Facebook Faces Operator Doubts on Tie-Ups

BARCELONA -- Mobile World Congress 2015 -- Operators remain unconvinced that involvement in Facebook's Internet.org initiative will pay off in the long run, despite some positive reports from players already collaborating with the social networking giant.

Speaking on a keynote session at today's Mobile World Congress in Barcelona, Facebook Founder and Chief Executive Mark Zuckerberg insisted that Internet.org has driven consumers towards paid-data services and that he wanted to create "a profitable model for operators perpetually."

Launched in August 2013, Internet.org aims to bring Internet services to under-penetrated markets. But it has attracted skepticism from operators concerned that giving customers free access to Internet services will spell trouble.

Since its unveiling, however, Internet.org has launched services in six countries -- most recently in India just a few weeks ago -- and at least two of Facebook's operator partners have been encouraged by their early experiences with the program.

Speaking on the same panel as Zuckerberg, Mario Zanotti, the senior vice president of operations for Millicom International Cellular SA (Nasdaq: MICC) , said the operator's base of data users in Paraguay had grown by 30% since the launch of Internet.org services.

In Tanzania, Millicom has witnessed a tenfold increase in the number of smartphone sales as a result of Internet.org, while in Colombia about 50% more customers have been using data services since the launch of Internet.org in January. (See Facebook Launches Free Internet in Colombia.)

While less effusive, Airtel Africa CEO Christian de Faria also claimed to have seen growth in the use of data services in Kenya, Ghana and Zambia, where it has teamed up with Internet.org.

The Airtel Africa boss also denied that joining Internet.org had hurt his company's profitability. "We have not seen any adverse effect," he told the audience. "Everyone talks about it eating our breakfast every morning but I've not seen any erosion of ARPU."

Nevertheless, de Faria admits that he has yet to enjoy the "honeymoon period," even if Facebook appears less threatening than it did one year ago, before Airtel Africa had become involved with Internet.org.

"Facebook used to be either beauty or the beast, depending on whether you were looking at its market capitalization or its value proposition, but the beast is becoming more human," he said.

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Meanwhile, Norway's Telenor Group (Nasdaq: TELN) -- which operates networks across a number of emerging markets in Asia -- has proven resistant to Facebook entreaties so far and still harbors serious reservations about the Internet player.

Explaining his concerns, Telenor CEO Jon Fredrik Baksaas indicated that Facebook's ownership of WhatsApp -- the Internet telephony and instant messaging player it bought in early 2014 -- is a major stumbling block to any kind of deal.

"The messaging side is an important revenue driver in the old telecom world," he said. "This is a point of tension between operators and Facebook -- we don't want to see that revenue stream disappear too quickly and we could stimulate that through Internet.org. "

Dodging suggestions that so-called over-the-top players should be regulated as heavily as operators, Zuckerberg claimed the Internet.org model was delivering benefits to all of its stakeholders. Even in markets like Colombia, where Internet services are already in use, there is little sign of any cannibalization caused by customers switching to Internet.org offers, he said.

"We've had lots of feedback that as we roll this out more people use data and ARPU goes up in lots of cases," he said. "Even in Colombia, there is a massive upside."

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

Mitch Wagner 3/4/2015 | 6:40:21 PM
Whatsup with the WhatsApp hate? Carriers need to kick their addiction to SMS revenues. That technology is dead. It's a classic business predicament: Incumbents need to disrupt themselves or be disrupted. 
kq4ym 3/3/2015 | 3:44:39 PM
Massive? Perpetual? I'd have to read more about those "massive" upside results in Columbia to become a believer. Sure there's going to be at least an initial upside when anything new and/or subsidized starts. But I'd too be skeptical of  "a profitable model for operators perpetually" as well.
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