Philippine carriers willing to reduce SMS fees

PHILIPPINES--Offering SMS or text messaging for free is "impractical" and will clog up the network, say local carriers, arguing that the government should not control pricing structures. But, operators say they are willing to lower their fees.

The local telecoms sector was abuzz earlier this month when the Philippine government proposed to make SMS a free service amid soaring gas and food prices.

Department of Transportation and Communications (DoTC) Secretary Leandro Mendoza was quoted in local papers saying that mobile phone carriers have no business charging customers for text messages when their revenues should be generated by offering voice calls.

Text messaging should have stayed as a free service, Mendoza said, just as it was when first offered as a way to entice the public to subscribe.

Following Mendoza's recommendation, lawmakers filed proposed legislations seeking to make text messages free or cheaper. This was followed by public consultation hearings conducted by a Congressional committee and the industry's regulatory body, the National Telecommunications Commission (NTC).

Mobile operators, which have been raking in billions of pesos in revenues as the Philippines rose to become the self-proclaimed text messaging capital of the world, rejected the plan.

Benedict Ferrer, research manager at analyst firm XMG, said the heavy resistance from cellular carriers was not unexpected since SMS is the main revenue driver for all local mobile telecommunication companies.

But, while the carriers have firmly ruled out the possibility acceding to Mendoza's proposal, they have expressed a willingness to lower the current fee of one peso (US$0.2) for sending a text message.

Ramon Isberto, head of public affairs department of Smart Communications, said offering text messaging as a free service is "impractical" and will clog the carrier's network infrastructure.

"We've proven in the past that setting price controls does not work," Isberto told ZDNet Asia in a phone interview. "Right now, we have packages such as Lahat ("All") Text which effectively bring the price of our text messages to as low 35 centavos (US$0.008)."

A statement attributed to Globe Telecom's legal counsel Rodolfo Salalima said the current rate in the country is "extremely low" when compared to India's 61 centavos (US$0.013), Malaysia's 67 centavos (US$0.015), Indonesia's 1.18 pesos (US$0.026), China's 1.55 pesos (US$0.34), and Hong Kong's 15.91 pesos (US$0.35) per message.

Isberto also noted that contrary to Mendoza's claim, the Congressional franchise awarded to them allows the charging of value-added services (VAS) such as text messaging.

"Our voice call rates would go up if we make text messaging free because we have invested so much in increasing our network's capacity to handle text messages," he said. "That, in turn, will send a wrong signal to foreign investors."

XMG's Ferrer agreed. The analyst told ZDNet Asia in an e-mail interview that offering free SMS services will "jeopardize the growth of telecom industry and send mixed signals to both local and foreign investors".

Smart Communications is partly owned by Japan's NTT, while Singapore's Singtel controls a minor stake in Globe Telecom.

Willing to lower fees
Isberto acknowledged that the government's bid to reduce the country's SMS charges was not ill-conceived, noting that high consumer prices have weighed down subscribers. "We understand where the government is coming from, especially now that prices of basic commodities are very high," he said.

However, he noted that Smart's legal position on the issue was that the government should not interfere in how telecom services are priced.

Isberto said: "That's not the way to go because the telecom industry has already been deregulated by law. The NTC's only role, in so far as this issue is concern, is only to mediate on interconnection charges."

Jesus "JJ" Disini, president of the Internet and Society Program at the University of the Philippines (UP) College of Law, said in an e-mail interview the "government can take action", but only in instances "where it has been demonstrated the prices charged are far beyond the cost of providing the service".

And so far, Disini said, government action has been "reasonably targeted at inter-carrier charges". These adjustments, he added, are likely being "made to accurately reflect costs".

However, he said it is an entirely different issue if the government decides to mandate free SMS.

Disini explained: "I don't think the government should do this as it would be disruptive to the market. Already, market forces have forced the prices of SMS down such that flat-rate unlimited plans are already available."

If the government steps in, he said, it will only disrupt the current efforts of local cellular companies to drive the price down further.

"Instead, perceived losses from government-mandated free SMS might be offset elsewhere [such as value added services]," he added.

In addition, Disini noted that mandating free SMS will not give the cellphone companies any incentive to maintain or improve the current level of service.

"Government intervention would be catastrophic for users in the end as the service levels decline and messages don't get through," he said.

Asked if the government overstepped its boundaries by proposing free SMS, the Internet-specialized lawyer said the NTC only has sufficient legal authority to impose ceilings on inter-carrier charges.

"While it is true that SMS is technically a VAS service and therefore, unregulated, the NTC has the authority under the law to monitor and set the rates charged by telcos to each other for routing traffic," Disini explained. "Actually, in this regard, I hope the NTC becomes more aggressive as it would truly drive the price down for voice services."

XMG's Ferrer said the government's knee-jerk reaction to find a way to deflect the public's attention from sky-high consumer prices indicates the lack of long-term policies.

"The government should be an active catalyst for growth in the industry by designing sound business mechanism that is forward-thinking and decisive in nature," he said. "What we see now…are fragmented regulatory loopholes that are hurting both the industry and consumers."

Regardless, the government's call to make SMS free has appeared to evoke some reaction fro the country's mobile carriers, which recently announced it would soon be offering new promotional packages with cheaper cost for sending text messages.

Melvin G. Calimag is a freelance IT writer based in the Philippines.