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.
