, cellphones and other telecom products for Smart Communications and Globe Telecom – and Give Me Unlimited, a software company for text messaging for corporate applications.

"What we did was automate the traditional process of loading cellphones and make it available online," says Erik Kalugdan, president of load.com.ph.

But how do you compete with the neighborhood stores and malls in electronic loading when Internet usage is not that big yet here in the Philippines?

"We do not aim to compete. In fact, we hope to promote Internet usage and increase the Internet population by providing content and introducing a new service for online users," says Kalugdan.

The selling point is convenience, he adds. When you already have an Internet connection at home or at the office, more so if it is a broadband connection, why bother to go out to get load for your mobile when you can get it online?

For people who frequent Internet cafés, it is an added service as they can get their load either from the terminal they are using or from the counter. And you can get the same low denominations, too, as P25, P30 or P60.

This requires more sophistication, though, as an online purchase requires that you have a bank account from where the payment for the load will be debited.

Kalugdan assures that the site is secure and has all the standard protocols required of e-commerce sites. Load.com.ph is certified by VeriSign, which means that all information sent to this site in a Secure Socket Layer (SSL) session is encrypted and is protected from disclosure to third parties.

To pay for the load, Kalugdan explains that you have to register your Bancnet or Megalink ATM account with PayPlus, an online payment gateway that facilitates the transaction and sends the purchase details to the bank. Not all Megalink or Bancnet member-banks, however, are enrolled with PayPlus at the moment. But there are 25 banks that are already accredited with the service and most likely, one of them is your depository bank.

Registering with PayPlus is also fast and easy and you can purchase load right away after signing up for the service.

All kinds of electronic load for cellphones can be purchased from load.com.ph – Smart Buddy, Talk ’N Text, AMP, Smart Kid, Sun Cellular, Globe and Touch Mobile. Cellcard electronic pins for them are also available.

Game Cards, a fast-rising product in the market because of the increasing popularity of online gaming, can also now be bought online such as cards for Khan, MU, Gunbound Tantra and Ragnarok.

To complement these two services, the site includes Internet card e-pins for Frequency, i-Republic, Go! Extreme, PLDT Vibe, ISP Bonanza, i-tipid Blast and Infocom, and PLDT Card e-pins for PLDT Budget Card, PLDT Telesulit and PLDT Touch Card.

Still another advantage of online loading that cannot be provided by traditional stores is that you can load multiple cellphones at the same time, view or print your transaction history and get discounts of up to six to 14 percent upon purchase of load credits.

If the service is convenient for ordinary users, it is also an opportunity to earn for retailers.

Internet café owners, proprietors of sari-sari stores, cellphone distribution outlets and other business enterprises can sell electronic load using their existing online platform. Purchases of P1,000 to P4,999 load credits entitle one to three-percent bonus credits, and purchases of P5,000 or more, six-percent bonus credits. This is on top of the six-percent discount one gets from Game Cards and Internet prepaid cards, and 14 percent from PLDT cards.

Kalugdan says the site has 3,000 members to date and with the fast uptake, they expect to increase membership by as much as tenfold before the year ends.

By Eden Estopace The Philippine Star

Globe, Smart turn to short-term, unlimited text messaging

UNLIMITED voice call promos have come to a dead end--at least for the two major players, Smart Communications Inc. and Globe Telecom Inc.

The trend now, according to the two giants, is the offer of overnight, unlimited short messaging, or texting, promos for prepaid customers.

The promos, they said, would keep subscribers hooked without straining the network and upsetting postpaid customers.

The National Telecommunications Commission believed that the mobile telcos also suffered from the illegal activities of bypass operators offering call-all-you-can promos.

Smart has started offering its text-all-you-can promo. Its 2-day rate goes for P30, while its for 4-day rate goes for P60. The promo started on July 27 and would end on Aug. 26, unless extended.

On July 28, Globe started selling a similar deal. Globe's unlimited, 24-hour texting rate goes for P15.

All that Globe subscribers have to do is to text "nonstop" to 2870. The second-ranked player is continuing with its cheaper call and text rate deal called Celebrate.

Smart, meanwhile, scrapped its unlimited call promo because of the burden it placed on its network. Globe said it had long abandoned its text-all-you-can pricing because it was not sustainable if it wanted to maintain good network quality.

"We don't believe in unsustainable unlimited offerings running for long periods," said Globe assistant vice president Froilan Castelo. "I think this new promo is sustainable because it will not affect network quality."

What is more realistic, according to Castelo, is a cheaper tariff like Celebrate, which slashed call rates by 60 percent and text charges by half.

Cabarios said the giants noticed an increased bypass activity when they were offering unlimited calls.

These illegal operations usually ride on the network of mobile carriers to facilitate illegal long distance operations by disguising international calls as local calls.