NTC’s competition policy on right track

Traditional fixed-line telephony, The Economist declared, has had its day. It was the industry’s bread and butter for over a century, a special survey of The Economist concedes, "but the end is now in sight for traditional telephone service, which will soon be overtaken by voice-over-internet calls in terms of usage, and displaced by broadband internet access as the core revenue-earning service offered over fixed lines by telecoms firms."

The Economist survey also observed that "even if the traditional telephone is not quite dead yet, its business model certainly is." The Economist survey published last week came to mind as I read a news story about how PLDT and Globe have formed an informal alliance to oppose a new competition policy that the National Telecoms Commission (NTC) is presenting to the industry.

As I observed in a column the other week, the attitude of the big telcos on the new competitive environment is nothing more than rear guard action that seeks to delay the inevitable. Ironically, in that particular column, I criticized PLDT for cutting off customers of Globe Innove’s VoIP service because some of them are using the service to call from overseas. Now it seems, even Globe isn’t as into the new environment of the World Wide Web and its executives harbor antiquated views incompatible with today’s times.

Just in case the big local telcos are still in a state of denial, one of the articles in that Economist survey should educate them. To begin with, the demise of traditional telephony, The Economist explains, can be charted in two ways: by looking at the proportion of call traffic carried using voice-over-internet-protocol (VoIP) technology, which already exceeds 50 percent on some routes and seems to be heading towards 100 percent; and by looking at the cost per minute of calls, which appears to be heading inexorably downwards, thanks to VoIP’s far lower costs and higher efficiency.

"VoIP is cheaper because instead of establishing a dedicated circuit to connect two callers, it encodes the telephone call as a two-way stream of data packets that are sent over a high-speed internet connection. This encoding can be done either by a computer running a piece of software such as Skype, the most popular VoIP provider, which now has more than 100m users; or it can be done by a small box, called an analogue terminal adapter, which allows a standard telephone to be plugged into a broadband connection.

"Sending packets across the internet is free once you have paid for your broadband subscription, so calls that travel entirely on the internet, such as those between two Skype users, cost nothing. If you use a VoIP service to connect you to a traditional telephone, the call travels mostly across the internet but pops out onto the local phone network at the other end; the owner of that network then charges a fee to deliver, or "terminate", the call, typically no more than a local call. All this reduces the price of telephone calls dramatically."

The Economist quotes Niklas Zennström, the co-founder of Skype, who expressed the belief that voice calls will eventually cost nothing. "You don’t pay for each e-mail or each web page you load," he says. "It’s the same with phone calls. That’s where it’s going. It will be free."

But it is easy to understand the panic of the big telcos. "Aside from undermining the pricing model of a trillion-dollar industry that still makes most of its money from voice calls, VoIP is disruptive in other ways, too. VoIP phones can have traditional phone numbers associated with them. But they work wherever they are, provided they are plugged into the Internet, making a mockery of geographical conventions such as area codes. So you can assign, say, a San Francisco phone number (area code 415) to your phone, take it to another country, plug it into a broadband connection and have people in San Francisco call you for the price of a local call.

"More subtly, VoIP decouples the two previously intertwined components of telephony: access to the network (via a wire running into your house, for example) and service (the ability to make and receive calls). Traditionally, access and service have been provided together. But with VoIP you can buy broadband access from one firm (a cable operator, say) and a telephony service from another (such as Vonage). So owning the access network no longer confers a monopoly on voice service; conversely, it is possible to offer a voice service without owning an access network."

Here is where the NTC and its new competition policy come in. All these disruptive technologies have resulted in a surge of innovation and competition as new entrants flood into the market. We could be left out in this worldwide technological revolution if we allow the Neanderthal minds of the local telcos to prevail. We are lucky to have such forward looking officials at the NTC, who are obviously doing more than sitting on their asses and collecting fees as they enforce outdated laws, as most bureaucrats tend to do.

In my conversations with them, the NTC commissioners led by its Chairman, Pope Solis, are unusual in the sense that they are actually taking the time to study what is going on in the telecoms community worldwide. Pope, for instance, is not your typical lawyer unable to think out of the usual constraints lawyers impose on themselves. He is actually very conversant about technical developments in telecommunications. He is doing his homework.

As I previously wrote, I think the leaders of the industry, Manny Pangilinan for PLDT and JAZA for Globe should walk their talk on getting the country into the high technology revolution as a means to leap frog our country’s development. They should first of all require their lawyers to grab a copy of last week’s issue (October 14-20) of The Economist and educate themselves. Then they should have one big internal meeting where they will tell one and all that it is useless and counterproductive to delay the inevitable. It is time to be creative about technology, instead.

For the rest of us, let us all support the NTC in its new competition policy. It feels unusual to have a government agency leading and the private sector obstructing. But that’s exactly what’s going on now. The lawyers in the big telcos just don’t get it. The Globe lawyer was quoted opposing the new competition policy because "the 1987 Constitution allows big firms and natural monopolies to exist." It shows how constrained this lawyer’s way of thinking is. Protracted legal battles on the new competition policy could do more harm than good for the country.

The earlier we discard the traditional telephony business model, the earlier will the Filipino consumer fully benefit from the lower cost and better service that follow. And because we have large overseas communities of Global Pinoys who will benefit from this new competitive policy, this is a matter of extreme public interest too.

Airlines

Speaking of competition, look what it has done to the domestic airline industry! Now we have brand new planes, better service and lower fares. It isn’t important if Philippine Airlines or Cebu Pacific is now the number one domestic carrier. What is important to consumers is that they are now number one.

In all likelihood, Cebu Pacific may have jumped the gun in claiming the number one position based on just two weeks market data that’s unverified by the CAB. And it is probably true Cebu Pacific merely wanted to steal the thunder of PAL’s rollout of the first of its new Airbus planes for the domestic market. But what’s important is that PAL is finally out of financial intensive care and is now able to invest $840 million on 20 new Airbus planes.

Lucio Tan must be congratulated for holding on through the tough times and deciding against liquidating the airline when doing so made business sense not too long ago. It would have been easy for the Kapitan to minimize his losses by walking away, but he took PAL’s rehabilitation as a personal challenge. Well… looks like he succeeded, and that’s good for the country too.

It is not just PAL and Cebu Pacific that’s doing well. I understand SEAir announced a new strategic alliance with low cost Singaporean airline Tiger Airways that will compete head to head with Cebu Pacific! Asian Spirit has also announced its new alliance with Viva Macau Airlines along with a major domestic and regional expansion program on many domestic and international routes!

All that good news in our aviation sector should help the country’s development speed along as well. Just one observation for Cebu Pacific… unless they do something about the domestic terminal, they can’t really be that competitive with PAL. Not only is the terminal terrible, Cebu Pacific flights are also hardly ever on time, in my experience. And yes, somehow, the seats in PAL’s planes are also more comfortable than Cebu Pacific’s. For someone with a back problem like me, that is a major consideration.

Senility prayer

Here’s something from Dr. Ernie E.

Grant me the senility to forget the people I never liked anyway, the good fortune to run into the ones I do, and the eyesight to tell the difference.

Boo Chanco’s e-mail address is [email protected]