NASDAQ-listed Pacific Internet expects its response to StarHub Internet's free surfing plan to cost as much as what SingNet's toll-free deal did, which is nearly $1 million a month, its chief executive officer Nicholas Lee said.
After PacNet matched SingNet's toll-free plan introduced late last year, it made a loss of US$564,000 (S$947,520) in the second quarter, against a profit of US$2.7 million in 1998. In the third quarter, it made a mere US$163,000 compared to US$2.3 million previously.
"It depends on what pricing scenario we choose," said Mr Lee. "A likely business model will cost us 10-15 per cent of our revenues."
And what pricing plan PacNet picks will depend on how SingNet reacts to StarHub's deal and users' experience with StarHub, he added.
The loss in revenues, however, will not translate into as much loss in profits, said Mr Lee. PacNet will be able to retain the high-value customers. "The cheapos will leave."
Mr Lee said PacNet would try to refrain from giving free Internet access to users. "But you can never tell, we may have to do it. We are willing to go into the red next year (to retain our customers). We are willing to take short-term hit for the longer-term gain in e-commerce."
Mr Lee expressed his fear of what free services might do to the industry. "It could be detrimental to the whole economy. It could end in MAD or mutual assured destruction, where there is no victor and no decent service.
"The technical support, the bandwidth we have all cost money. StarHub is kidding itself if it says it can make money from advertising. The IDA (Infocomm Development Authority of Singapore) says no cross-bundling and cross subsidising of services."
Mr Lee reckoned that eventually the user base will be segregated, with the "cheapskates" gravitating to the free services while those who want quality service paying for it.
Yesterday, PacNet took up a full-page advertisement in BT with the message: "The best things in life aren't free."
He thinks PacNet will still have the best quality as its technical support team alone is more than twice the staff strength of StarHub Internet.
Despite an increasingly competitive environment in the Internet access market in Asia, PacNet shares rose US$6 13/16, or 16 per cent, to US$50 on Tuesday, its highest level in five months.