It’s all about Capacity, not Speed
For the past 5 years now, we’ve seen a huge growth in internet penetration in the country. At the same time, we’ve also seen the barriers to entry go down in favor of consumers, partly because of competition.
A friend asked me once why haven’t the residential speeds of ISPs been upgraded for a long time. Come to think of it, when I applied for my PLDT myDSL back in 2004, I was already paying Php1,995 for a 384Kbps connection. It was upgraded to 512Kbps a couple of years later, then to 1Mbps and now up to 2Mbps.
So in the span of about 6 years, my 384Kbps was upgraded to speeds up to 5 times (2Mbps). I’m not sure if that’s a huge jump in speed but I was hoping for a bit more.
I told my friend — it’s all about capacity, not speed.
Take this analogy for example:
Running an ISP is something like running an Internet Cafe, only simplified.
Another friend of mine and I run a small 10-unit internet cafe for a year now. Customers vary from the regular surfers (Friendster) and chatters (YM) to the heavy users (YouTube) and the hard core (online/network gamers).
Our total connection is a 4Mbps business line and on a regular day, with a good mix of customers, the individual workstations get a good share of the 4Mbps internet speed. Let’s say each one gets an equal 400Kbps — and all types the customers are satisfied with the Php15 per hour we charge them for that allocated speed.
If we upgrade our connection to 8Mbps, then offer Php25 per hour for the faster allocated speed of 800Kbps (8Mbps/10), very few customers will be opting/paying for the higher rates. Most will still stick tot he 400Kbps speed at Php15/hour.
So, what we do is concentrate on capacity — bump up our bandwidth to 8Mbps and increase the number of work-stations from 10 seats to 20 seats. We will still offer the 400Kbps to all of the 20 customers all at the same time.
The second scenario gets us more revenue than the first one. Capacity over speed.
I think it’s the same with the telcos. Telcos won’t make a lot more money for up-selling you from one plan to a higher plan. They make more money from selling more plan to more people. As such, they will concentrate more on expanding their userbase and taking a bigger piece of the market share than upgrading our bandwidth to the levels of South Korea or even Singapore.
If you look at the strategy of the new player, Wi-Tribe, it’s very telling. Yes, 4G is supposed to be faster but that doesn’t mean they will all give it out the entire bandwidth. The 1Mbps plan allows them to handle a large capacity of subscribers without choking their network.
My prediction is that, unless we get to the point that household internet penetration reaches 50% and above, we won’t be seeing affordable residential plans in the 20Mbps or higher.
Disclosure: PLDT/Smart is an advertiser on this blog.