Business Technology

Saturday 10 December 2016

Telecommunications companies in emerging markets claim Facebook and WhatsApp are siphoning off precious voice and text revenue

In Eastern Europe, where these apps are gaining popularity for calls, carriers' voice revenue has dropped by a third in five years

Rodrigo Orihuela and Loni Prinsloo

Published 21/02/2016 | 02:30

Facebook CEO Mark Zuckerberg Photo: REUTERS/Adnan Abidi/Files
Facebook CEO Mark Zuckerberg Photo: REUTERS/Adnan Abidi/Files

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 was their natural ally.

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He had just announced Facebook's €19.8bn purchase of WhatsApp and was touting Internet.org, a low-bandwidth suite of basic services which 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, he said, both sides could benefit handsomely.

As Zuckerberg returns to Barcelona for this year's Mobile World Congress tomorrow, 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 free-loaders 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," Telefonica chief operating officer Jose Maria Alvarez-Pallete said in August at a telecommunications industry event in the Spanish coastal city of Santander. "The premise should be, same services, same rules."

Telefonica has huge operations in Latin America. And it is 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 consumers free access to the site and 30 others in some data plans. In South Africa, carriers MTN and Vodacom 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.

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 that 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 33pc of subscribers who take part end up upgrading to fee-paying data plans. Similarly, South Africa's number-three 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 Jose Dos Santos.

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.

"What carriers resent is investing heavily and having others piggyback on their investments," says Delaney.

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