The duel over broadband

The Globe versus Smart contest has moved up from the cellular phone business to ROUND 2 OF THE TELCOS WAR

THE telecommunications war—fought by the country’s two largest telcos, Smart and Globe (and their giant mother companies)—has entered the Second Round.

Now they are dueling over the Broadband Internet Access market. Broadband Internet service, both companies believe as do the best minds of the industry, is the telecoms industry’s future source of mega profits.

Smart Communications Inc., a subsidiary of telecoms giant Philippine Long Distance Co. (PLDT), owned by Manuel V. Pangilinan, and Globe Telecom Inc., owned by Jaime Zobel de Ayala and his corporations, are still heavily engaged in making their mobile-phone services continue to rake in billions but they are adjusting their focus and looking at broadband infrastructures, providing broad-band Internet access to their present customers and drawing outsiders into the loop.

Just as in the mobile-phone business, Smart and Globe are competing in luring new customers into the world of Broadband Internet Access and provoking dial-up Internet subscribers they already have to upgrade.

Experts and industry leaders say the growing numbers of overseas Filipino workers (OFWs), who mainly know broadband Internet in their locations abroad, as well as Filipinos working here at home in call centers and various other business process outsourcing (BPOs) establishments, are the market for broadband. They—and their families—plus the fact that Internet penetration in this country of more than 85 million is rather low, are the main factors that persuaded Globe and Smart to invest a good part of their capital and their time and talent in Broadband Internet.

Industry sources also see that, with profits from the cellular-phone business starting to taper off, the impulse to go into Broadband Internet has become more urgent.

Napoleon Nazareno, PLDT and Smart president and CEO, said broadband is the future of the telecommunication industry.

He projects that in the next three to five years, Broadband Internet Access will become a major basic service to vast numbers of the country’s population.

Gerardo Ablaza, Globe president and CEO, says his company is excited by the growth opportunities in the broadband sector and will accelerate the roll-out of the Globe network to tap into the huge demand for affordable Internet access.

“I would like Globe to have a significant presence in the broadband market starting in 2007,” Ablaza said, and that is why his company is giving Smart/PLDT a good fight.

Promo sale

To outdo each other and serve the huge Philippine demand for cheaper Internet services, Smart and Globe are offering great promotional discounts.

The promotions are attractive enough to attract even members of the so-called mass market or the hoi polloi. These after all are also loyal users of mobile phones even if they are only “tingi” (or mini-retail size) customers of loads.

One of the early Smart promos is “Smart Bro.”

For one, Smart introduced the “Smart Bro” a revolutionary high-speed broadband Internet service as low as P999 a month with a speed of up to 384 kbps or seven times faster than dial-up.

According to Smart, the service works by installing a Smart Bro antenna at subscriber’s home which is directed to the nearest Smart cell site to give faster connection signal.

The company started its wireless broadband service in June 2005 called Smart WiFi, a wireless broadband connectivity to homes and small businesses without the need of a landline phone.

However, after months of operations, the company started being bombarded with complaints because of its low speed.

Later on, Smart in April 2006, relaunched the service and renamed as Smart Bro.

Ramon Isberto, PLDT and Smart spokesman, said the aggressive promo of the company is designed to persuade users to avail themselves of the new products while addressing the problem of the limited ownership of personal computers (PC) in the country.

The PLDT moved to increase the use of broadband services among small and medium scale businesses but running a promotional campaign that bundled free personal computers along with DSL (digital subscriber line) packages.

This program immediately addressed one of the key obstacles to the massive growth of Internet usage—the high cost of computers.

Also, the PLDT increased Internet usage by providing myDSL services to thousands of Internet cafés all over the country. About half of the 10 million regular Internet users in the country connect to the Web via Internet cafés.

“Our target market is the traditional consumer like individual houses and Internet cafés that are able to serve a large number of consumers,” Isberto. His company is also targeting the corporate and the small and medium enterprises (SMEs) markets.

“Broadband service is now cheaper compared to before,” he added.

Smart-PLDT’s Nazareno also said that the market potential for broadband is expanding rapidly. He said that the PC penetration grew by 58 percent to about 1.4 million year on year or 8 percent of total households in 2006.

Internet users also surged to 9 million from 3.4 million, half of whom access the Internet through Internet cafés.

“The current broadband market in the country more than doubled to about 340,000 subscribers while narrowband Internet usage is increasing in the lower income households,” he added. These narrowband Internet users will eventually become broadband customers, of course.

Globe introduced the same service called Globelines Broadband Budget Bundles, a landline service with unlimited access, with speed of up to 384 kbps for only P995 a month.

Globe Broadband subscribers may also activate their VoIP (Voice over Internet Protocol) account and use Globelines Broadband VoIP softphone service to call overseas for a special rate of $0.05 or about P2.50 a minute.

Innove also introduced a speed upgrade for its broadband consumers, increasing speeds from 384 kbps to 512 kbps, at no extra charge to customers.

“Our direction for 2007 is really to deliver affordable Internet business to the people particularly the mass market,” Jones Campos, Globe spokesperson said.

One of the company’s strategy, Campos said is to offer an affordable price. Price in relatively poor Philippines always never fail to attract new subscribers.

“The demand for broadband Internet is robust and encouraging. We feel in a matter of time we can be able to serve the demand,” Campos said noting that the company’s target is the population of professionals, students, OFWs and both small and large companies.

Next growth frontier

Since the mobile-phone business has started showing indications of a slowdown, telecommunication companies now more actively seek other opportunities to grow.

The 3G (third generation) technology service offered by telecom companies failed to match the popularity of 2G when introduced in early 2000. Until now the subscriber growth has not been growing despite the companies’ promo and advertising for 3G. This is because even if there are enough customers who afford the more advanced cell phones to use 3G products—like streaming video, video calling, conference calls, TV programs and movies—the content is very prohibitive in the Philippines.

It is also rather expensive for the telecoms giants to invest in making or hiring US and European content to feed 3G customers.

As a result, the earlier hopes to develop great business from 3G technology have not been realized.

In addition, the growth in cellular-phone users has also slowed compared to the surges in growth of the early 2000s. In an earlier interview with Edgardo Cabarrios, chief of the National Telecommunications Commission (NTC) Common Carriers Authorization Division, The Times learned that the increase of mobile-phone subscribers this year may not be bigger and faster than in 2006.

Data from Smart Communications Inc. and Globe Telecom show that the number of subscribers reached about 40 million last year from 34.78 million in 2005. Smart and sister-firm Pilipino Telephone Corp. have a total of 24.2 million subscribers, while Globe and Touch Mobile subscribers stood at 15.7 million.

“We believe that the Internet access space in general and broadband connectivity in particular, are on the cusp of witnessing a swell demand similar to the exponential growth we saw in the mobile-phone industry a few years back,” Gerardo C. Ablaza, Globe president and chief executive said.

“We intend to be at the forefront of this opportunity, harnessing the capabilities of both wired and wireless broadband technologies to make the Internet available and relevant to all,” he said.

Ablaza said that his company’s broadband business continues to show robust growth, registering a year on year increase in subscribers of 129 percent bringing its cumulative base to 51,426 as of end 2006.

To be continued tomorrow

“This growth is attributable to the increasing affordability of our consumer broadband offerings which are now bundled with free landline service with waived monthly fees in selected franchise areas,” he said.

As of December 2006, Innove increased its total wireline voice subscribers by 5 percent to 383,876 from 362,143 in 2005. This subscriber base is comprised of 63-percent postpaid and 37-percent prepaid with business to residential mix ratio of 22:78.

As of 2006, Globe wireline voice service revenue slightly dropped by 2 percent from P4.4 billion in 2005 to P4.3 billion in 2006.

The company has 5,884 cell sites at year-end and currently serves 98 percent of the population with 94 percent geographic reach.

Ablaza said that for this year, the company allocated a substantial portion of the company’s capital budget for infrastructure investments in 3G (third generation) technology with HSDPA, DSL and other broadband technologies as Globe work toward establishing a pervasive access network.

On the other hand, consistent with PLDT’s intent to develop new businesses beyond cellular, its unit Smart has grown its wireless broadband subscriber base to about 122,000 by end of 2006 under its Smart Bro wireless broadband service.

Smart has close to 2,500 wireless broadband-enabled base stations providing high-speed Internet access to about 500 cities and municipalities all over the Philippines.

The increasing network coverage of Smart Bro continues to provide the PLDT with a complementary service in areas that are currently not covered by PLDT’s fixed line DSL (digital subscriber line) service.

“The strong performance of Smart is underpinned by its commitment to push back barriers to drive both subscriber activations and usage. We are not content to uphold merely our leadership position in the industry. We continue to pursue innovation and to build new businesses around our mainstream voice and text services with the objective of bringing positive and practical changes to people’s lives,” Nazareno said.

Fixed line service revenues decreased by 1 percent to P49.1 billion in 2006 from P40.7 billion in 2005.

The company’s retail DSL continued to grow as broadband subscribers exceeded 133,000 at the end of 2006 with another 300,000 subscribers using PLDT’s Vibe dial up Internet service.

PLDT DSL and Vibe contributed P3.5 billion in revenues for 2006 or 32 percent from P2.7 billion in 2005.

PLDT DSL and Vibe made up 69 percent of the PLDT group’s broadband and Internet revenues for 2006.

Broadband and Internet revenues grew 49 percent to P5.2 billion as PLDT DSL and Smart Bro subscribers more than doubled to 265,000.

“Our ability to stay ahead in the broadband revolution is particularly important for the fixed line business as it enables us to manage the transition from traditional voice services to other revenue streams that can deliver growth for the future,” Nazareno said.

“In 2007, we will work on the integration of our information technology and other convergent platforms. We will maximize the opportunities provided by our large subscriber base and our extensive infrastructure, especially in the rapidly expanding broadband space where we can harness our fixed and wireless capabilities to capitalize on its huge potential,” Nazareno added
By Darwin G. Amojelar - Manila Times Reporter