In the broadband world, Smart rules...for now

By Lala Rimando,

Posted at Oct 31 2010 02:33 AM | Updated as of Nov 07 2010 12:42 PM

MANILA, Philippines – Smart Communications has claimed the top spot in the broadband war, the emerging arena for the local telecommunication firms after the mobile and text message craze.

Over 8.3 million Filipinos have been accessing the Internet through the fixed and portable wireless facilities of Smart, the mobile network operator said in a statement on Wednesday.

Majority, or 7 million, of them are accessing the Internet on their mobile phones, whether through post- or pre-paid accounts.

The remaining 1.3 million are subscribed to broadband products that run on different permutations of their landline-based services, referred to as ‘fixed wireless’ in industry lingo.

At this level, Smart’s broadband users account for about 30% of the total Internet users in the country pegged at 29.7 million as of June 2010.

Rival Globe Telecom reported to investors that it has 930,000 total broadband users as of June and recently breached the one-million mark as of September. Globe president and CEO Ernest Cu said the number of their broadband clients has been growing at a compounded annual rate of 123% since 2006. Meanwhile, Gokongwei-led Digital Telecommunications Philippines, Inc., operator of Sun Cellular, has about 400,000 broadband Internet users.

Smart was about 3 years ahead of Ayala-led Globe in terms of investments in the broadband segment, and even way ahead of Gokongwei-led telco, Digital Telecommunications.

Broadband market

Telecommunication firms have been investing in broadband facilities to offset declines in the profit contributions of the voice- and text-based services.

Profit margins from the broadband business are lower, Globe has told its investors, but it is considered a growth area nonetheless.

The Ayala-led firm had noted that revenues from broadband were up by a robust 89% in the first 6 months of 2010, while revenues from the mobile phone business were lower by 9%.

The broadband battleground, however, is expected to get more competitive.

Diversifying conglomerate San Miguel Corporation is eyeing a piece of the broadband action
with Qatar telco. The partners recently acquired majority stakes in the financially distressed Liberty Telecoms, which has an existing franchise and the broadband licenses.

Other broadband providers are Lopez-owned Sky Cable Corp., which offers broadband services that piggybacks on its main cable TV infrastructure.

Even power retailer Manila Electric Company (Meralco) has mulled offering broadband services through its network of power lines. The plan was shelved, however, pending technical reviews. 

Smart is part of a conglomerate where another unit, Beacon Electric, has a controlling stake in Meralco. San Miguel, on the other hand, is the second biggest shareholder in Meralco.

Mobile broadband

The different means to offer broadband services has only reinforced a two-pronged race: cost and speed.

But the experience of Smart—85% of its Internet broadband users are accessing the internet through their mobile phone—is instructive.

It added a third element in the race: mobility.

Way back in 2007, wireless broadband subscribers of Smart already overtook the wired subscribers of the entire PLDT group.

Unlike households or office-based users who prefer the traditional wireline or fixed wireless broadband access, the mobile broadband’s market is individual consumers who are on-the-go.

Considering there are more mobile phone users than those who depend on wireline-based services in the Philippines, an archipelago of over 7,100 islands, experts and industry players have banked on the dynamism of the wireless sector for broadband growth.

In fact, Smart has been tirelessly sponsoring broadband neighborhood-based Internet cafes to extend wireless usage in remote areas, casually cloaked as a corporate social responsibility effort.

“We have made and continue to make substantial investments to ensure that we have a robust backbone infrastructure to provide not just coverage–so that Filipinos in rural and remote areas now have the means to access the Internet–but also speed and capacity, in order for our subscribers in the urban areas, who have the more powerful devices, to have access to vast amounts of data transported wirelessly,” said Danilo Mojica, head of Smart’s Wireless Consumer Division.

The technology for wireless broadband is also where the San Miguel-Qtel team is headed.

It will likely use the Wi-Max (Worldwide Interoperability for Microwave Access), a telecommunications technology that provides high-speed wireless data transmission, to launch both its mobile phone and broadband services.

Wi-Max was first offered by Globe, then Smart followed and likely Digitel will soon too. Wimax is on top of these firms’ other wireless broadband technologies, which include 3G.

Build or kill

Newcomers like San Miguel-Qtel, however, are not dragged by, and are able to leapfrog from, the capital intensive copper-based connectivity that early adapters like the PLDT Group, Globe, Digitel, and SkyCable were required to invest in decades ago.

The cost components may be an edge that San Miguel-Qtel team enjoy, but firms with existing telecommunications infrastructure currently have an upperhand in the fight for broadband market share: they can bundle Internet access with their existing consumer offerings.

A recent promo called TGIFreeday, which offered all mobile internet services free for 8 consecutive Fridays, triggered a 3-fold jump in first-time users of mobile Internet among its 45.3 million cellular subscribers, according to Smart.

Aside from bundling, the broadband leader has also aggressively adapted a build-or-kill philosophy.

With deep pockets, largely due to Smart’s many years of fat profits from the voice and text-based products, it has offered a wide and experimental variety, only to kill the ones that don’t catch fire.

For example, it previously acquired CURE (Connectivity Unlimited Resource Enterprise, Inc.) from the group of Marcos-era trade minister Roberto Ongpin for its 3G license. That frequency was planned for a controversial ditigal TV offering under the myTV brand.

Smart’s parent PLDT finally pulled the plug on myTV after 4 years, not because of regulatory and legal issues, which were bitterly fought at the National Telecommunications Commission , but because the expected revenues from viewers did not materialize.

In the end, how the changing telecommunications landscape will evolve when the newcomers begin to unfold their own bag of tricks will benefit the consumers in terms of cost, speed, and mobility.