Mark Zuckerberg is wrong about Emerging Markets

The hottest ticket at Mobile World Congress 2014 was without doubt Facebook founder Mark Zuckerberg's session.

Not for him the need to prepare a Power Point presentation and rehearse a speech; a cosy fireside chat with tech journalist David Kirkpatrick firing off the questions was sufficient to ensure crowds round the screens located throughout the Fira and standing room only in the conference room.

Zuckerberg had come with a specific agenda - to promote Internet.org, his new organisation set up in mid-2013. Although the majority of delegates would have liked to hear his views on the relationship between OTT operators and carriers, or his rationale for buying OTT operator WhatsApp - the purchase of which for a staggering USD19 billion ($34.5 million per employee) only a week earlier was of more than passing interest for the Service Providers and OEMs who comprised the majority of his audience - he did his best to deflect attention away from these topics.

Internet.org lands Zuckerberg right on this channel's front lawn so it seems only right that we spend some time analysing what he said. But before doing this it's worth noting that by addressing emerging markets, the Facebook founder was straying into territory that might be considered of little importance by a casual observer at MWC this year.

The focus of the conference program was on mainly first world topics like Telematics, NFC and M2M. Of the 41 advertised sessions only 4 specifically focused on emerging markets, all scheduled on the final two afternoons. Well and truly in the graveyard slots then; Zuckerberg was doing emerging markets a favour there at least, by making his focus 'the importance of extending the benefits of ubiquitous internet access to the unconnected world'.

Any focus on communications deficits in developing and emerging markets is welcome, and more so when it is from someone with the influence and resources of Facebook. Internet.org has brought together major handset vendors Nokia, Qualcomm and Samsung with infrastructure vendor Ericsson. This balance may be indicative of Zuckerberg’s mindset and priorities, but the absence of any day one service provider members must surely say much more.

Cost and availability of smartphones was referenced during the Zuckerberg session. The message was that with the price of smartphones now coming down (to around USD40.00), it’s job done. Interestingly, current low cost champion Firefox, coming in at USD25.00, is not yet a member of Internet.org.

The main message Zuckerberg wanted to convey, however, was that the key remaining barrier to connecting people to the internet in emerging markets is expensive data plans. He argued that this could be addressed by operators introducing unlimited bundles with free access to basic internet services like – predictably - Facebook Messenger and WhatsApp. According to Zuckerberg, social networking, search and messaging are the key platforms for delivering access to internet services and should become ‘utilities’.

This is, of course, massively self serving for Facebook/WhatsApp and directly attacks service providers’ current business models. The announcement at the start of MWC that WhatsApp will soon offer a VoIP service was scarcely going to allay Service Providers’ fears either. And criticising Service Providers for not building enough network capacity in emerging markets while OTT operators are the main threat to their existing revenue models is a guarantee for a poor reception.

To support his case Zuckerberg cited the experience of Globe Telecom in the Philippines, an early Internet.org partnership. This has seen penetration of mobile internet double among Globe subscribers and overall subscriber numbers increase by 20%. He argues that other operators should adopt the Globe Telecom model which offers all the major global OTT messaging services for free as part of the core call and text bundle.

In Paraguay, Internet.org is working with Tigo on a similar project, which has seen the penetration of mobile Internet increase by 50%, and daily internet use grow by 70%. “We are at the point where we have proved to ourselves that the model can work,” Zuckerberg said.

There are indirect benefits for Service Providers in Zuckerberg’s plan, such as the increased mobile internet usage and subscriber gains, as experienced by Globe Telecom. But overall the direct monetisation opportunities are too thin on the ground, in direct contrast to the immediate benefits OTT players will gain. Zuckerberg himself conceded that the model needs fine tuning to strengthen the business case for Service Providers.

Networks have to be paid for. Service Providers are already in a tight corner with customers demanding improved networks to use the very OTT services which lead to their revenues declining. Internet.org may achieve some technical breakthroughs leading to further CAPEX and OPEX reductions, although this has been an ongoing industry success story for many years. What difference the new initiative may make remains to be seen.

But where I believe Zuckerberg is completely wrong about emerging markets is in calling for operators to introduce unlimited bundles with free access to basic internet services. These are, quite simply, unaffordable in most of Africa, India and many other parts of Asia.

In these overwhelmingly pre-paid markets the only way to make the internet affordable is to have PAYGI (internet) and PAYGS (services). Granularization of charging for data, where customers can select to switch on an OTT service for however long they can afford to pay for it, is the only way service providers will succeed in winning customers.

This involves Operators having control. So, maybe they're not just dumb pipes after all.

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