WHILE major players seem optimistic that the Internet service provider (ISP) industry will remain profitable in the year 2000, the battlecry apparently is for ISPs to evolve in order to tap new markets and address new competition.

"I think this will be the year for local ISPs to evolve. They will have to provide value-added services, such as what's needed for e-commerce and distance learning," said Dr. William T. Torres, president of Mosaic Communications Inc. and the Philippine Internet Service Organization. Torres has been dubbed as the father (or, as he would quip, grandfather) of Internet in the Philippines, with MosCom owning the distinction of being the country's first commercial ISP.

Torres has predicted that the number of first-tier ISPs would be reduced this year, as mergers may become the solution for surviving in the increasingly competitive local ISP market.

"I think we had around 14 first-tier ISPs late last year, and that may be reduced to 10 this year. The number of second-tier ISPs (those hooked up to bigger ISPs), however, will increase," he said.

Torres added that another option for ISPs would be to move toward becoming e-commerce sites, or what is dubbed in the industry as Internet presence or content providers. Still others might focus on telco-like services leveraging on Internet protocol connectivity, such as voice over IP (VoIP).

"If a company has a leased line to an ISP, they can avail of voice services over the IP network. Since it's a private line, this would not violate the restriction that voice traffic has to go through the PLDTs and the BayanTels of this country," he said. "Access is not where you make money, it's in services. So ISPs would concentrate more on value-added services this year than on connectivity."

Meanwhile, Sky Internet Inc. stated that while it is optimistic about the prospects for the local ISP industry this year, the traditional market is admittedly already saturated.

"We are close to the saturation point as far as the country is concerned," said Conrad Fajardo, Sky Internet's marketing and sales director. "When we talk about Filipino households that already own PCs, the ISPs are not fighting over new subscribers, but over the churn (referring to subscribers shifting from one ISP to another)."

This should hardly be surprising in a country that has over 100 ISPs fighting over a relatively small market of Internet users (about 250,000 nationwide). Fajardo, however, said that good business opportunities still exist in providing Internet services to corporate clients, claiming that, up to now, Filipino companies generally "have a shallow appreciation of the benefits that can be derived from the Net."

"For them, Internet access is still basically e-mail communication, not necessarily a tool for streamlining their businesses. Or they think of the Internet in terms of putting up webpages," Fajardo said. "In our country, when you say e-commerce, it's still largely business-to-consumer instead of business-to-business. But when it comes to access, the money is really in providing services to businesses."

Asked whether the trend would be for ISPs to move away from access and instead focus on value-added services, Fajardo replied: "The only problem with value-added services in the country is that they are designed for business users, not consumers. When it comes to residential Internet users, those who drive the value-added services would not be the ISPs, but the companies when they offer business-to-consumer e-commerce."

While ISPs seem to be treading on the space of telecommunications companies when they offer such services as VoIP, the converse is also true as some telcos are also leveraging on their infrastructure not only to provide data network services to corporate clients, but Internet access to consumers as well.

Last year, Digitel Telecommunications Philippines Inc. introduced the concept of direct Internet access through the telephone, allowing Digitel subscribers to simply dial a toll-free number and immediately go online--a webtone, as the industry would call it. Recently, Globe Telecom has also announced a value-added service similar to Digitel's earlier initiative, Globelines Net Express. Internet usage will be incorporated in the Globelines billing statement, just like voice services such as NDD and IDD.

In an earlier interview, the Philippine Long Distance Telephone Co.'s chief information officer had also stressed the dominant carrier's initiative for offering value-added broadband services this year. To make these services possible, PLDT is rolling out its nationwide OC-12 asynchronous transfer mode backbone in cooperation with Cisco Systems and Fujitsu.

"That's our step toward opening the country to more Internet traffic, not only for PLDT but other subscribers," said PLDT's Ariel Roda.

Roda, however, declined to specify when these services would be rolled out, though he said that these would also leverage on the infrastructure of its ISP--Infocom--and cable service provider Home Cable, which were both acquired by PLDT.

"We won't just be relying on the ATM backbone. There are some areas where the existing cable network of Home will be more cost-effective. Or, if, at the end of the day, it will be cheaper to put ADSL (asynchronous digital subscriber line) twisted pair and pump in Internet traffic through that, then that's what we'll do," he said.

In fact, it is the use of cable for Internet services that seems to provide the strongest competition to traditional ISPs. Last year, Destiny Cable pioneered high-speed access via cable modems, and claims that its cable Internet subscribers already number in the thousands. PLDT's Infocom NOW has also followed suit with selected area coverage starting late last year. Cable modems have the advantage of providing high-speed access much faster than the 56K PC modem. Since bandwidth is shared, however, the number of subscribers affects speed.

Will this year see even greater growth of cable Internet access in the country?

"I think so. Speaking only for ourselves, we want to aggressively pursue the idea that the cable infrastructure can be used for providing Internet services. We are partnering not just with Destiny Cable, but also smaller operators," Torres said.

MosCom and Destiny announced in December a partnership for providing Internet access to their respective subscribers, with MosCom providing Internet feeds to Destiny's cable headend. Torres, however, noted that even the smaller cable operators could take advantage of their existing infrastructure even if they do not yet have the Internet expertise.

"Legally, cable operators can't go to telephony because of the distinction between telecommunications and broadcasting. In the meantime, by hooking up with an ISP, they can offer Internet services to their subscribers," he said.

Of course, with sister company Sky Cable being the country's dominant cable operator, Sky Internet also stated that this year would definitely see the growth of cable Internet services.

"The demand for high-speed access has grown through the years. This will drive the need for high-speed Internet technology such as cable modems," said Sky Internet analyst Judel Uy.

According to him, Sky's cable Internet service had a soft launch in selected areas late last year, focusing on high-end residential subdivisions in the Makati area and Valle Verde.