Zuckerberg has few words of comfort for war-weary telco CEOs

Facebook CEO Mark Zuckerberg’s vision of a “dial tone for the internet” and a world where people could access basic services for free might have had greater impact had news not emerged earlier that WhatsApp plans to offer voice services.

Facebook recently acquired messaging platform WhatsApp for US$19bn.

Zuckerberg’s arrival at the pivotal Mobile World Congress in Barcelona, Spain, last night could be seen in two ways – either that of the shiny young emperor who has mapped out a future in which everyone can thrive, or the wolf that has found a way into the farmers’ chicken coop.

Zuckerberg used his internet.org vision of free basic internet services as a way of connecting people in the developing world and thus providing a tide capable of raising all economic boats.

By ‘zero-rating’ data chewed up by their customers when accessing Facebook and other services, such as Wikipedia and weather information, Zuckerberg said both operators saw a doubling of mobile data subscribers within just three to four months.

He said he was looking at similar partnerships with three to five operators in the coming year, adding that Facebook didn’t have the capacity to be involved in more, and build up evidence that the zero-rating business model works.

“Why are the next 2bn not on the internet?” he asked. “The reason is not because they don’t have any money, it’s because they don’t know the value of having a data plan or the services they can access.”

“Why were we excited to do this together? It was the Internet.org vision and how we can connect the world.

“If they did this as an independent company they would have had to focus on how to build the company out, to scale it, but now they can focus on how to connect the 1bn-2bn people.”

“What they envision for carriers is that it will be up to them to decide what basic services might be free. Our model and what we’re trying to build is putting in an on ramp is better for the internet and their models. It’s something that we can work out and have a lot of choice in.”

Zuckerberg’s vision is not without merit – the problem is showing traditional businesses whose infrastructure will be used how they, too, will make money to keep the lights on. This same scenario emerged between Google and the newspaper industry – Google gave no real answers and the media is still finding out how to adapt.

Diverged worlds

You see, the telecoms industry is in the midst of a crisis of conscience. It also has bold visions of connecting the next 1bn or 2bn of the Earth’s population.

As businesses, just like Facebook, they are answerable to shareholders who expect a return on investment.

Now this is where the battle lines are drawn. The telcos have spent billions of dollars and will spend billions more connecting the world via fibre and 4G networks.

Facebook, Google, Twitter and other born-on-the-internet companies have built billion-dollar businesses attracting billions of users without laying down a metre of cable.

This has led to a fear in telecom leaders’ minds that they are in effect becoming “dumb pipes” – effectively trusting skivvies building the roads for others to zoom effortlessly along in shiny new vehicles that enrich them and not the telcos, mile after glistening mile.

And now what’s happening is free apps like Viber, WhatsApp, Twitter and Facebook’s own Messenger are replacing services like SMS. That soon Facebook may make untold billions from free voice services offers little comfort for telcos obliged to invest in future networks.

Zuckerberg’s assertion that WhatsApp may be worth billions more than what Facebook paid for it offers little comfort.

Who pays the ferryman?

Sheryl Sandberg, Facebook’s COO, reportedly asked Vodafone CEO Vittorio Colao to zero-rate content – a request which he rebuffed, saying it didn’t make sense.

The view at Mobile World Congress is data delivery costs would need to fall dramatically, to 1pc of today’s levels.

A writer on the official Mobile World Congress site summed it up: “Facebook reckons this can be achieved within 5-10 years in two ways: reduce network costs tenfold to deliver data, and build more efficient applications to shave data usage by the same amount. Multiply the two savings together and you get the hundredfold efficiency improvement.”

But are telcos willing or able to take that leap of faith?

“Even before Facebook’s Mark Zuckerberg delivered his keynote in the evening, the CEO of WhatsApp, Jan Koum, announced that the social messaging service will soon support VoIP calling,” pointed out Ovum principal analyst Emeka Obiodu.

“This news met with a mixed reaction. The Tele2 CEO Mats Granryd was unconcerned, given that his company already offers unlimited voice in all its markets, whereas the Millicom CEO Hans-Holger Albrecht worried about the 70pc of his company’s revenues that still come from voice. Considering that (Telenor CEO) Jon Fredrik Baksaas wants the industry to invest US$1.7trn in new high-speed networks by 2020, any loss of revenue is a concern.”

Earlier this week, movie platform Netflix forged a deal with Comcast, the biggest internet service provider in the US, that will see its videos streamed faster and more smoothly. To nail the deal, it had to pay up and the question is will others like YouTube, Facebook and Google soon have to do the same?

Shield wall!

What we’re edging towards here is an explosion of the net neutrality debate beyond the US and into Europe and Asia. Effectively, who pays for the delivery of all that content from social media and entertainment sites to consumers?

“The debate in Europe is gaining momentum as EU parliamentarians, national regulators and net neutrality activists take their positions,” pointed out John Strand of Strand Consulting.

“In the US, the decision of the court case between an operator and the national regulator will likely be announced in a few weeks. Whatever the outcome, it will influence the net neutrality debate in Europe and other parts of the world.”

Perhaps Zuckerberg’s words in Barcelona last night were a form of diplomacy, an overture of peace before things get nasty?

By John Kennedy

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