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Mobile World Congress and the Big Business Model Clash in Barcelona

The Mobile World Congress in Barcelona attracted some of the most important people in the broader telecommunications industry. While they were not necessarily all together at the same time it was good to analyse their presentations and the comments they made within the broader context of the market, to get a clearer picture of where the industry is heading—or, perhaps more importantly—where those players are trying to push the industry from their own positions. This then allows us to start looking at possible scenarios and to make some predictions as to how the industry will evolve over coming years.

Upfront, it is important to state that the GSMA, the organisation in charge of the event, is primarily driven by the mobile operators, supported by the vendors in the market.

So it came as no surprise that the guns started to blaze at the very start of the event, with Tim Höttges, the CEO of Deutsche Telekom, César Alierta, CEO of Telefónicá, Jon Frederik Baksaas, CEO Telenor, and Vittoro Colao, CEO Vodafone, all, in one way or another, grasping the opportunity to continue their complaints about the ‘free ride’ that the OTT players are getting. And they repeated their call to bring the over-the-top content (OTT) players into the same regulatory environment in which they have to operate.

So far the American operators have been rather quiet on this issue, falling in line behind the American Administration, which, at the WTC Conference in Dubai in December 2013, vehemently defended its position that there should be no government interference in the internet. Interestingly however, the American industry is changing. The telcos will soon no longer be able to call themselves internet providers as, under the new FCC rules (Title II), they will lose that privileged but untenable position and will be treated as telcos.

Under those previous rules, the ‘regulatory intervention’ they so desperately objected to, also included intervention in broadband, as under those rules broadband, rather strangely, was seen as an internet service and not as a telecoms access service.

I’d predict that the new change will now bring the American telcos more in line with the European telcos, and it will be interesting to see what their combined efforts in this new alliance will bring to the market.

Tom Wheeler the FCC Chairman gave a range of spirited responses to a grilling from the Director of the GSMA, Anne Bouverot. She was following the line of the telcos and questioned if the FCC intervention would stifle growth and investments in the market; however she had problems reconciling her position with the fact that, despite these regulatory changes, the American industry was still prepared to invest a whopping $45 billion in new spectrum. So, on the one hand operators are crying wolf while, on the other, they are still prepared to invest massively in the industry.

We predict that the split between internet—as in content—and broadband—as in access—will most likely lead to a change in policy from both the American government and the American telcos. Obviously everybody remains committed to the view that governments should not intervene in the internet, but with the telecoms and internet activities now untangled in America this situation is set to change, as regulatory intervention in telecoms broadband is now possible under the new rules.

As Tom Wheeler was at pains to explain during the interview, the changes will not lead to more regulations. What he didn’t say, however, was that the FCC will now have the tools to intervene on a ‘just and reasonable’ basis. Under the rules whereby broadband access was classified as ‘internet’ such intervention was not possible.

It was also amazing to see the FCC PR machine at work after Tom’s interview, handing out brief notes from the FCC to the delegates clearly indicating that the rules don’t mean more regulations.

So watch that space. The FCC change is very fundamental and it will have widespread consequences, not just in the USA, but also in the various international forums on international telecoms issues.

Now let us add the views from the OTT players to this. Mark Zuckerberg, CEO of Facebook, and Sundar Pichai, Vice-President Products of Google, both separately preached a different message. They argue for free access to the internet in order to connect the next billion people.

Facebook now has its ‘internet.org’ organisation in operation in six developing economies. The service provides free basic internet access and requires a subscription if full internet access is needed. The initial signs are promising, with customers, after having tested the free service, moving into paid services.

As reported from the UN Broadband Commission, with handset prices coming down the affordability issue is shifting from the device to the service. Also the majority of ‘unconnected’ people live within the footprint of a mobile service. So the Facebook service is mostly set to become a winner, something that was still questioned by some of the traditional telcos, in this case Telenor.

Google has its own free internet access projects using WiFi and also balloons (the Loon project) to bring internet access to unconnected users. But it is also considering becoming—in the USA—an MVNO in its own right. It will most likely also start testing certain free services.

Interestingly, community groups are finding themselves becoming rather strange bedfellows with the incumbent telcos. Both argue that free services offered by Facebook (and other OTTs) should not be limited to the Facebook service itself. They should provide open access. This is somewhat similar to the argument of the telcos, who also want the OTT players to open up their services in the same way as they have to provide ‘net neutrality’.

While most of the telco argument is self-serving there certainly are issues for the future. There is now a clash of business models which is not in the interest of the customer, or of the long-term health of the industries. The control that companies like Google, Facebook and Amazon exert is increasing by the day, and they show very little interest in opening up their systems in the same way they advocate opening telecoms systems. There is still no permission-based system in place that gives customers full control over their data. Furthermore, what are at present different industries are merging—in an evermore interactive world—deeper and deeper and there is much less difference between the (communication) services offered by telcos, ISPs, broadcasters, OTT companies and other digital internet organisations. A radical review and regulatory reorganisation of this market will therefore have to happen sooner rather than later (I bet it will be later).

A few years ago it could be argued that the telcos also would have to adjust and transform their organisations and business models, but several of them are now well and truly engaged in doing that. While significant costs will still have to be taken out of the telecoms business before a true convergence with the other groups can take place, it is now more a matter of when, rather than if.

On the other hand, companies such as Facebook, Google and Amazon are increasingly behaving like monopolies, and in one way or another that will lead to regulatory intervention. While the American lobby is still dead against it, the situation in Europe is changing.

On the issue of net neutrality, Tom Wheeler skirted the question of how we are going to handle network quality and priority issues. In the case of ‘connected cars’ it is essential that split-second decisions can be made in milliseconds—otherwise serious accidents will happen. So how can such telecom traffic be prioritised within the concept of net neutrality?

Healthcare apps are another area where quality and priority is a key issue. Furthermore some countries will no doubt want to make certain national healthcare and education services free—how does that fit in with net neutrality? Obviously solutions will be found, but nevertheless these are important issues that need to be sorted out.

The importance of national interest services will only increase over coming years. The Ebola crisis is a clear example, showing that the industry is still not well-prepared to adjust their business models; and unless changes to these models are made more and more pressure will be put on the industry to transform itself to suit the new world we are living in. This requires sharing, and it applies to all players alike: the telcos, the mobile operators and the OTT players.

By Paul Budde, Managing Director of Paul Budde Communication

Paul is also a contributor of the Paul Budde Communication blog located here.

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