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Should telcos charge Google, Facebook?

April 22, 2014 • Opinion, Top Stories

The furore around mobile termination rates as Cell C, Vodacom, MTN, Neotel and Telkom duke it out in the media, may well be grabbing headlines lately but really amounts to a minor, public lovers’ spat compared with what looms.

Anthony Laing, GM of networking at pan-African ICT group, XON (image: supplied)

Anthony Laing, GM of networking at pan-African ICT group, XON (image: supplied)

The mobile networks are headed for a messy divorce that will undoubtedly leave shareholders in counselling over the fallout. At the heart of the impending doom is, once again, a revenue struggle. The consequences could well be terminal although the outcome is uncertain.

These networks are increasingly being used to deliver content, using the Internet, to people’s phones, tablets, PCs and laptops and even directly to smart TVs in the home. Anyone who has used Skype, WhatsApp or BBM on their phones knows that the cost difference between calls and even SMS and data is enormous – particularly in South Africa. What’s more, when content sites such as Facebook and YouTube launched they were more a curiosity or a quirk than a serious business. Not only have the long-standing social networking sites since raked in billions of dollars or been valued at figures obscene enough to make a young bride blush but the quantity of data they push and pull, as well as the sheer number of social networking sites, has swelled significantly in the past decade. And YouTube today is the second-biggest search engine in the world.

In 10 years the only thing Facebook seems to have lost is one word from its original name, The Facebook. Everything else has risen, like the number of users from 1 to 1,23 billion, and at the end of 2013 there were 945 million mobile users. The business recently posted its results and made over $1 billion from mobile ads alone. It made a total $2,59 billion, which at the exchange rate at the beginning of April was nearly R27,5 billion. The figures are just staggering: in 2012 it shared 2,5 billion pieces of content, 300 million photos were uploaded, ran 70 000 queries against its databases and consumed over 500 terabytes of data – per day! And that was when it had a mere 950 million users, give or take.

Google revenues amounted to over $50 billion by 2012, which translates to more than R500 billion in today’s money. If that’s not enough, its other figures, too, are staggering: it can index more than 20 billion Web pages, handles more than 7 billion search queries, hosts 425 million e-mail users – all in one day.

YouTube – has more than 1 billion unique visitors each month, uploads over 100 hours of video every minute, 80% of traffic originates outside the US, serves 6 billion hours of video every month, more than 1 million content creators earn money from their channels with thousands of them making millions of dollars annually, and mobile makes up more than 40% of the company’s global watch time. No wonder, then, that global ad revenues topped $5,6 billion in 2013 – nearly R60 billion.

Compare those numbers with our local mobile operators. MTN Group’s annual revenues for December 2012 were R135,1 billion. Vodacom reports nearly R70 billion for the 2013 year ended March.

The rub is that companies like MTN, Vodacom, Cell C, Telkom and Neotel are not just helping but actually providing the platform for companies like Facebook, Google and YouTube to make money. Without the network there’s no Facebook, no YouTube, no Google – nothing. Yet those social networking companies aren’t footing the bill. Every time a user watches a video, clicks Like, or searches for information, the social networking sites increase their potential to earn incomes while it costs companies like our mobile and fixed line operators something to support. Their networks carry the traffic, enable the social business and ultimately deliver a service to the consumer. And, in my opinion, this is why companies like Google are rolling out their own fibre networks.  They know this scenario doesn’t have a happy ending.

When I first encountered this issue my argument was: the networks charge for the data so what’s the problem? Why should I pay more? The problem is that, as we all know, data costs a fraction of traditional voice. The demands from data, however, are growing rapidly. Downloads these days are often measured in gigabytes as opposed to megabytes. Even short videos on YouTube can pop into the hundreds of megabytes. Buying a single music album on iTunes can set the network back a hundred or so meg. That’s traffic and bandwidth utilisation that impacts every user’s quality of service.

The demands, in fact, are so sharp today that the networks are being forced to invest billions of rands in upgrades. And they cannot opt out of data-supporting investments in their networks if they are to survive. Voice revenues, even in South Africa, are dropping and data demand will soon overtake it. Vodacom’s data uptick in 2013 over 2012, as an indicator, was 22%. It spent over R9 billion on upgrades to network coverage and renewal projects. There is an operator in the US that has recently launched sponsored data. What that means is, even if you reach your cap, the site you’re accessing, for example Facebook, will pay the operator so that you can continue to access their site. It’s called zero-rate traffic. I think that’s the future.

If the situation continues, that is the rising popularity of social networking sites and growing data transfers, then the revenues for mobile and fixed line operators will continue to drop and investments continue to rise, eventually leading to their ruin. When they go out of business nobody wins. Users lose their connections and social sites lose their revenues. That’s not very likely to happen. At least some networks will survive but the cost implications for consumers could be onerous. Unless the networks find some way of working with social sites and others to build more equitable revenue streams.

The war to achieve that, however, promises to be anything but amicable. Nobody is going to give away billions of dollars without employing at least a smattering of tricks, dirty or otherwise. The mobile termination rate spat, therefore, is probably a test run, a one night stand in the shadow of a decaying marriage that will leave the world’s consumers carrying the load of a failed marriage’s baggage.

Anthony Laing, GM of networking at pan-African ICT group, XON

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