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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