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META Meta Platforms Inc

486.80
-7.06 (-1.43%)
29 Mar 2024 - Closed
Delayed by 15 minutes
Share Name Share Symbol Market Type
Meta Platforms Inc NASDAQ:META NASDAQ Common Stock
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  -7.06 -1.43% 486.80 485.85 486.98 492.43 485.1501 492.84 15,188,979 00:00:00

Is Facebook Friend or Foe for Telecom Operators?

02/03/2015 1:52am

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By Ryan Knutson And Sam Schechner 

BARCELONA-- Mark Zuckerberg says his mission is to connect billions more people to the Internet. But the telecom operators that build networks in the far corners of the world are just as likely to view Facebook as a problem.

They contend that Internet giants like Facebook Inc. and Google Inc. are profiting handsomely at their expense. The Internet companies offer apps that let users circumvent network operators to make phone calls and send text messages free. They also cash in on the traffic for their ads.

The telecom operators say this strategy upends the economics that make investing in Internet infrastructure viable.

"Mark Zuckerberg is like the guy who comes to your party and drinks your champagne, and kisses your girls, and doesn't bring anything," says Denis O'Brien, chairman of Digicel Group, a wireless provider in 32 countries in the Caribbean, South America and elsewhere. Google, he adds, earns "billions of dollars on advertising, and they don't pay a penny. I think it's the most extraordinary business model in modern history."

The tensions will be on display this week when Internet companies join mobile operators in Barcelona for the telecom industry's Mobile World Congress, its main conference of the year. Mr. Zuckerberg is set to participate in a keynote discussion Monday with three operators on the challenge of expanding Internet access.

Facebook says it has tried hard to work with telecom companies to find ways both sides can make money. A year ago, Mr. Zuckerberg hosted a dinner in Barcelona with telecom executives, one of several moves that Mr. O'Brien and other operators say has helped ease the strain. Mr. Zuckerberg plans to do so again this year.

Google says it is working on technologies to make getting online cheaper, such as offering Internet access via hot-air balloons. A Google spokeswoman pointed to a report by research firm Analysis Mason showing that Internet firms spend $35 billion a year globally on infrastructure such as the undersea cables that tie communications networks together.

Tensions between Internet companies and the telecom industry aren't limited to the margins of the connected world. European telecom carriers routinely complain that companies like Google are getting a free ride. In the U.S., carriers lost a high-profile battle over so-called net neutrality last week, when the Federal Communications Commission decided to reclassify their networks as utilities.

But the issue is especially acute in the developing world, where carriers make less money from wireless Internet service and still depend heavily on phone and text services for revenue.

Facebook says it can help get more people online without additional construction. Over 90% of the world's population already lives within range of some type of Internet signal, the company says, yet only about a third of those people use the Internet because they don't understand the value. It says the best way to demonstrate the benefits is for wireless carriers to let subscribers access Facebook without charge.

Facebook has cut a number of such deals over the past half decade. It has been joined by tech firms from Twitter Inc. to Spotify AB, all hoping to get their apps in front of more people without users having to pay carriers for data services.

Such deals are particularly important to Silicon Valley's prospects in the developing world. Companies like Facebook are counting on expanding their businesses to billions of new Internet users in the next decade.

But the rate at which people are getting connected to the Internet seems to be slowing. From 2009 to 2013, the compound annual growth rate in Internet users world-wide slowed to 10% from 15% in the previous three years, according to consulting firm McKinsey & Co.

The rate may slow further once more of the developing world's richer urban residents are online.

Five years ago, Facebook asked telecom companies to offer Facebook Zero, a less data-intensive version of its site. Millicom International Cellular SA was among the first to sign up. It calls the partnership a success, but says it also has been a learning experience.

Tigo, Millicom's operator in Paraguay, offered users free access to Facebook for six months in 2013 and increased its number of mobile data users by 30%. Four out of every 10 of those new users stuck around to pay for mobile Internet service, said Mario Zanotti, the operator's head of Latin America.

"There are still a lot of people who have never experienced the Internet, " Mr. Zanotti said. "It's about giving them a taste."

But Tigo's number of new users topped out after three or four months. "You get to a certain point where your penetration doesn't go up any more," Mr. Zanotti said.

Recognizing that Facebook Zero wasn't driving enough revenue to operators, Facebook shifted its strategy last year. Instead of just pushing operators to offer free Facebook, it created an app with more features, such as access to local news, weather and health information, and built systems that let users easily pay for more data access.

The initiative, called I nternet.org, is offered by operators in six countries: Zambia, Tanzania, India, Ghana, Kenya and Colombia.

Digicel has experimented with Facebook Zero. In November, its Jamaica operation said 25% of its data traffic came from Facebook, Instagram and Twitter, and it started selling a plan that allowed free access to those sites.

But Digicel's Mr. O'Brien says free Facebook won't be enough to get more people online. To do that, he says, would require billions of dollars in investments. Digicel, for example, has spent the past several years using helicopters and donkeys to haul cell-tower equipment to parts of Papua New Guinea that don't have roads or electricity.

Ooredoo Group--an operator in the Middle East, North Africa and Southeast Asia--is building a network in Myanmar that it says could take four to 10 years to pay off. It has sometimes used water buffalo to carry gear.

Google and Facebook have been exploring technologies to bring Internet connections to isolated towns and villages. Google's Project Loon uses hot air balloons to shower remote areas with coverage, and it is also an investor in a satellite project called O3B Networks. Both Google and Facebook have bought makers of drones, which could be used like the balloons. But those efforts are years from getting off the ground.

Telecom executives say the required investment may not be sustainable without more help. Mobile apps that offer Internet-based text and phone service have eaten into wireless revenue. But the data revenue generated from app usage hasn't kept up. Operators in India, Russia and Brazil lost $2.4 billion in voice and text revenue last year but gained only about $800 million in data revenue, says industry analyst Chetan Sharma.

Nasser Marafih, the chief executive of Ooredoo, says if Internet companies don't start paying carriers directly, investment will hit a ceiling. "The question is, who is going to build that infrastructure?" Mr. Marafih said an interview in September. "We build the network, and unfortunately it has been utilized by Internet players who do not share the revenues."

Write to Ryan Knutson at ryan.knutson@wsj.com and Sam Schechner at sam.schechner@wsj.com

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