The Era of Free Cellphone is Coming

At the WEB 2.0 conference, Google CEO Eric Schmidt announces that cell phones shall cost nothing. Subsidies for these phones will rise as more advertising is channeled through mobile phones.

Taking a cue from the uber advanced Japanese mobile phone market, cell phones will one day be free! In Japan, there's already the 1 Yen mobile phone. This is roughly 50 centavos.

For free cellphones to exist in the Philippines, there are some factors that have to be in place.

1. There has to be more competition in the market.

Since the entrance of Sun Cellular to the market, it has been loud and industry-shaking. It has provided unlimited calls and unlimited text promotions. As a response, Globe and Smart has been dropping their text messaging rates and has also spinned off their own unlimited text and calls promos.

Right now, a text message costs between 50 to 70 centavos and I believe their is pressure to go even further down. Hopefully as more younger and hungrier telcos introduce plans to the market, they will be compelled to heavily subsidize phones and just focus on content (news, movie scheds, chismis) and service (text messaging, video feeds, calls) earnings. This is the only way to go for these baby telcos if they want to grab market share, controlled 80% by Globe and Smart, and at least get some resemblance of volume.

2. We have to increase further the penetration rate from 38% to 80%.

"Globe estimates that excluding subscribers with multiple SIMs brings down the actual penetration rate to 38% from 45%, which means the industry is perhaps another two years away from the expected peak penetration rate of 50%," the analyst noted.

- From BusinessWorld Research. Aritcle GLOBE TELECOM INC. from Stock Pick column. Dated December 4, 2006.
http://www.bworld.com.ph/Research/stockpicks.php?id=0094

Selling ads through mobile phones is still a novel idea in the Philippines and to do this you'll have to have a big big subscriber base. The 38% penetration rate, roughly around 15.2 million Filipinos,is already respectable but not yet good enough. Aside from the usual services, pushing advertising is a good strategy. However, their reach must be wide and across the spectrum. Remember, not all people will want ads being sent to their phones and not everyone will read text ads. Mobile phone companies then, like newspapers, will have to use their subscriber count in order to justify for pricey advertising rates.

3. Telcos must heavily push for the use of 3G services.

If a company wants to fully subsidize phones, they'll have to earn bigger margins. By tapping the top 15% of the population and pushing for the lucrative 3G services like tv-on-demand or video phoning, companies will be able to charge around 10 to 40 pesos per service. Multiply these prices over 2.3 million users and you'll get earnings of 23 million pesos per day- just from the 3G services. 2.3 million is the 15% of 15.2 million subscriber market. With this kind of projections, telecom companies will have enough cash to sell phones at a lost.

Wait! Don't get your hopes up yet. The free cell phones that will be offered are the basic bare-bones flavors. These phones will only be good for calling and basic text messaging with limited memory. Perhaps a comeback of the Nokia 3210 or the presently affordable Nokia 1100 will be the initial free models.

Paid-for-mobile units will still be here, especially the higher end ones. Remember, companies like Nokia and Motorola market their phones as fashion accessories and not as communication tools. Nokia's Vertu line and the pricey Nokia 8800 (pictured above) are all minimalist in design and yet exude the same fashion statement as a Louis Vuitton bag. These kinds of phones, made from titanium and embedded with diamonds, will survive the free phone rush and will still sell madly to the ultra-rich crowd.

The way to go then for these telecom companies is still to tap the price sensitive Filipinos. They have gotten rich by offering 1 peso text messaging and why not get another boost by offering free phones. I do not see 3G services being as successful as text messaging but this sector will help prop up margins high enough to subsidize phones that will deliver services to the primary market.


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