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Free internet wars: who stands to win?

Last September 26, the Philippine telecom industry was jolted and Filipinos went a little crazy over the “free internet” offering by the incumbent telco. No less than Manuel V. Pangilinan (MVP) of the PLDT Group made the “big announcement” that all Smart, Talk ‘n Text, and Sun Cellular prepaid subscribers will be given free internet for two months.

Of course, this free internet is not without conditions. A subscriber needs to maintain a one-peso balance or be subscribed to any load/bucket promo, must register daily, can only access up to 30 MB per day, and is guaranteed a minimum speed of 12 Kbps only.

What can you do with a 30-MB data cap? Smart Communication says users can access various websites and apps including social networking sites like Facebook and Twitter, search engines like Google and Yahoo!, email platforms like Gmail and Yahoo! Mail, streaming music, and online shopping sites.

Now this sounds like a sweet deal, especially for Filipinos who will be given the chance to use the internet for the first time. Imagine a barrio in a small island in Mindanao where most households don’t have a television, but a family share one mobile phone.

With a low data cap and speed half that of a dial-up connection, this promo would be a good way to condition maybe hundreds of thousands of expected new internet users that service at this level is acceptable. It’s free, after all.

Giving free data service is also a means to test the waters in terms of the market’s response and potential market demand. The PLDT Group recently invested in a global partnership to provide online payment services to the unbanked, and the Philippines can be a huge market for this new venture.

In response, Globe Telecom is bringing back its free Facebook offer this week. Some netizens met this development with approval, and touted the free internet wars as healthy competition that would benefit consumers.

But the timing and nature of this free internet promo are interesting for two things. One, there is an ongoing Senate public hearing to investigate the country’s slow and expensive internet. Two, there are a number of proposals for government to offer free internet.

In the Senate hearings led by Sen. Bam Aquino, informed stakeholders raised the need to build and expand telecom infrastructure in order to improve quality of service and meet the growing demand, and to allow more competition in order to offer lower wholesale and retail prices.

A number of studies have clearly highlighted these two problems of quality and cost. In Akamai’s Q1 2014 State of the Internet report, the Philippines recorded a disappointing 42% decline in average peak connection speeds from the previous quarter. Neighboring Asean country, Indonesia, which used to lag behind, is now doing much better and already ahead in terms of average speed and peak connection.

In a LIRNEasia broadband QoSE study during the same quarter, PH broadband service failed in critical parameters of actual vs. advertised speed (only 1 or 3 ISPs provided >256 Kbps only 67% of the time) and latency (437.6ms was the fastest roundtrip time by an ISP; <300ms is ideal). Philippine ISPs were also found to offer the lowest value for money (highest average: 22 Kbps per USD or 0.5 Kbps per 1 peso) compared to all other ISPs tested.

Given the poor state of Philippine internet, there seems to be a huge disconnect between technological capacity and commercial promises. It’s a puzzle then how these free internet schemes will solve the bigger problems of undercapacity, congestion, and high cost.

So many questions are begging to be asked (and answered).

If all those prepaid accounts go online, will the telcos’ wireless infra be able to handle it? And remember, the very popular dongles are fixed wireless broadband that would be competing with those who will access the internet from their mobile phones.

If there is an apparent congestion problem, especially in cities and urban areas, won’t this promo worsen the already bad internet experience of so many customers? The telcos themselves claim that 5-7% of “abusive” internet users hogs 80% of nationwide bandwidth. So why entice more users to go online?

Do the telcos stand to lose anything for giving up income on prepaid data subscribers for two months? Most probably they don’t. This is a marketing scheme that will eventually pay for itself because of expected income from new prepaid subscribers and other attached services.

Is this the kind of competition that Filipino internet users need from their telcos? Not really. Although free internet is good at face value, customers would gain more if telcos would instead compete for better quality and lower cost.

Finally, everything else being equal, how will this help solve the Philippine internet’s problems of high price and poor quality? Maybe only the telcos, who stand to win in this war, know the answer.