Facebook in Africa: Beauty or Beast?
"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," said Christian de Faria, the CEO of Airtel Africa, when appraising the social networking giant at this year's Mobile World Congress (MWC) in March. (See Facebook Faces Operator Doubts on Tie-Ups.)
At the time, Airtel had entered into a risky partnership with Facebook in the markets of Ghana, Kenya and Zambia. By signing up to the social networking giant's Internet.org initiative, the operator -- a subsidiary of India's Bharti Airtel Ltd. (Mumbai: BHARTIARTL) -- had agreed to let its customers access a number of Internet services entirely free of charge in a practice sometimes called "zero rating." But at last week's Africacom event, a major telecom conference that took place in South Africa, Airtel promised to extend the arrangement to all 17 of its African markets by March next year. Is the beast's metamorphosis complete? (See Eurobites: Facebook Expands Internet.org in Africa.)
Facebook has pitched Internet.org as a philanthropic move designed to bring data connectivity to people who cannot afford Internet access charges. It also claims that operators stand to benefit financially, as customers given a free taste of data services see the value of paying for more. Yet many operators have resisted those entreaties, worried that Facebook is simply trying to boost its own subscriptions and advertising revenues with scant regard for their own prosperity.
A particular concern is that zero rating will not only decimate the value of data connectivity but also sap revenues from mainstream voice and text-messaging services. What is to stop an Internet.org customer from using Facebook's Internet messaging and Internet telephony features, instead of traditional telecom services, and paying nothing to the operator?
While operators in more developed markets have more or less given up on the voice and text-messaging business, it remains the principal revenue generator in Africa. Indeed, Airtel made just 13.5% of its revenues in Africa from data services, excluding text messaging, in the recent July-to-September quarter. What's more, an overwhelming 99.4% of its customers in Africa are prepaid users who do not pay monthly charges when they are not accessing services.
Because Internet.org has the final say over which services it offers free of charge, operators should be able to avoid anything they regard as particularly treacherous. Yet the prioritization of some web services over others has landed Facebook and its partners in trouble with net neutrality supporters elsewhere. In India, where Facebook has recruited Bharti Airtel rival Reliance Communications Ltd. to its Internet.org scheme, Facebook CEO Mark Zuckerberg has repeatedly had to defend himself against accusations he is spurring the development of a two-tier Internet. (See Facebook's Zuckerberg Defends Internet.org and Facebook Targets India's Hinterland .)
Those criticisms are likely to dog Internet.org unless it changes its approach entirely. In the meantime, skeptics will continue demanding concrete evidence that zero rating is translating into data-revenue growth for service provider partners. Internet.org claims 50% of customers use other Internet services, and therefore pay for consumption, within 30 days of signing up. In India, it adds, there are eight times as many customers accessing the full Internet as there are users who have stuck with free services only.
In the case of Airtel, specifically, it is perhaps too soon to expect anything dramatic in earnings statements. The operator says it is currently providing Internet.org services in Ghana, Kenya, Malawi, Rwanda, the Seychelles and Zambia, and that it will do so in every other one of its 17 African markets by March next year. In the meantime, the African data business is developing well, with the number of data customers rising from around 11 million between July and September last year to about 14.3 million in the same quarter this year. Data average revenue per user is also up, from $3.1 per month to $3.4 per month over the same period.
How much any of this has to do with Internet.org remains unclear, but de Faria would not, presumably, have extended the arrangement if he had not already seen benefits. Moreover, Facebook's other big African partner has also moved Internet.org into new territory. Claiming at MWC to have seen a sharp increase in smartphone sales in Tanzania since joining Internet.org in October last year, Millicom International Cellular SA (Nasdaq: MICC) took zero rating into the Democratic Republic of Congo in September. "The main growth drivers remained mobile data and MFS [mobile financial services]," said Millicom when reporting a 14% year-on-year increase in Tanzanian revenues in the July-to-September quarter.
But the doubts persist among some of the world's biggest emerging-market operators. In July, Marc Rennard, who heads up African operations for France's Orange (NYSE: FTE), told Light Reading he was "not totally enthusiastic" about Internet.org and its ilk. Former Telenor Group (Nasdaq: TELN) CEO Jon Fredrik Baksaas told MWC attendees this year that a partnership with Facebook would pose a threat to the messaging business. And Vodafone Group plc (NYSE: VOD) has also continued to view zero rating with disdain. If Facebook could score a multi-market deal with a major international player, it might lose its beastliness to a few others. (See Orange to Be All-IP by 2020, Says AMEA Boss.)
— Iain Morris, , News Editor, Light Reading