Phone operators battle with internet firms

GOOGLE, Apple and Facebook must help pay for the billions of dollars of network investments needed for their bandwidth-hogging services, phone operators say.

As mobile and web companies add videos, music and games, European operators including France Telecom, Telecom Italia and Vodafone want a new deal that would require content providers to pay fees linked to usage.

“Service providers are flooding networks with no incentive” to cut costs, France Telecom chief executive officer Stephane Richard said. “It’s necessary to put in place a system of payments by service providers as a function of their use.”

Mr Richard, who addressed the issue at the Le Web conference in Paris, has joined Telecom Italia chief executive Franco Bernabe and Telefonica boss Cesar Alierta in what could turn into a cold war with web companies. As more consumers access the internet on mobile devices, the cost of building bigger networks may outstrip revenue growth for wireless operators.

The mismatch between investments and revenue “is set to compromise the economic sustainability of the current business model for telecom companies,” Mr Bernabe said.

While the number of mobile data connections in western Europe will rise by 15% a year to 270 million in 2014, overall end-user revenue will fall about 1% a year, IDC estimates. Operators’ annual spending on network gear in the period will surge 28% from last year to about €2.71 billion, according to researcher Canalys.

Companies such as Google and Yahoo! “use Telefonica’s networks for free, which is good news for them and a tragedy for us,” Mr Alierta said in February. “That can’t continue.”

To be sure, operators are benefitting from the surging popularity of mobile data use. Domestic data revenue at France Telecom & surged 24% in the third quarter, rising to almost 32% of network revenue.

The explosion of data “is good news,” France Telecom’s chief said. It is, however, “a challenge for carriers like us,” Mr Richard said, adding that it “raises the question of the business model of mobile data.”

Faced with slowing overall revenue growth even as data usage soars, the operators are trying to pass on some of the costs to the service providers.

“There’s a clear competitive response by the carriers to try and make moves to ensure that the likes of Google and Apple don’t have it their own way,” said Paolo Pescatore, of CCS Insight.

Apple, Google, Facebook, and online-calling service Skype “increasingly look like integrated operators in the telecom network sector,” Mr Bernabe said.

Operators are meanwhile looking for ways to win revenue from data-hogging customers. Vodafone plans to shift to so-called tiered pricing based on data use, following a similar move away from unlimited plans by AT&T.

Service providers, meanwhile, say they already pay enough.

“Currently about 40% of our expenses go to networks anyway — servers, peering, our content delivery network, and other resources,” said Giuseppe de Martino, the legal and regulatory director of Paris-based online-video provider Dailymotion.

“If telecom operators want us to share in their expenses, perhaps we should talk about sharing subscription revenues as well.”

The operators’ emerging fight is ultimately about control over customers and their wallets, said Paolo Pescatore. “They want a bigger piece not only of the pie but also ownership of the customer,” he said of web companies. “There’s clearly a big battle.”