Asia's ISPs enter fray with 'free' access models - Industry Trend or Event

CommunicationsWeek International, March 20, 2000 by Nick Ingelbrecht

Despite the failure of early attempts to establish free Internet access in Asia, ISPs are now scrambling to grab a slice of the pie with a variety of models.

Free Internet access services are making major inroads into Asian markets, despite the early failure of the region's first "free" ISP operation in Japan and lingering doubts over the viability of current business models.

StarHub Pte Ltd. estimates it has cornered some 200,000 Internet customers, around one-third of Singapore's Internet subscriber base, within three months of launching its subscription-free Internet product last December, forcing its competitors to rush out rival schemes in order to retain subscribers.

Elsewhere in the region, City Telecom Hong Kong Ltd.'s (CTIs) "free for life" Internet access service, launched last July, claims 79,000 free Internet users, plus a further 316,000 customers who can offset their US$14 monthly Internet subscription charge against the cost of international direct-dial calls made over the CTI network.

Meanwhile, Australia's biggest ISP, Telstra corp., said it may consider free Internet access following its failure last month to acquire the country's second-largest provider OzEmail Pty Ltd., from UUNet, due in part to regulatory intervention. "Right now, we don't think the free ISP business model is a viable one [but] we are not ruling it as a possible option," said a Telstra spokeswoman.

ISPs in Thailand are also rolling out free Internet access products this year, and Japanese operators have again entered the fray in a bid to tap on-line advertising revenues and lock in future earnings from e-commerce and broadband access services. "There will be a big opportunity for free access in Japan," said Toru Takahashi, chairman of the Internet Association of Japan.

While most of Asia's free Internet services have so far relied on advertising revenues from their Web sign-up pages or portals, operators are also looking to bundle free Internet access with their carrier service offerings, not least because of the limited success of advertising-supported services in the region.

Japan's first free Internet service came to grief three years ago when Hypernet, a subsidiary of Tokyo publishing conglomerate ASCII Corp., failed because it was unable to secure enough advertising revenue. Last November, however, Tokyo-based ISP, Livedoor Inc., relaunched free Net access services in Japan, and now has just over 130,000 customers. It is on course to sign up 1 million users by year end, said a company spokesman. The company argues the growth of the on-line advertising market now makes free Internet access services viable in Japan.

Other established ISPs remain to be convinced, however. Unlike their counterparts in other regions, they say Asian ISPs are having to pay the full cost of expensive trans-Pacific connections to the Internet backbone in the United States, and in most cases they are not able to derive revenues from timed local call charges.

According to George Hoffman, Japan branch director of the Yankee Group in Tokyo, the Japanese Internet market is only just getting to grips with the introduction of flat-rate Internet services, which meant a time-lag had occurred in the adoption of free Internet access.

"I wouldn't say free Internet services had failed in Japan, but I don't think we have the right culture just yet," said Hoffman.

Elsewhere in the region, free Net services have been snapped up by users. In Singapore, StarHub is close to achieving its first-year target within just three months of launching its free service. "The crucial question for management here is how do you maintain the quality of service the users want?" said StarHub spokeswoman, Eileen Chua. StarHub's free Internet business model initially draws revenues from advertising, as well as value-added services such as its technical support line, which incurs a 30 Singapore cents per-minute charge.

Singapore Telecom responded to StarHub's challenge this January by offering free Internet accounts to its entire 1.8 million fixed-line telephone subscriber base. SingTel offers its customers toll-free access, but for a limited block of time, while StarHub's users pay a small per-minute call charge for subscription-free access.

While e-commerce holds out the prospect of revenue streams in the longer term, a more immediate objective for "free ISPs" such as StarHub and CTI involves selling other carrier services to their Internet customers. StarHub is preparing to launch a full range of fixed and wireless carrier services on 1 April, while CTI is rolling out a fixed wireless access network using LMDS later this year.

"E-commerce revenues are not high at the moment, but CTI are looking at switching 60% of their existing [free] narrowband customers to [paying] broadband services," said Rachel Lo, Internet analyst at International Data Corp., in Hong Kong.

In Thailand, a more modest free product was rolled out in February by CS Internet, of Bangkok. The ISP is offering free access via its GSM service, although the GSM call will be charged at three baht per minute.