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The Philippines is planning free Wi-Fi services to half of its towns and cities this year and nationwide coverage by end-2016, limiting the data revenue prospects for Philippine Long Distance Telephone Co. and Globe Telecom Inc.

The free Internet service will cost the government about 1.5 billion pesos ($32 million) a year and will be available in areas such as public schools, hospitals, airports and parks, said Monchito Ibrahim, deputy executive director of the Information and Communications Technology Office.

“If subscribers move to using free public Wi-Fi, telecoms may need to lure them into getting higher-end services,” Ibrahim said in a Sept. 4 interview in Makati City, referring to the country’s two main phone companies. The government’s “focus is on areas that absolutely don’t have access.”

The new service is expected to push data charges lower in the Philippines. Access to the Internet costs about $18 a megabit per second in the country, more than three times the global average of $5, according to research firm International Data Corp. or IDC.

For the country’s two biggest phone companies, that means more expenses to boost their network for services offering higher speeds.

Service Improvement

“The free Wi-Fi service would compel improvement of service of both telecoms,” said Lexter Azurin, research head at Unicapital Securities Inc. “Definitely, they might need more capex for that, which would impact earnings at the end of the day.”

The government’s free Wi-Fi service has its limitations. Speed is capped at 256 kilobits per second, enough for basic Internet searches or access to Facebook, Ibrahim said. The government’s initiative comes as lawmakers investigate slow and expensive Internet connection in the Philippines, where broadband connectivity is only ahead of Afghanistan in Asia, according to IDC.

By contrast, Singapore started a free wireless service in 2006 that now offers speeds of as much as 2 megabits per second -- eight times faster than the one planned in the Philippines. That’s enough for phone calls on the data network or video streaming, with the access offered at public places such as the airport, malls, hospitals and schools.

Diverging Performance

The ability to drive data usage has separated the performance of the two Philippine phone companies. Globe, owned by Singapore Telecommunications Ltd. and Ayala Corp., posted a 27 percent jump in first-half profit with services such as free Facebook access in October 2013. PLDT, which reported a 6.5 percent drop in earnings, took more than a year to counter with free mobile Internet access.

Globe shares slumped 1.5 percent to 2,512 pesos at the close in Manila, the biggest drop in more than two weeks, narrowing gains this year to 45 percent. PLDT declined 0.3 percent to 2,384 pesos, the lowest in more than three years, extending the slide this year to 18 percent.

PLDT has been asked to participate in the network and is looking at it, spokesman Ramon Isberto said.

“As more people get into the data traffic, they will understand and eventually appreciate the ease of using mobile Internet,” Yolanda Crisanto, a spokeswoman at Globe, said in a response to a query. “That will induce usage.”

While offering free Wi-Fi access is a step forward, what the country needs is a longer-term plan to improve Internet connectivity, Senator Bam Aquino, who heads the Senate trade and commerce committee, said last month. “What I’m looking for is really a major broadband plan,” he said.

— With assistance by Karl Lester M Yap