Ap­ple, Google asked to pay up as op­er­a­tors face data flood

The Pak Banker - - Company& -

PARIS: Google Inc., Ap­ple Inc., and Face­book Inc. need to pitch in to help pay for the bil­lions of dol­lars of net­work in­vest­ments needed for their band­width-hog­ging ser­vices, Euro­pean phone op­er­a­tors say.

As mo­bile and Web com­pa­nies add videos, mu­sic and games, op­er­a­tors in­clud­ing France Tele­com SA, Tele­com Italia SpA and Voda­fone Group Plc want a new deal that would re­quire con­tent providers like Ap­ple and Google to pay fees linked to us­age.

"Ser­vice providers are flood­ing net­works with no in­cen­tive" to cut costs, France Tele­com Chief Ex­ec­u­tive Of­fi­cer Stephane Richard said last month. "It's nec­es­sary to put in place a sys­tem of pay­ments by ser­vice providers as a func­tion of their use."

Richard, who may ad­dress the is­sue at the "Le Web" con­fer­ence in Paris to­day, has joined Tele­com Italia CEO Franco Bern­abe and Tele­fon­ica SA CEO Ce­sar Alierta in what could turn into a cold war with Web com­pa­nies. As more con­sumers ac­cess the In­ter­net on mo­bile de­vices, the cost of build­ing big­ger net­works may out­strip rev­enue growth for wire­less op­er­a­tors, slic­ing their re­turn on in­vest­ment.

The mis­match be­tween in­vest­ments and rev­enue "is set to com­pro­mise the eco­nomic sus­tain­abil­ity of the cur­rent busi­ness model for tele­com com­pa­nies," Bern­abe said.

While the num­ber of mo­bile data con­nec­tions in western Europe will rise by an av­er­age of 15 per­cent a year to 270 mil­lion in 2014, over­all end-user rev­enue will de­cline about 1 per­cent a year, In­ter­ac­tive Data Corp. es­ti­mates. In the same pe­riod, op­er­a­tors' an­nual spend­ing on net­work gear will surge 28 per­cent com­pared with last year to about $3.7 bil­lion, ac­cord­ing to re­search firm Canalys.

Com­pa­nies such as Google and Ya­hoo! Inc. "use Tele­fon­ica's net­works for free, which is good news for them and a tragedy for us," Alierta said in Fe­bru­ary. "That can't con­tinue."

To be sure, op­er­a­tors are ben­e­fit­ting from the surg­ing pop­u­lar­ity of mo­bile data use. Do­mes­tic data rev­enue at France Tele­com, the biggest seller of Ap­ple's iPhones af­ter AT&T Inc., surged 24 per­cent in the third quar­ter, ris­ing to al­most 32 per­cent of net­work rev­enues.

Still, faced with slow­ing over­all rev­enue growth even as data us­age soars, the op­er­a­tors are try­ing to pass on some of the costs to the ser­vice providers.

"There's a clear com­pet­i­tive re­sponse by the car­ri­ers to try and make moves to en­sure that the likes of Google and Ap­ple don't have it their own way," said Paolo Pesca­tore, an an­a­lyst at CCS In­sight in London.

Last month, the ten­sions threat­ened to spill into pub­lic af­ter a plan by Ap­ple to in­tro­duce a so-called soft SIM in its next iPhone prompted threats from Euro­pean op­er­a­tors to cut sub­si­dies for the de­vice, the Daily Tele­graph re­ported.

A soft SIM would make it eas­ier for con­sumers to switch net­work providers by elim­i­nat­ing the need for a new, phys­i­cal SIM card is­sued by an op­er­a­tor to do so.

While Ap­ple backed off for now, the technology will even­tu­ally be in­tro­duced, San­ford Bern­stein an­a­lyst Robin Bienen­stock said in a note to clients, call­ing the iPhone-maker a "fren­emy" for op­er­a­tors.

Ap­ple, Google, Face­book, and on­line-call­ing ser­vice Skype Tech­nolo­gies SA "in­creas­ingly look like in­te­grated op­er­a­tors in the tele­com net­work sec­tor," Tele­com Italia's Bern­abe said.

Ser­vice providers and phone op­er­a­tors have be­gun to ex­per­i­ment with new mod­els. In the U.S., Google and Ver­i­zon Com­mu­ni­ca­tions Inc., the biggest do­mes­tic mo­bile op­er­a­tor, urged reg­u­la­tors to ex­clude mo­bile In­ter­net con­nec­tions from po­ten­tial net neu­tral­ity rules, which could bar op­er­a­tors from se­lec­tively slow­ing some traf­fic.

The ex­cep­tion, which wasn't adopted by the Fed­eral Com­mu­ni­ca­tions Com­mis­sion, would have al­lowed op­er­a­tors to charge con­sumers or con­tent providers a pre­mium for de­liv­ery of cer­tain videos, games or other ap­pli­ca­tions.

Rules en­cour­ag­ing pay­ment for net­work use are more likely in Europe, where com­pa­nies like France Tele­com and Tele­fon­ica are some of the biggest em­ploy­ers, New York­based San­ford Bern­stein an­a­lyst Craig Mof­fett and Bienen­stock wrote in a note.

Op­er­a­tors are mean­while look­ing for ways to win rev­enue from data-hog­ging cus­tomers. Voda­fone, the world's largest mo­bile provider by rev­enue, plans to shift to so-called tiered pric­ing based on data use, fol­low­ing a sim­i­lar move away from un­lim­ited plans by AT&T Inc. Un­lim­ited data plans will be­come in­creas­ingly rare, said Ros­alind Craven, an In­ter­na­tional Data Corp. an­a­lyst based in London. Ser­vice providers, mean­while, say they al­ready pay enough. "Cur­rently about 40 per­cent of our ex­penses go to net­works any­way­servers, peer­ing, our con­tent de­liv­ery net­work, and other re­sources," said Giuseppe de Martino, the le­gal and reg­u­la­tory di­rec­tor of Paris-based on­line-video provider Dai­ly­mo­tion SA. -Bloomberg

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