European phone operators want Google, Apple and Facebook to pay for their network investments

Here's a pretty unbelievable message that the European phone operators are sending: Google Inc., Apple Inc., and Facebook Inc. need to pitch in to help pay for the billions of dollars of network investments needed for their bandwidth-hogging service.

These guys are truly amazing and manage to bite the hands that feed them. Here's why.

Basically, mobile phone operators are big failures, and never managed to sell their services. Who do you know who uses MMS? Do you remember anyone using WAP? Do you even remember what WAP was? And then, who among you used the Web before the iPhone and Android? Did any of you ever used a Windows Mobile phone all the operators where promoting?

So I think the case is pretty strong to say that Google and Apple (and to a lesser extent, Facebook), saved the lives of the operators and their lack of vision was about to bring them down.

Second of all, why would it be Apple's or Google's task to invest in the telco infrastructure? If the telco need to invest, they should do so because they are selling their services to their end users, and hence, they should be charging their customers. Isn't that the most basic rule of conducting business?

They have been given a great opportunity to do business, the iPhone and Android phones are great business enablers for the mobile operators, and now, you seem to complain? It would like if Exxon and Chevron would complain that Ford and GM are producing cars that suck 1 gallon per mile. That's a tremendous waste of oil, but a great cash producing pollution generating opportunity for the oil companies. Somehow the telcos sees that from a different angle...

The only thing their stupid action might lead to, is that, as my friend blbl suggests, Apple and Google should create their own operators entities, and get rid of the telcos. If that were to happen, you can be sure that these mobile operators would be put of business very quickly.

Please see this Bloomberg report:
Google Inc., Apple Inc., and Facebook Inc. need to pitch in to help pay for the billions of dollars of network investments needed for their bandwidth-hogging services, European phone operators say.

As mobile and Web companies add videos, music and games, operators including France Telecom SA, Telecom Italia SpA and Vodafone Group Plc want a new deal that would require content providers like Apple and Google 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 last month. “It’s necessary to put in place a system of payments by service providers as a function of their use.”

Richard, who addressed the issue at the “Le Web” conference in Paris today, has joined Telecom Italia CEO Franco Bernabe and Telefonica SA CEO 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, slicing their return on investment.

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

While the number of mobile data connections in western Europe will rise by an average of 15 percent a year to 270 million in 2014, overall end-user revenue will fall about 1 percent a year, IDC estimates. Operators’ annual spending on network gear in the period will surge 28 percent from last year to about $3.7 billion, according to researcher Canalys.

Companies such as Google and Yahoo! Inc. “use Telefonica’s networks for free, which is good news for them and a tragedy for us,” 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, the biggest seller of Apple’s iPhones after AT&T Inc., surged 24 percent in the third quarter, rising to almost 32 percent of network revenue.
Last month, the tensions threatened to spill into public after a plan by Apple to introduce a so-called soft SIM in its next iPhone prompted threats from European operators to cut subsidies for the device, the Daily Telegraph reported.

A soft SIM would make it easier for consumers to switch network providers by eliminating the need for a new, physical SIM card issued by an operator to do so.

While Apple backed off for now, the technology will eventually be introduced, Sanford Bernstein analyst Robin Bienenstock said in a note to clients, calling the iPhone-maker a “frenemy” for operators.

Apple, Google, Facebook, and online-calling service Skype Technologies SA “increasingly look like integrated operators in the telecom network sector,” Telecom Italia’s Bernabe said.
“We are progressively going to switch from the unlimited approach that has been the trademark of our industry to something which is more sophisticated,” France Telecom’s Richard said today.

Unlimited data plans will become increasingly rare, said Rosalind Craven, an IDC analyst based in London.

Service providers, meanwhile, say they already pay enough.

“Currently about 40 percent 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 SA. “If telecom operators want us to share in their expenses, perhaps we should talk about sharing subscription revenues as well.”

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