Will China Telecom come?

Here we are furiously debating the national security consequences of China Telecom being allowed here to be the third telco. Yet, I heard from a highly informed source that China Telecom isn’t even interested to come… for good business reasons.

The head of China Telecom had been in conversation with a prominent local businessman for quite a while now. One thing he made clear is his feeling that coming here is not worth the trouble.

It isn’t just the size of the market and the strong duopoly with their captive regulatory bureaucrats. The head of China Telecom observed that the money is now made by content providers like Google and Facebook, while telcos are expected to make the heavy infrastructure investments.

He thinks it is not worth the effort to invest on big capex in a new market and watch content providers eat his lunch. Telcos must now figure out how to make money in this environment to keep the kind of growth rate they have had.

The debate on net neutrality in the US is along the same lines. The telcos invest on enlarging the pipeline through which the digital content passes, but are prevented from maximizing potential profit from their investments.

Of course we can argue that freedom of expression, which includes the ability to be given an equal chance to be heard through broadband networks, is at the core of our democratic system. It is, therefore, a higher priority.

Tell that to the US FCC. It has just shifted policy anyway and scrapped net neutrality. This means phone and cable companies are now free to favor some internet traffic over others. Telcos can price their services according to the quality and speed a subscriber is willing to pay for.

The free ride enjoyed by content providers like Netflix, Google and Facebook is probably over. They may conceivably be asked by telcos to pay a special rate so their subscribers can get their content at the right broadband speed.

Independent content producers whose pockets aren’t as deep as Facebook’s and Netflix worry they can be rendered invisible as the big guys pay to get preference.

To some extent, this is already happening here. The duopoly has the capacity to provide world class connectivity. The BPOs are getting that, but at a price ordinary users will find beyond their reach.

It could get worse. Sites like Rappler, for instance, or any other news or blog site can be asked to pay a fee, otherwise those who do pay will enjoy greater visibility and get better competitiveness.

Maybe China Telecom thinks this is not sustainable. Regulators will be under pressure from the public and bring about regulatory uncertainty that’s not good for any business.

In the end, the China Telecom head is correct to understand that content is king. To his credit, Manny Pangilinan realized this need very early on. That’s why he invested and lost so much money on Channel 5. That’s also why he initially wanted so much to buy GMA-7.

When none of it worked well enough, he signed up an agreement with ABS-CBN a year ago that gives PLDT’s subscribers access to the network’s iWant TV service. That’s a big competitive advantage for PLDT that a potential newcomer like China Telecom doesn’t have.

With the partnership, ABS-CBN shows will be available on an estimated 30 million smartphone and tablet screens that run on the Smart network, said Oscar Reyes Jr., PLDT first vice president and head of home businesses. That’s why PLDT is feverishly upgrading facilities to provide video quality speed to more of their subscribers.

The ownership of smartphones in this country is growing fast. The cheapest smart phones are now readily available. And because we have a large OFW population, having a smart phone to reach their relatives at home is a top priority.

Theoretically, locals can watch their favorite telenovela on their smartphones any time they want to. In reality, the limited bandwidth they get from their telcos, because that’s what they can afford, makes that a frustrating experience. That is also why content is not yet as kingly in our realm.

In the US, my children no longer have a landline service, no cable television subscription, they don’t watch terrestrial television and everything goes through their smartphones. Their smartphones connect them to Netflix and are configured to enable them to watch a movie on their big screens.

The China Telecom head is right about the money being made in providing content. A telco is at a disadvantage if all it has is the pipeline.

That pipeline is like a superhighway and government must not totally depend on the private telcos to create it or expand it. Otherwise, consumers will be helpless in a situation like ours today.

If the DICT project is successful, it may give us a decent internet speed and make wider connectivity possible.  I know it is difficult to imagine such a day in this country, but eventually that will happen.

Because we are in the last days of the old business model, the DICT is right in helping build that highway specially to let underserved areas enjoy the benefits of being connected to the World Wide Web.

As for China Telecom coming in and giving the duopoly a run for their money, it is all hype. Unless they are specifically ordered by Beijing officials to come here and partner with a Filipino group or invest in a fully-owned telco operation, they probably would rather not.

This is why the DICT project launched by Acting Secretary Eliseo Rio, Jr is so important. Nothing will change in the quality of service we are getting in the short run. After that, it depends on how well DICT executes its Domestic Wideband Information Network (DWIN). Hopefully, they get it right.

Boo Chanco’s e-mail address is bchanco@gmail.com. Follow him on Twitter @boochanco.