A MAJOR development in the telecoms industry is the bold Initial Public Offering (IPO) of Converge ICT, an internet service provider that has brought fixed broadband internet connection. Converge’s high speed internet coverage has grown by leaps and bounds since it was first founded in 2016 by Dennis Anthony Uy off Clark in Pampanga (not to be confused with Davao’s Dennis Uy whose DITO telecommunications partnership with China Mobile is gunning to be that “third telco).
From the very start Converge identified wiring up the population with broadband access and focusing on that single area of telecommunications alone. And it served itself well, as well as its clients, building up a significant customer base from its Central Luzon hub, through Metro Manila and up to recently starting the penetration of the Mega Manila suburbs of Laguna.
Converge launched its IPO bid today (Monday, 26 October 2020) to raise funds for its two pronged plans for growth as said in their prospectus: “Go Deep”, deepen penetration in existing coverage areas by employing a disciplined approach in network rollout and to identify key sub-localities where coverage gaps still exist; and “Go National”, expand into new coverage areas across the Philippine archipelago, first into Cebu province in the Visayas and subsequently in other new markets and sub-markets in the Visayas and Mindanao, as the company completes its nationwide backbone.
This focus on fixed broadband places Converge in a unique position in as far as internet connectivity is concerned. The top two telecoms providers, Globe and PLDT/ Smart, are “full-service” telcos which provide a broader range of services from cellular phone services, mobile broadband connectivity, landline services and other traditional telco services. In fact, fixed broadband is only 30 to 40 percent of their business.
While seemingly “incomplete”, this situation actually places Converge in a unique and advantageous position vs the two Telco giants.
The evolution of telecoms in the country starts with the infrastructure of wooden telephone poles and copper wires which in the 1960s to the 1980s saw dismal growth and expansion. Telephone density at its best was one phone for every 100 households, and that’s just in the key areas. PLDT had the monopoly then, so they had no incentive to perform better. Yes, there was the government telephone system then, but it wasn’t any better and in fact was practically non-existent. PLDT’s extremely poor service created a black market for phone lines. People who had phones which they no longer needed (house transfers, business closures, death) would sell their lines for P25,000 to P50,000. And that did not include the linemen you had to pay off to secure and reinstall the line.
The demand for more advanced telecommunications led to inventions of expanding the use of the copper wire network, first with the use of facsimile or fax machines, to the introduction of dial-up internet access for some browsing and email, then later to Asymmetric Digital Subscriber Line (ADSL) which increased the bandwidth of the copper wires to allow higher speed internet, video streaming and more subscriber capacity.
It was only in the advent of fiberoptic cables that internet connectivity took another leap as a single hair-sized strand could accommodate tens of thousands of data more than that of the most optimized copper wire.
Parallel to this was the introduction and growth of mobile telephony, starting off with radio phones – like low frequency line of sight signal walkie-talkies – connected to the landline phone system, to the development of cellular technology with a rollout of towers with about 25 km radius which handed off the service as you moved from one to the other. Later, as it switched from analogue to digital, more services like wireless broadband connections were rolled out with the cellular mobile infrastructure.
Now there’s the conundrum: the telco giants that have been building the industry for decades have been slowly evolving from their existing infrastructure and technology and not rolling out capacity and technology fast enough to meet market demand. And the main reason, we suspect, is this: having spent billions of pesos on their existing infrastructure and technology, they want to be able to maximize their earnings from these.
Example: in Nuvali Estates in Laguna – touted as among the most modern suburban developments in the country – the rollout of PLDT’s fiberoptic home WIFI services is dismal. So bad that they will offer you an ADSL connection just to satisfy your need connectivity. These modern communities that barely have fully-built houses and even lower number of residents are being told that fiber optic broadband connection is already in full capacity and the only way to get connected is to subscribe to the copper wire network.
Going back to converge, their core business is providing fixed broadband services which it has been able to do with relative success so far (barring usual glitches, occasional customer service lapses and the like), giving customer some 100mbps of bandwidth as very decent rates. The major disappointment is that their coverage area is not that wide. That is supposed to be funded and operationalized by the IPO.
Simply put: Converge is not hampered by existing infrastructure and technology that needs a return on massive investment.
In addition – again in its prospectus – Converge’s expansion in its focused core business will actually support other providers because they will have the capability to provide connectivity to 5G mobile providers and other institutional customers.
It will likewise enable other “last mile” services which the other telcos seemingly started but were just too distracted to even do. One example is the WIMAX service. In simple terms you can have a village, barangay or small locality have a single high capacity Converge broadband connection which the whole community can be connected via WIFI. It’s as simple as having a high capacity router and external antennas.
Judging by the way we use our smartphones – keeping connected with each other via Viber, Zoom, Facebook Messenger and other social media apps, it seems the power of telecoms lies on broadband connectivity and much less of the other telecommunications services. Just look at any standard application form you have to full up now. The most relevant answers are your name, address, mobile number and email address. Many leave the landline/ telephone number query blank, at times even if they had one bundled with their WIFI service.
Converge and others concentrating on broadband services are on the right and faster track in fulfilling customer demand. As to the telcos saddled with attaining returns for their old infrastructure, they’ll probably get there, but the journey will be long and arduous.
JPFenix Blog 