Telefonica launches free Internet service

Telefonica is trying out new ways of boosting the volume of Internet traffic carried by its network. For example, on Sunday, September 29 it will launch a pilot-scale free Internet service called iTelefônica, via the subsidiary Telefônica Assist. It?s offering a 15% discount on dial-up minutes plus flat rates ranging from 15 to 25 reals per month (now about 4-7 US dollars). For the first three months or so the service will be available only to ten municipalities in the São Carlos area of São Paulo State, reckoned to have between 30,000 and 50,000 Internet users. Before deciding whether to expand coverage and what discounts to offer elsewhere, Telefonica will analyze the success of the pilot as well as waiting for Anatel to issue rules on Internet access and interconnection.

Barriers

The discounts and flat rates are designed to reduce barriers to network use by customers sensitive to the cost of phone pulses. The company is thinking of offering iTelefonica both in São Paulo State, its coverage area as an ILEC, and in other parts of Brazil as a hedge against the ?traffic sinkhole? produced by the existing rules on local network use, said Manoel Amorim, managing director of Telefonica. The aim is to draw level with the other ILECs, Brasil Telecom and Telemar, as well as GVT, a leading CLEC, all of which have invested in the provision of free Internet services over their networks to boost revenue from traffic generated by Web users and interconnection fees on calls originating in other networks.

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Rules

Anatel?s rules oblige ILECs to pay compensatory rates on voice calls and Internet connections originating in their networks to the local carrier at the other end whenever the volume of outbound traffic exceeds inbound traffic by more than 55%. ILECs want this rule to apply only to voice traffic, since Internet connections are always one way only from the user?s network to the ISP?s network. They believe they can surmount this barrier by offering free Internet services within their own networks. Meanwhile they?re lobbying Anatel to change the rules. For Telefonica?s Manoel Amorim, a carrier that generates more traffic than it receives pays 0.07 reals per minute in the evenings, the peak period for Internet use (60% of traffic), and charges only 0.10 reals per pulse, thus making the slenderest of profits.

50% share targeted

?We aim to capture 50% of free traffic generated by the subscriber base covered by our pilot in two months,? says Manoel Amorim. The same target will be pursued in other regions. ?We wouldn?t be launching this service if Anatel had already defined the Internet access pricing model.? Telefonica plans to spend 2.5 million reals (now about 0.7m USD) on marketing the free Internet service to the São Carlos area. The telco will also invest in more ports per user so as to guarantee better quality access than other free services.

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