Monday, September 14, 2009

Does Smart, Sun, and Globe really love their subscribers?

Does Smart, Globe, and Sun really love its subscribers?

By heavily advertising and promoting their cellphone services, these giant Philippine telecommunications firms have successfully cast themselves as good guys in the minds of some 72 million loyal post-paid and pre-paid subscribers. They not only have celebrities endorsing their products, they also have their own basketball teams and regularly sponsor other sport events. In short, they have managed to endear themselves to their subscribers to such an extent that some Filipinos will spend money on cellphone credits rather than buy a meal.

The pre-paid SIM cards they sell at the Ninoy Aquino International Airport are among the cheapest and go for around P25 to P45 or less than US $1.00. And do you know why? It is because the amount of money that the user will spend making calls and sending text messages through that SIM card will be much, much greater than the price of the SIM card.

OFWs leaving for work abroad will almost always make sure that their phones are set for roaming and that ample cellphone credits have been loaded into their pre-paid cellphone service accounts. International calls on some cellphone services actually cost just a little less than international calls placed through their landline counterparts but this is enough for Filipinos with relatives working abroad to keep loading their cellphones with credit.

OFWs and Balikbayans will almost always also buy a SIM card and cellphone credits to be able to get in touch with relatives who are fetching him or her at the airport. Of course, as the days wear on, more cellphone credits are loaded into their pre-paid SIM card.

An article published in the Philippine Daily Inquirer on November 22, 2008 cites a survey made by US-based Integrated Marketing Solutions (IMS) on how much an average Filipino cellphone user spends in a month. Here's an excerpt.
Survey respondents estimate that they spend an average of P544 on texting every month but computations on actual spending show an average of P1,110 a month, IMS said in a statement.

Seventy-four percent of respondents also said that they would rather send a text message that place a call because texting seemed cheaper, IMS added.

Sixty percent said that they usually failed to understand messages because text phrases were unclear. About 95 percent said it would be easier to understand one another if they were to call rather than send text messages, but they were deterred from making calls because of the cost.
With P 1,110/month as the base figure for computing the annual cellphone service expenditure of those surveyed, one will arrive at P13,320. By dividing this figure by 365 days, you'll arrive at a daily cellphone service expense of about P36.

Multiply 36 by 72 million Filipino cellphone users and you'll have a rough estimate of how much Philippine telcos earn a day -- and that's P 2,592,000,000.


This is just a few hundred billion short of the the proposed P1.3 Trillion National Budget of the Philippine government.

And, still with the survey as the basis, it is highly probably that most of this revenue comes from text messages sent through the systems of cellphone service companies.

Now, the question is, how much do cellphone companies really earn every time you send a text message? To do this, you'd have to figure out what it costs to send a text message and subtract this from the standard cost of one text message which is P 1.00 or 1/48 of one US dollar.

Here's some of the research I dug up:

Agham Study
Dr. Giovanni Tapang the lead convenor of AGHAM, explained that SMS or text messaging is an inherent feature of GSM networks and is now carried over in the newer 3G networks.

No additional investment is needed to enable GSM or 3G cellular phone systems to process text messages.

SMS is sent through the airwaves as packets of data similar to the way the packets of data are transmitted through the internet. It uses a small fraction of the capacity needed to carry a voice call.

He pointed out that telcos currently charge of P 10 flat rate for half an hour of data transfer at speeds of 56 to 114 kilobits per second using 3G or GPRS (General Packet Radio Service). Tapang said that it is possible to send the entire text of Dr. Jose Rizal's Noli Me Tangere, consisting of 1.15 million characters, at 56 kilobits per second within 30 minutes at a cost of just P 10.00. Alternatively, this means sending 638 characters a second at a cost of just half a centavo.

A single text message consisting of just 160 characters could zip through a cellular network system in a third of a second at a cost of around a hundredth of a centavo.

From Tapang's analysis, it was inferred that the price of text messages may have been a value arrived at that would compensate telcos for the aggregate system capacity of their used for texting.

If there were no such thing as text messaging and only voice calls were processed, cellular phone companies would have a large excess or unused capacity and this would represent a huge overhead cost for them.

By charging for text messaging, it is possible that they are not only eliminating overhead costs but are also earning huge profits at nearly zero additional cost.

From Slashdot Organization
The pricing for text messaging of 1 peso per text is more of a deterrent measure to keep cellular networks from being overwhelmed by text messages.

It is not the usual pricing which basically is the sum of all costs plus profit.

It is almost an arbitrary price which is set based on the parameters of how much text traffic can be accommodated without impairing the network to send or receive calls.

Put in another way, it is a price set to guarantee that a larger portion of the available capability of cellphone networks are free to accommodate voice calls which is where cellphone companies make most of their money.

Cellular phone networks were inherently capable of sending and receiving text messages for free -- no additional cost for buying equipment. All they really had to do was to charge any fee that they figured people would pay and at the same time, create a demand at a level that would not impair their system.
What is the actual cost of sending one text message? Zero, at least according to the two articles I've cited.

So, for every one peso text message, telcos in the Philippines might be earning as much as one peso. Even at promotional rates of about 25 cents per text message, telcos could be earning the whole 25 cents.

If that is so, what does Smart, Sun, and Globe spend its revenues on?

I don't have the exact information on this but I'd guess that all three telcos spend billions on advertising, billions on the salaries as well as bonuses of its employees (most are given a 17th month pay), billions for maintaining and upgrading its technology (which for some reason, still results in dropped calls or call with very poor voice quality, unsent text messages, and unstable internet connection), and dividends for stakeholders.

In the mean time, you'd wonder about the condition of the average Filipino cellphone subscriber. Better yet, why don't we take a look at the condition of the child of an average Filipino cellphone subscriber.

The child of an average Filipino cellphone subscriber goes to a public school which not only lacks classrooms, but also has only 1 comfort room which they must share with at least 200 other students -- that comfort room has one toilet bowl and one wash basin, indoor plumbing is optional. They learn lessons from a teacher in a class of as many as 100 students and they must try to learn their lessons in a room that is either too hot or damp from floods or leaking roofs. They must try to learn from books that are either outdated, misprinted, or printed with factual errors. They are taught about computers using a well-worn CHART with a picture of a computer. They are taught chemistry and other sciences in the same way.

The child of an average Filipino cellphone subscriber is malnourished and is ridden with diseases as well as dental carries.

Here's an excerpt from an article I posted yesterday:
Department of Education's figures show that 21% of schoolchildren are malnourished; 11.4% of students ages 6-12 are iodine deficient; 37.4% between ages 6-12 suffer iron deficiency anemia (IDA), while 36% suffer from vitamin A deficiency.

Moreover, 67% of schoolchildren suffer intestinal helminthiases (intestinal worms); 97% have dental caries; 6.2% have hearing impairment; and 2.54% have visual impairment.
How much money is needed to solve the education backlogs in the Philippines?
12,418 rooms at the cost of P6.95 billion
1,744,237 school seats at P1.39 billion;
44,200,000 textbooks for all students at P2.78 billion.

12,733 teachers with a cost of P2.48 billion and funds for their training at P25 million
24,709 principals at the cost of P4.43 billion

feed 12,202,297 school children in all grades for 120 days at the cost of P58.5 billion.

This totals to about P74 Billion
Under the present circumstances and for some time now, the government has not been able to supply all that the public education currently lacks.

Although several provisions in the constitution mandate that the government allocate the biggest portion of the budget to public education, the largest portion of the budget still goes to debt servicing.

It would be ideal if we could minimize or de-prioritize debt servicing, however, that would have negative economic repercussions.

What is needed, at this point, is a mid-term program that would raise additional funds and cause these funds to be administered efficiently and effectively in order to fund the inadequacies of Philippine public education.

About two years ago, Senate Bill 2402 was filed and it proposed the levying of 10 Philippine centavos on every text message sent through the system of Smart, Globe, Sun and other telcos. This levy will be on the earnings of telcos and would not be passed on to telco subscribers, it is expected that the levy would raise about P72 Billion a year -- or just P 2 Billion short of what is needed to wipe out the present education backlog.

A government owned and controlled corporation called the Health and Education Acceleration Program would be created to receive and administer the funds using a system that will allow it to show how much it has received and disbursed in real time over the internet. All purchases (from materials for the construction of schools to books, chairs, tables and even salaries of teachers) will be accounted for.

Recently, subscribers as well as telcos have registered their protest over House Bill 6625 which proposes an excise tax of 5 centavos on every text message sent.

While this bill is substantially different from Senate Bill 2402, the resulting uproar over HB 6625 could as well adversely affect the chances of passing SB 2402 since it also proposes taking a specific amount from text messages costs -- with the argument that such fees will be passed on, despite assurances that both bills have a NO PASS ON provision.

Now, there is some indication that telcos are actually funding a huge lobby to protect its earnings and have even gone so far as to fund congressmen as well as senators to oppose the passage of both HB6625 and SB2402.

To answer the question that I posed at the beginning of this entry, "Does Smart, Globe, and Sun really love its subscribers?"

Apparently, they don't love them enough to give their children good education that will eventually lift them out of poverty.

They don't love them AT ALL.

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