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January 13, 2011

Internet Coverage over Internet Speed

Been in the boondocks for about a week now on a semi-vacation mode (and semi-retreat kind of way) so I’m not able to regularly publish new entries here. With a thousand miles away from mega Manila and a couple hundred more miles from the nearest city, my mountain resort hide-away is almost devoid of any internet coverage.

I’ve had some time to re-think the broadband issue I left behind in Metro Manila and have gotten a few more thoughts and ideas I’d like to share.

Broadband Internet as a Right vs. Privilege. If broadband internet becomes a “human rights” issue, does that mean that people in the boondocks and far-flung islands of the Philippines can “demand their right” and be provided with access to the internet where there is currently none? If that’s the case then I think the more important issue that NTC should look into is not the sub-standard speed of broadband internet but the utter lack of broadband coverage in many areas in the Philippines.

It’s like the poor people in Metro Manila protesting they are only able to eat 2 times a day when they should be able to eat thrice a day against the fact that people in far-flung areas have nothing to eat at all.

However, Government stepping into and regulating an industry does not always end well. Many other essential services like water, electricity, telephone have been privatized instead of nationalized. Even oil has been deregulated as well. I don’t believe in “big” governments.

Internet Coverage vs. Internet Speed. Faster broadband speed is always better. We always want our 2Mbps mobile 3G connection to be at its top speed.

Then again, if I were in the islands or in the middle of the jungle, I would care more about being able to access decent internet rather than thinking about downloading the latest episode of Fringe — I would not mind getting a steady 256Kbps line on my supposed 3Mbps mobile 3G connection as long as I get the connection. But that’s just me.

During the NBN ZTE scandal, I’ve read news reports that local telcos now cover 99% of the population of the Philippines in terms of internet connectivity (dial-up, DSL, and GPRS). That doesn’t mean though that the 99% of the area of the Philippines have internet access. It could be just the top 1,000 big islands that have coverage while the remaining 6,107 are still unreachable (while still representing the remaining 1% of the population).

Residential Broadband is Shared Resources. Many people do not know that the regular broadband internet they subscribe to is shared and not dedicated.

If you want a full dedicated line, you can get it via a “leased line”. That means the whole pipe is just dedicated to you alone. Not sure about local pricing but a 1Mbps leased line could fetch you up to $500 a month (this is an old price I knew a couple of years ago).

In a shared broadband environment, only a certain amount of bandwidth is provisioned. Say for every 20 subscribers, the ISP allocates around 1Mbps of dedicated pipe. The tricky part is how they can efficiently manage the provisioning so that all of the 20 subscribers still manage to experience the 1Mbps connection.

The fact is, no ISP anywhere in the world can afford to dedicate a full pipe for each subscribed speed — meaning, dedicate a 2Mbps line for a 2Mbps subscription.

Let’s take PLDT for example. In 2009, they generated a revenue of about Php13.9 billion in their broadband service from almost 1 million subscribers.

Let’s say each of the 1 million residents subscribed to only a 1Mbps connection. If PLDT allocates a dedicated 1Mbps (and not shared as it normally does) to each one, then it would need to “rent” out 1,000Gbps (1,000,000Mbps) of international pipes. If the going rate for a 1Mbps dedicated international pipe is $40 (this figure I got from small municipal ISPs renting out 1Mbps fiber pipes in some US states), then PLDT would need to pay international providers $40 million a month (roughly Php1.76 billion a month).

The annual fee it has to pay would be Php21.12 billion (way higher than the Php13.9 billion collections from subscribers). That does not count cost of operations, salary of over 5,000 employees, infrastructure, debt payments, etc.

We can now do a reverse calculation and see how much pipe we’re actually provisioned from these figures. Let’s say the total operating expenses, infra and salaries for the year is Php4 billion.

A typical business would make a 40 margin so that leaves Php8.34B from the Php13.9B gross revenue. Subtract Php4B of expenses from Php8.34B and they’re left with Php4.34B to pay for rent of international pipes.

Using the same $40 a month per 1Mbps dedicated pipe, Php8.34B will only allow for 394,000Mbps a year. If that 394,000Mbps is provisioned to 1 million subscribers, then each one would only get something like 394Kbps for their 1Mbps subscription.

That’s just how the ball rolls. How else can ISPs sell you a 1Mbps subscription for only Php999 a month if they pay their upstream providers $40 a month for the same speed?

Geography and Economics

Neighboring countries like Singapore and Hong Kong enjoy much faster internet speeds and at cheaper prices too. Why not the Philippines?

First, it’s geography. There are around 3.6 million broadband users in Singapore. In the Philippines, the estimate is 29 million but not all of them are broadband users (net cafe, office, school and dial-up users are included here). However, Singapore is only 683 square kilometers while the Philippines has 299,764 square kilometers of land. That’s 439 times bigger (size-wise) or at least 55 times more expensive to cover the same amount of people and be able to provide them with fiber connectivity.

Second, it’s economics. Despite the “internet” being a global commodity, local economics will still dictate supply and price points. Our electricity rate is among the highest in the world. Our taxes (10-35% + 12% VAT) is among the highest in the world. We have our share of very cheap services too — like SMS which is roughly Php8 in the US and only Php1 here.

There’s No Truth in Advertising

Have you tried eating at Mongolian Bowl with their eat-all-you can promo? I bet you can’t really eat all the meat that you want since they’ll put a cap on the amount of pork or chicken you put in each bowl.

Have you really tested if a drop of Joy liquid cleaner can really finish off 2 dozen dirty plates with just a single drop?

Have you accepted an invitation by a real estate sales agent to visit their site because they say you can own a house and lot for “only Php10,000″ a month only to discover that the rate was for the monthly price of the 20% down-payment while the 80% is spot cash?

Aren’t we already familiar with the usual holiday sale that says “70% OFF (“up to”, in very small letters)”.

Do we all really believe in the advertising that we see on print, in billboards and on TV? To make matters worse, we never bothered to read the fine print when we sign service contracts. There’s no truth in advertising.

But here’s the clincher — ISPs have lawyers that make sure their ads and claims are protected from being considered scammy (or falsifying the public). The use of “up to X Mbps” and the fine print that indicates the Acceptable Use Policy are provisions that discloses the limitations of the service and liability of the provider.

To regulate or not to regulate; that is the question.

Government regulation is an iffy subject to discuss. So much more that we’re talking about the Philippine government here. If the government cannot even efficiently regulate its own offices and agencies, how much more the private sector? Most of the time, regulation can result to more bureaucracy and eventually corruption.

On the economics side, regulating the prices of a service or product does not always result into cheaper prices and/or better products. Just came back from NAIA3 and took a taxi home — there’s an LTFRB-approved airport taxi there that charges Php70 flag down and Php4 per 300meters. There’s another regulated taxi service that charges a fixed Php440 for a one way trip from the airport to Makati. The taxis aren’t even new (a ’95 Toyota Corolla). Now, that’s highway robbery. And to think the government is already involved in this “approved” rate.

Disclosure: My position is based on my personal experience running a couple of businesses (I own an internet cafe and a web hosting business for years) that is very similar to an ISP and as such have encountered, on many occasions, the same problems.


66 Responses to “Internet Coverage over Internet Speed”

  1. Norman
    Twitter: normantiongco
    says:

    All we want is faster Internet connection. That’s all.

  2. ricardo isip
    Twitter: ricisipjr
    says:

    “yes, they do make a lot of money. businesses exist to make a lot of money.”

    no no no… not at our expense, the consumers.

    may mali dito in dapat itama

    class suit anyone….. hehehe

  3. haler haler says:

    This is a well written blog. May I ask whats yourabout MyDSL? If they say up to 1MBPS, how often do you get this speed? and what is the typical speed do you usually get? and when do we say that this service becomes scam? Is it when you normally get 100KBPS just like what I normally get from Sun Wireless Broadband(yes, I only get 100kbps out of the promised 2MBPS)? Can we report this matter to DTI and have their service discontinued so that they will no longer be scamming other people?

  4. George says:

    Regarding the regulation issue.

    It’s not much about the government’s capability to regulate, I think it’s more on the fact that it goes against the basic concept of democracy.

  5. Night says:

    Actually hindi naman reklamo na yung promised speed eh. Parang lahat almost tanggap na hindi talaga kayang maachieve ung up to na speed. Yung lalagyan ng cap yung badnwith ang main issue.

    Pero since napunta na din dun, how can it be up to 1mpbs kung ever since ginamit ko siya hindi pa ata umabot ng 1mbps ung speed ng net ko? eh kung maximum speed lang na nakuha ko is example 250kbps eh di up to 250kbps lang dapat siya. hindi ba? Dapat ang lagay nila is AVERAGE speeds not UP TO. Mas honest IMO.

  6. RF Engr says:

    @ ABE
    Being in the industry of telecoms for long,I just want to explain some issues regarding 3G to GPRS/EDGE..actually its a good thing rather than bad, transition happens when transferring from 3G site to Non-3g neighbor site..its called handover in technical term..so you get GPRS/Edge to compensate the weaken 3G signal so your calls/data wont drop or terminated..hope i shared something meaningful..thanks

  7. Raymond says:

    I just wondering if some of you guys is talking about download speeds.

    Download speed is equal to bandwidth/8.
    1mbps = 1024 kbps.
    Actually I just searched for that info. I just love the internet.

    My DL speeds usually goes over 200kbps on our 2mbps connection. I can say we usually get near max bandwidth.

    Still I want better and cheaper internet service.

    @haler haler
    It looks like you are getting only half of the promised bandwidth.

  8. vince
    Twitter: Vincent
    says:

    have to agree with night. Few people read the fine print and some that do probably think at the back of their minds “this fine print does not tally with whats written on the ads, but the ads are flashier and in bigger fonts so i’ll subconsciously ignore the fine print”.

    So it would be much fairer for the ISP’s to advertise the average speed and place the max burstable speed in fine print.

  9. ^_^ says:

    in US, we subscribed to comcast’s xfinity internet 20mbps plan for only 29.99 dollars(Php 1290) (6 months contract). compare to internet services here in philippines, it’s far less what we get here for the same price.

  10. abe says:

    ^comparing US to philippines LOL

    also “up to 1mbps” kahit sa ibang bansa ganyan ang mababasa ninyo sa internet plans.

    “up to 1mbps” lang mahirap ba makaintindi ng basic english?

    nabasa niyo naman na “up to x speed” lang bago kayo nagsubscribe diba?

  11. abe says:

    may kapangalan pala ako dito lol sorry.

  12. oo00oo says:

    I’m not sure pero parang marami ang nagkakamali sa pag kaka intindi ng “Unlimited”
    Mostly pag sinabi Unlimited tas may 1mbps, kala nila unlimited up to 1mbps yun which is not.

    Kung babalik kayo nung young pa internet connection dito sa Pinas using Dial-UP connection.

    Ang internet nuon may LIMIT, ang limit iyong hours ng “CONNECTIVITY” mo…

    Let say you pay 400pesos/Month for 24hrs usage of Internet connectivity. Once na ma reach mo na 24hrs ma di-disconnect ka na.

    Kung naalala nyo pa dati may mga cards using dial-up connection na binibenta na mahal pa 2hrs for 50 pesos dati.

    Since nauso ang leased line, at mga cable connection, DSL, nagkaroon ng 24/7 connectivity which is iyon ang tinatawag na “UNLIMITED”

    So Technically ang sinasabi nilang UNLIMITED iyong Connectivity mo Unlimited hindi iyong SPEED mo. You can connect 24/7 round the clock any time na gusto mo.

    So ang 999/month you have UNLIMITED connectivity WITH UP TO 1mbps speed. Kaya nga wala sila ni pro-promise na minimum speed, which mean kahit 1Kbps pa speed mo basta naka connect ka, iyong advertise nilang Unlimited stays true to the public.

    Marami kasi tao makarinig lang ng Unlimited Internet pumapasok agad iyong One to sawa ka sa Internet mula umaga hanggang magdamag.

    Which is ginamit ng mga advertiser ang word na Unlimited para ma hookup ang mga taong nagbababad sa internet at mga taong wala pang connection ng internet, then dinagdagan nila ng with UP TO 1mbps, para ma hikayat naman nila iyong mga taong nakaranas na ng internet na mabagal na naghahanap ng mabilis na connection.

    Hindi ma appeal sa akin ang unlimited coz alam ko given na iyon eh. Sa 1mbps ako nadale ng Ads wahahaha! Coz dialup ko nun average 25kbps lang pag umabot sya ng 50kbps masaya na ako nuon, eh ano pa kaya kung 1Mbps???

    Nung nag subscribe ako ang first question ko, kung ano iyong minimum speed nila, which is wala silang ni guarantee na minimum speed, na gulat ako, but no choice…. @plan999/month which is very cheap compare sa mga previous internet price dahil ang Unlimited connection dati or DSL umaabot ng 2k-4k/month, and iyong Dial-up dati pagkakatanda ko 1k/month mga 200-300hrs lang free.

  13. alwin
    Twitter: alwinatwork
    says:

    Interesting read Abe. Two thumbs up!

    Words have different meaning and the best way to translate “unlimited” is how oo00oo says it. Because if we’re really talking about unlimited speed, then the 1mbps is still limited, because you’re basically limited up to your subscribed speed.

  14. I am from Canada, and I was geting 3.5 megBytes per second just before I came here, on my home dsl connection from Telus. This coasts about $50 cCanadian per month. By comparison, Sun Broadband gives me a very lousy 1 mega BIT connection, for about the same price. That 1/30th of the speed or less (.125 megabyte connection. Speeds here suck. WHY???? Why is the philippines so far behind other countries?? Why doesn’t the government step in?? Free enterprise isn’t doing it!! And also, the upload speeds are even worse, causing the downloads to be even slower…to get good download, you need upload as well. Its time for someone to do something! Great business opportunity for someone!!!!

    • Tilde says:

      Reliable connection, when you turn on the coeuptmr the internet light should be green and not red as I have been getting recently. Speed is important but the clever adverts always states up to so fibre optic must be rolled out sooner than later, as we are way behind some other European countries, and no limits on usage please.VA:F [1.9.22_1171](from 0 votes)

  15. H.Rossmann says:

    I come from Germany, i live now four years in Balayan and i had several providers. In Germany you get a 32Mbit DSL no limit for 30 Euro and the bandwith is allways over 80% or more. Here i pay the same money for 2Mbit/s and only youtube has full download speed all other connections restricted to more or less 312 kbit/s and this is called “no limit” because there is a note in the contract that says “..it depends on the amount of users online..”.
    For me this is modern robbery, like you go to buy a bag of rice and on the bag stands ” .. it depend on how many customers are buying rice..” so you have to pay the full bag like all other customers and maybe you get 1/5 amount of rice.
    At the riceshop you will never accept this.
    And we all and the goverment accept this behavior quietly…

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Abe is the founder and Editor-in-Chief of YugaTech. You Can follow him on Twitter @abeolandres.

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