LONDON Feb 24 Consumers' increasing love
of using services like Facebook and YouTube on their smartphones
is leaving many telecoms carriers sidelined while bearing the
costs of ever-growing demands on their networks.
As users lap up mobile Internet services, the Web giants are
strengthening their relationships with consumers, while the
telcos are finding their connections with customers reduced to a
monthly bill and an occasional handset upgrade.
More than half of Facebook's users already access the social
network from a mobile device, Facebook said in its recent filing
for a long-awaited initial public offering -- and that
proportion is expected to keep growing.
The operators complain that the Web giants are hitching a
free ride on the networks in which they are investing billions,
while free services like Facebook Messenger are eating into the
SMS text revenues on which they have long depended.
They've talked about charging bandwidth-heavy Internet
players like movie streaming Netflix or Google
to carry their traffic, but have been rebuffed by the Web giants
and cooled by regulators worried that such deals would warp the
level playing field of the Internet.
"The Facebook IPO is going to fuel that discussion around
Facebook and Google and how these players are affecting the
industry," said David Gosen, European director of telecoms at
market researcher Nielsen, ahead of next week's Mobile World
Congress in Barcelona, the world's biggest wireless fair.
"They're driving their cars along the roads the carriers
have built, and collecting the tolls, and carriers are wondering
what their role is going to be in these new ecosystems," he
said. "I get the sense it's going to be a lively one this year."
Telecoms carriers are racing to deploy next-generation
mobile networks, which will be able to carry the exponentially
increasing amounts of data generated by the likes of YouTube
many times faster than current networks can.
The GSMA, the operators' association, estimates that telcos
will have to spend $800 billion in the next five years to
upgrade mobile networks and buy licences for fourth-generation
wireless spectrum. Mobile connections are expected to surpass
the human population in 2014, according to consultant Ernst &
The burden is getting harder to shoulder, especially for
operators in mature market like Europe where there is little
growth amid recession and tough price competition, leading many
to cut their prized dividends.
For many incumbents in mature markets, such as Spain's
Telefonica, even their operations in fast-growing
regions like Latin America can no longer compensate, and they
may need to venture into riskier markets if they cannot make
data usage pay.
A long-term trend of dwindling revenues from core voice and
SMS services is being accelerated by competition from so-called
over-the-top services from Internet providers that offer free
alternatives or more attractive features.
Having weathered an assault on their voice revenues from a
range of companies led by Skype, telcos are now battling free
mobile messenger services from BlackBerry maker RIM,
Facebook, and popular messaging app WhatsApp.
Operators lost $13.9 billion in SMS revenue last year
through subscribers using social messaging apps on their mobile
phones instead, according to an estimate this week from
technology research firm Ovum.
"We're moving towards social media and social networking at
a rapid pace. Because telecom operators have not been able to
keep up with that, they're probably going to become a dumb
pipe," the report's author, analyst Neha Dharia, told Reuters.
The operators say that on top of the capacity strains being
put on their networks by Web services, Google and Apple
are adding insult to injury by allowing popular apps like Angry
Birds to constantly ping their networks for no good reason.
Since mobile networks were not designed to handle phones
constantly sending such signals, some operators have seen major
outages like one at Japan's NTT Docomo last month that
prompted the operator to call on Google to tweak its market
leading Android mobile operating software to fix the problem.
Google's Eric Schmidt, former CEO and now executive
chairman, will make his third appearance at Mobile World
Congress this year, as he continues a charm offensive against an
industry that blames the search giant for many of its problems.
Many operators resent the attention and top billing that
Google continues to achieve at the show, along with Facebook,
which this year is creating more excitement than all the
carriers combined. Apple has never appeared at MWC.
Facebook, in particular, is expected to announce plans for
advertising on mobile devices in the near future, possibly next
week, a move that could stimulate a leap in growth in the still
fledgling mobile advertising market.
Facebook's Chief Technology Officer Bret Taylor will give a
keynote address, the first time an executive from the social
network has got top billing at the show.
"Once again, the Mobile World Congress is very focused on
the end users, which will probably result in the MWC attracting
a great deal of international media attention," John Strand, an
influential consultant to European carriers, wrote this week.
"Personally, I would have liked to see a little more focus
on the technical challenges the mobile networks are currently
facing and how the signalling traffic from technically inferior
smartphones like some of the iPhone models is influencing the
mobile customers' overall network experience."
The GSMA is said to be preparing guidelines for the industry
about the signalling problem, according to a person familiar
with the project.
Some operators are hoping that the year-old alliance of top
handset maker Nokia and software giant Microsoft
will provide a more friendly alternative to the
powerful groups that Google and Apple have built.
Nokia, struggling to compete against Android and the iPhone,
dumped its own smartphone software a year ago and threw in its
lot with Microsoft, whose Windows phone software is itself a
distant number three in the market.
Together, they have billed themselves as offering a "third
ecosystem" more receptive to the concerns of operators.
The ecosystem has yet to prove itself in terms of the vital
measure of attracting the software developers who design the
apps that make smartphone platforms come alive.
Much will depend on the reception of Windows 8, which will
be previewed at Mobile World Congress, and is the first time
Microsoft will have released a single software platform for both
desktop and mobile, in a drive for wider adoption.
Meantime, Nokia is expected to launch a range of Windows
phones including a cheaper version of its Lumia smartphone to
compete with offerings from new ambitious Chinese rivals
including Huawei, ZTE and Lenovo.
"Telecom operators are keen to lower subsidy costs, and
Chinese companies manufacturing smartphones on either Windows
Phone and Android could be seen as credible alternatives to
current smartphone manufacturers such as Nokia," Morgan Stanley
telecoms analysts wrote in a note this week.
A crop of unknown Indian and Chinese companies are now
gunning to make truly mass-market smartphones that go for
$100-150 wholesale to the operator, as opposed to $600 for an
iPhone or $300-400 for an Android phone, said Benedict Evans of
"Commodity smartphones are starting to bubble up," he said.
"Today if you can make a calculator, you can make a phone."