Facebook, Microsoft, Google play harder in telcos' turf

Mark Newman/Ovum

OvumLast week, three of the world’s largest IT and internet companies unveiled separate initiatives to get into the business of connectivity.

During the Indian prime minister’s visit to Silicon Valley, Microsoft and Google announced initiatives to fund broadband and public Wi-Fi in villages and railway stations across India.

Meanwhile, Facebook’s Mark Zuckerberg announced at a UN Forum in New York that Facebook would be delivering connectivity to refugee camps across the world.

What is significant about all this? Well, first, there was no reference in any of the initiatives to the role that telecom operators will play. Indeed, the terms “telecom” and “telecom network” were not used at all. The talks centered on connectivity, broadband, and Wi-Fi. Secondly, these announcements are the latest in a series of initiatives from “internet” companies seeking to play a role in the provision of broadband connectivity, a role which many in the telecom industry had hitherto assumed to be theirs.

There is no suggestion that any of these projects will be revenue-generating initiatives for the companies involved. Rather, they fall within the category of initiatives to extend connectivity to the two-thirds of the world’s population without access to the Internet. They follow other projects such as the internet.org initiative led by Facebook and experiments involving drones and balloons to extend connectivity where there is no terrestrial network coverage.

Collectively, these projects represent innovation around internet connectivity. There is absolutely nothing to stop telecom operators from launching similar projects. But to date, telcos’ “innovation” has seen them diversify away from the core revenue streams of communications services and connectivity instead of finding ways to deliver these services more affordably to serve the unconnected.

This is not to say that operators do not have their own programs to extend their networks into rural areas. Network-sharing initiatives are commonplace, often with financial support from governments. But, to reach the unconnected, operators tend to rely on the same suppliers, the same technologies, and the same business models they have always done, meaning progress can be slow. And telecom operators still feel that they are in the business of building “carrier grade” networks rather than providing robust and secure voice, messaging, and data services.

Internet companies’ big advantage is their “global” mindset. The technologies and business models that they develop have global reach and scale. Telecom operators, on the other hand, tend to limit their ambitions to markets in which they own licenses and operate networks. It may be easy for a company such as Facebook to offer to connect refugee camps around the world, but a telecom operator sees the world in terms of licenses and national boundaries. The one telco that could launch an initiative similar to Facebook’s – and even partner with Facebook – is Vodafone. The Vodafone Foundation has developed a mobile “network in a backpack” solution for regions hit by natural disasters such as earthquakes and typhoons.

There is no suggestion that any of the three programs unveiled last week are anything other than philanthropic initiatives aimed at connecting the unconnected. But, at the same time, when large corporations formulate strategies around corporate social responsibility, they find it easier to win internal support for initiatives that have deliver some value – however long term – to their core business.

For Google, Facebook, and Microsoft, it is not difficult to see how connecting the unconnected will, in the medium term, benefit their core businesses. Indeed, one of the most interesting aspects of Facebook is its popularity in emerging markets, where there is low disposable income for smartphones, tablets, and PCs – not to mention for telecom services.

It begs the question of whether digital companies have more confidence in their ability to monetize broadband connectivity for the world’s “unconnected” – even if they are offering the connectivity part for free – than telecom operators for whom connectivity is their core business.

Mark Newman is chief research officer of Ovum’s telecom research business. For more information, visit www.ovum.com/

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