November 5, 2004 (STAR) MY TWO CENTS’ WORTH By Dickson Co DFNN.COM - A few years ago, we used to use Kallback services and then we embraced VoIP as a great equalizer in hopes of reducing our long-distance trans-Pacific phone calls. Companies like Dialpad and Net2phone offered a PC-to-landline connection. The technology then was young and therefore, bug-filled. We had lag times and dirty reception. We had dropped calls, but we persisted to use it just to save money.

Fast forward to 2004, technology in VoIP calling is now maturing with companies like Vonnage, Skype and Cisco behind this trend.

Cisco built its business helping the Internet happen by building infrastructure boxes like switches, routers and modems — in my speak, things that help you connect to the Internet. Today, Cisco Internet phones are commonplace in most US companies; I even saw a Texas library use Cisco phones.

Vonnage is a service provider similar to a telco that leases to you an Internet phone and uses the Internet as the telephone wire. I heard some smart people in the Philippines have subscribed to this service and are quite happy with the voice quality of their conversations, and of course, the cost of their IDD phone calls has dropped significantly.

Now we have Skype from the founders of Kazaa. You might remember Kazaa as the software that enabled users to share music. In contrast to Napster where there were servers helping the sharing, Kazaa used the excess capacity of the network. This achieved two things: reduced the cost of running the Kazaa network to nil, and the music companies could not sue it but instead sued the users of Kazaa.

The Skype software offers a similar killer application. While Vonnage charges about $20 a month for unlimited US domestic calls and a significant discount to standard IDD calls, Skype offers free PC-to-PC calls over the Internet and charges a below-market price for PC-to-landline calls. Vonnage spends $400 to add a new customer, while Skype spends 1/10th of a US cent.

Michael Powell, chairman of the US Federal Communications Commission, was recently quoted as saying, "I knew it was over when I downloaded Skype. When the inventors of Kazaa are distributing for free a little program that you can use to talk to anybody else, and the quality is fantastic and it’s free – it’s over. The world will change now inevitably."

My Two Cents: Telcos worldwide have been known to and will probably fight this trend through the use of legal maneuvers as well as on the marketing front. I believe they have a right and a duty to their shareholders to defend their business.

I also believe that if the Philippines is to be competitive in the call center and BPO global space, a continued decline in operating costs such as for voice calls and broadband is required. However, legislation is not the way to go, but rather price reduction through new competition is welcome.

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Words Of Wisdom From The Sage

Washington Sycip, the Sage of ASEAN Business, recently spoke to the Semiconductor and Electronics Industries in the Philippines (SEIPI), an industry association of electronics and chip exporters, last Oct. 19.

Mr. Wash congratulated the SEIPI for producing 70 percent of the country’s exports. In 2003, electronics exports hit $25 billion. He said the Filipino, once abroad, can compete with the world’s best. Given the right training, our engineers can produce world-class products. However, the political environment is one that needs a lot of work.

He lamented that the Philippines, as an exporter of human resources, is losing its edge in English, Math and Science. There is a need to produce more engineering graduates and less law graduates.

Mr. Wash observed that the President has the difficult task of working under a presidential system based on check and balance, instead of cooperation and unity. The Philippines is in a crisis situation – economically and politically – and quick action and cooperation by all branches of the government and all political parties is urgently needed. The Philippines needs a Government of UNITY.

Mr. Wash gives us some of his prescriptions for a Government of UNITY to succeed: (below are selected quotes from his speech)

aa. Peace and Order. With peace and order, tourist arrivals can triple and even quadruple. The tourist industry is labor-intensive, which means growth in tourism only leads to increased employment.

bb. Better public school system. The Philippines is the only ASEAN country with a 10-year elementary and secondary program, while countries such as Malaysia, Singapore and Thailand have a 12-year program. In a study on Math and Science, Filipino schoolchildren placed 36 out of 38 countries. Around 350 million people study English in China, 100,000 Malaysian teachers take remedial English, Koreans come to the Philippines to study English, and English is the second language in all Asian countries.

cc. Better credit through microfinancing. Reduce the dependence on 5/6 lenders who lend at an interest of 20 percent a week or 1,000 percent per annum. With better and lower rates, Philippine households get a better path out of poverty.

dd. Reduce corruption. The Philippines was the only country ranking near the bottom of the list where the problem of corruption is seen to have intensified in the past year

ee. Reduce population growth. Rapid population growth slows down economic growth, thereby affecting increases in average incomes.

ff. Reduce the fiscal deficit. The government is correct in emphasizing the need to increase "sin" taxes – and a higher tax on cellphone companies. Mr. Wash even strongly suggests legalizing jueteng. This will raise revenues, give the poor a better chance of winning and reduce corruption. We should sell most of the assets in the hands of government and use the proceeds to reduce our deficit.

Mr. Wash ended his speech on a positive note: "I am optimistic that the Philippines can overcome its current problems but it will take sincere commitment from the private sector, Congress and the administration."

My Two Cents: I echo every word from the Sage, except for the increased taxes on cellphone use. (Disclosure: I work for a wireless application company which depends on increased cellphone use.)

* * * Dickson Co is CFO (C is for Cheap) for Dfnn, Intelligent Wave Philippines and HatchAsia.com. For comments or suggestions,
e-mail twocents88@yahoo.com.

Reported by: Sol Jose Vanzi

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