Car­ri­ers have lit­tle to like about Face­book and What­sapp’s voice and mes­sag­ing apps

▶ ▶ Face­book says its ser­vice and phone com­pa­nies are al­lies. Some tel­cos dis­agree ▶ “The premise should be, same ser­vices, same rules”

Bloomberg Businessweek (North America) - - News - �Ro­drigo Ori­huela and Loni Prinsloo, with Sarah Frier

Two years ago, Mark Zucker­berg took the stage at the Mo­bile World Congress, an an­nual in­dus­try gath­er­ing held in Barcelona, to re­as­sure phone com­pa­nies that Face­book is their nat­u­ral ally. He’d just an­nounced the $22 bil­lion pur­chase of the What­sapp mes­sag­ing ser­vice and was tout­ing an ini­tia­tive called In­ter­net.org, a low-band­width suite of ba­sic ser­vices car­ri­ers would of­fer in con­junc­tion with Face­book to get hun­dreds of mil­lions of peo­ple on­line for the first time. He pledged to “build what is go­ing to be a more prof­itable model with more sub­scribers for car­ri­ers.” By stick­ing to­gether, the Face­book founder said, both sides could ben­e­fit hand­somely.

As Zucker­berg pre­pares to re­turn to Barcelona for this year’s MWC on Feb. 22, phone ex­ec­u­tives say his com­pany looks more like a com­peti­tor than a part­ner. Last year, What­sapp in­tro­duced free voice calls—some­thing Face­book al­ready of­fered—and both brands have mes­sag­ing apps. Th­ese so-called over-the-top ser­vices cut into mo­bile car­ri­ers’ voice and tex­ting rev­enue be­cause they’re of­fered over the In­ter­net. Some phone com­pa­nies say Face­book and its ilk are free­loaders that rely on car­ri­ers’ net­work in­fra­struc­ture with­out spend­ing any money to sup­port it. “What­sapp is com­pet­ing with us, not only with mes­sag­ing but with voice, too,” Tele­fónica Chief Op­er­at­ing Of­fi­cer José María Ál­varez-Pal­lete said in Au­gust at a telecom­mu­ni­ca­tions in­dus­try event in the

Span­ish coastal city of San­tander. “The premise should be, same ser­vices, same rules.”

Tele­fónica has huge op­er­a­tions in Latin Amer­ica. And it’s in emerg­ing mar­kets where the ten­sion with the mes­sag­ing apps is most ev­i­dent. Car­ri­ers there are more de­pen­dent on rev­enue from voice and text (in de­vel­oped coun­tries, data is the big­ger mon­ey­maker). A Brazil­ian judge in De­cem­ber or­dered What­sapp to sus­pend ser­vice in the coun­try fol­low­ing a com­plaint from a telecom­mu­ni­ca­tions lob­by­ing group, though the de­ci­sion was soon over­ruled by an­other court. Since Oc­to­ber, Egypt has shut down sev­eral In­ter­net call­ing apps. In­dia’s tele­com reg­u­la­tor this month barred oper­a­tors from giv­ing dis­counts for ac­cess to spe­cific web­sites. A di­rect chal­lenge to Zucker­berg’s In­ter­net.org plans, the In­dian rul­ing ef­fec­tively ended Face­book’s part­ner­ship with Re­liance Com­mu­ni­ca­tions, which had of­fered free ac­cess to the site and 30 oth­ers in some data plans.

In South Africa, car­ri­ers MTN Group and Vo­da­com Group con­tend that ser­vices such as What­sapp, Skype, Google Hang­outs, and the Viber mes­sag­ing app cost the coun­try bil­lions of rand in tax rev­enue and com­pro­mise se­cu­rity be­cause their en­cryp­tion makes it eas­ier for crim­i­nals to avoid govern­ment sur­veil­lance. South Africa’s tele­com reg­u­la­tor has be­gun an in­ves­ti­ga­tion into the im­pact of over-the-top ser­vices, and Nige­ria is con­sid­er­ing reg­u­lat­ing them. “Tech­nol­ogy has out­paced cur­rent con­sumer leg­is­la­tion in many coun­tries,” says Lisa Fel­ton, who over­sees reg­u­la­tory is­sues for Voda­fone, the con­trol­ling share­holder of Vo­da­com.

What­sapp doesn’t pro­vide data on voice calls, but it claims 1 bil­lion users, roughly dou­ble the num­ber it had when Face­book bought the com­pany. And Skype says it car­ries in ex­cess of 2 bil­lion min­utes of calls per day. In East­ern Europe, where such apps are grow­ing in pop­u­lar­ity for na­tional and in­ter­na­tional calls, mo­bile car­ri­ers’ voice rev­enue has dropped by a third over the past five years, a de­cline that hasn’t been fully off­set by ris­ing data us­age, ac­cord­ing to Bloomberg In­tel­li­gence an­a­lyst Erhan Gurses. Face­book de­clined to com­ment.

Not all car­ri­ers are lin­ing up against Face­book. The com­pany has more than a dozen part­ner­ships with phone com­pa­nies from Paraguay to the Philip­pines. Many of them say team­ing up with Face­book is ben­e­fi­cial, be­cause it boosts data us­age and has the po­ten­tial to in­crease rev­enue. Mil­li­com In­ter­na­tional Cel­lu­lar, a car­rier with more than 63 mil­lion sub­scribers in Africa and Latin Amer­ica, has run pro­mo­tions in cer­tain mar­kets where it of­fers free ac­cess to Face­book and In­ter­net.org for a cou­ple of months. The com­pany re­ported last year that 33 per­cent of sub­scribers who take part end up up­grad­ing to fee-pay­ing data plans. Sim­i­larly, South Africa’s No. 3 mo­bile com­pany, Cell C, of­fers Face­book and What­sapp for free in cer­tain sub­scrip­tion pack­ages, be­cause they draw new users. “If we don’t in­no­vate around th­ese ser­vices and drive value to our cus­tomers, we run a higher risk of be­ing left out of the fu­ture en­tirely,” said Cell C Chief Ex­ec­u­tive Of­fi­cer José Dos Santos in an e-mail. In the long run, say some in­dus­try an­a­lysts, What­sapp and other al­ter­na­tives shouldn’t be seen as a threat to the voice ser­vice of phone com­pa­nies. The typ­i­cally su­pe­rior sound qual­ity of the voice calls in the apps uses lots of data. “If car­ri­ers price their data of­fer­ings cor­rectly, it could drive up rev­enues,” says John De­laney, an an­a­lyst at re­searcher IDC. And when peo­ple grad­u­ate to video apps like Skype, data con­sump­tion grows ex­po­nen­tially. Says De­laney, “What car­ri­ers re­sent is in­vest­ing heav­ily and hav­ing oth­ers pig­gy­back on their in­vest­ments.”

The bot­tom line Tel­cos in emerg­ing mar­kets com­plain Face­book and What­sapp are si­phon­ing off pre­cious text and voice rev­enue.

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