Feb 252014
the global traffic map of social media service Facebook

One of the fascinations of this blog is how telecommunications executives desperately fight against the idea of their service being a basic utility.

Should you scratch a tough, hardbitten telco executive; you’ll find a sensitive soul who desperately wants to be seen as a swashbuckling media tycoon or cool startup wunderkind rather than the manager of a staid old telephone company.

Once you understand the buried desired of telco executives, it’s not surprising that Facebook founder Mark Zuckerberg was invited to give the opening keynote of the 2014 Mobile World Congress.

Sadly for the Telcos it wasn’t good news as the real life tycoon and wunderkind described how Whatsapp, the startup he acquired for $16 billion last week, is going to introduce voice services in the near future.

Having seen messaging services like Whatsapp slowly strangle the telecommunications industry golden goose that was SMS, the telcos now face lucrative voice services being further eroded by these Over The Top smartphone apps.

Which leaves them with data, the lowest margin service in the telco stable.

Far from being the bravest man in Silicon Valley, Mark Zuckerberg is the telco industry’s future. Which is why the industry’s executives want to find ways to profit from developments like machine to machine (M2M) communications and media ventures.

The worry though is most of the new telco opportunities don’t appear to anywhere near as profitable as now declining or stagnant services that have been so lucrative in the past.

Which makes Ericsson’s partnership with Facebook in developing an Innovation Lab for the internet.com initiative intruiging.

The objective of Internet.com is to make the internet more accessible to more of the world, which again threatens incumbent telco models.

Transmitting data—even a text message or a simple web page—requires bandwidth, something that’s scarce in many parts of the world. Partners will invest in tools and software to improve data compression capabilities and make data networks and services run more efficiently.

Efficient, compressed data means even less revenue for the operators so it’s no wonder they’re looking at those alternate revenue streams.

No telco executive is likely to starve in the near future, but as revenues stagnate in their established markets it’s no wonder the industry’s leaders are wondering whether it’s worthwhile hitching their fortunes to Facebook’s success.

  2 Responses to “Zuckerberg meets the telcos”

  1. Gosh Paul, catch up. IP phones, FaceTime, and Blackberry messenger began eroding voice and SMS services years ago – this is not news. Zuck recognises that 80% of the worlds population has 2G and 3G access , but if he wants to stoke his higher bandwidth business, he needs to give consumers a way to demand it , and telcos a business case to invest in capacity they would otherwise not need to. His free ride to riches on the worlds communications infrastructure is perhaps reaching its limits and his suggestions appears to be symbiotic rather than a case of hitching wagons.
    You also say data is low margin but this assumes that the cost of the network equipment is not declining, on top of it’s throughput increasing – which it is, and therefore drives profit positively. More data can be moved more cheaply.
    However, the day will come where carriers can prioritise services and quality of service on the backhaul using SDI: so for a corporate customer, a telco may choose to prioritise their business apps running over the MPLS in preference to the staffs use of YouTube and Facebook. Oh, did I just suggest FB traffic could be deprioritised and ruin the user experience and so Zucks business model? Just thinking aloud. I’m not a technician and don’t run a telco…..

    • Good comments, Errol. You’re absolutely right about Facebook getting a free ride on the infrastructure and it’s going to be interesting to see how that pans out.

      With the ‘lower margin’ comment, I’m saying data has lower margins than the voice and SMS services had in the past. It’s a good point that the exponential increases in capacity are going to see margins on data services increase even if the customer prices fall.

Leave a Reply

%d bloggers like this: