Facebook changes the game for telcos

King Yew Foong
13 Sep 2011

The convergence of telecom, internet and media entertainment is altering the competitive landscape for communications service providers (CSPs) with the addition of non-CSP players from adjacent industries. Competition will increasingly revolve around platforms and ecosystems. The creation of a successful platform is predicated on the ability to achieve economies of scale and to build a viable ecosystem of partners - content and application developers - which will attract a large mass of consumers. Once momentum is built it will be difficult for late entrants or market followers to usurp the dominant platform.

The impact of Facebook could be far-reaching as it strives to extend the reach and influence of its social networking platform. More communications functions could easily be incorporated onto the Facebook platform, resulting in direct competition with CSPs.

Many CSPs have recognized this competitive threat and have responded by jumpstarting their own platform and ecosystem initiatives. Cross-border alliances are also increasingly being sought.

Since the launch of its social plug-in (a tool that allows a user to see what his or her friends like, have commented on or shared on other sites) in April 2010, Facebook claims that, on average, 10,000 new websites are integrated with it daily. Facebook users are also installing 20 million applications daily.

Facebook's attempt to enhance the usefulness of its platform by integrating with other online services and improving the user experience for mobile access is forcing CSPs to accelerate their own efforts in the same area.

If end-users continue to congregate around Facebook, CSPs risk being marginalized, and they will increasingly be seen as mere access providers with very little value-add to offer. There will also be direct competition with the CSPs' own platforms and application stores.

Facebook's partnership with Skype and interoperability with external instant messaging applications through Facebook Chat, as well as the launch of a new messaging service that combines online chat, text messages and other real-time conversation tools with email are all aimed at making Facebook a more attractive platform for users. In so doing, Facebook has now become a threat to the CSPs' core business. Such services are substitutes for paid voice communications and strike at the heart of the CSP's business model. By providing communications services for free (or subsidized), the pricing power of CSPs is weakened. Particularly at risk are domestic long-distance and international voice calls.

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