Is Facebook a wolf stalking mobile operators – could a Facebook SIM be next?

3 Apr 2013

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Tomorrow, Facebook is expected to launch a new smartphone in collaboration with HTC, as well as a new home screen app for Android users. Analysts reckon this is the start of a shift that could see Facebook become bigger and richer than any telecoms operator.

It has been a fear that has lingered for a few years now. The words ‘dumb pipe’ would make the doughtiest of telco CEOs shudder. With the expected onset of a Facebook smartphone tomorrow and rumours of the social network forging an MVNO deal in the US, are telecoms executives’ worst fears about to be realised?

It is a question that applies as much to Google as it does to Facebook.

At the recent Mobile World Congress in Barcelona, operators raved about the important socio-economic consequences of bringing the next 1bn internet users online via mobile networks. It sounded like a crusade, but underneath, the simmering tension was palpable.

Who is eating the mobile operators’ lunch?

Operators are essentially watching their lunch being eaten and are hosting traffic on their networks that is being monetised by other companies.

These companies are players like Facebook, Google, Yahoo!, Microsoft, LinkedIn and many more who have picked up the scent of their quarry and in their bloodlust are screaming ‘mobile first, mobile first’ to their armies of developers.

Tomorrow, Facebook is expected to reveal a new Android smartphone developed in cahoots with HTC and code-named ‘Myst’,which will feature deep Facebook integration and a home-screen experience similar to the BlinkFeed app on the new HTC One. Facebook is also planning to reveal an app version of the home-screen experience that Android smartphone users can download from the Google Play store.

On the surface this seems well and good as mobile networks can expect to see a surge in mobile data traffic. Some are already augmenting their price plans to provide consumers with all-you-can-eat phone and text deals, along with generous mobile data and cloud storage. Yesterday, Vodafone revealed its family of RED price plans for example, that will no doubt give consumers who no longer wish to experience bill shock the peace of mind they crave.

It also makes sense that Facebook is targeting the Android ecosystem. For one thing, it is easier than Apple’s iOS ecosystem to launch products into and Android accounted for 70.1pc of smartphones sold in Q4 of last year, according to IDC.

According to Analysys Mason, Android accounted for 60pc of overall smartphone shipments in 2012.

Total social networking penetration of smartphones is 50pc, giving Facebook a 96pc marketshare. In addition, Facebook’s messaging features are used by 14pc of smartphone users, with total IP messaging penetration of smartphones standing at 34pc – giving Facebook a 42pc share of a market it shares with Skype and WhatsApp.

More importantly, Android dominates the low-end smartphone segment, from which everyone agrees most future growth in mobile will come from. Android is tactically and strategically an imperative for Facebook.

Facebook: the mobile operator

But here’s where it is about to get very interesting – and daunting for mobile operators.

According to Analysys Mason, Facebook could increase its app engagement six-fold if it were to become the default communication platform for telephony, messaging and email. Telephony and messaging are the most-used applications on smartphones.

Don’t forget Facebook’s recently launched VoIP and IM features.

According to Analysys Mason analysts Ronan de Renesse and Stephen Sale, the tie-up between Facebook and HTC is no accident. “Facebook needs to be more ‘native’ to grow customer engagement. Two-thirds of daily smartphone usage corresponds to pre-installed applications – applications that have been installed on the device before its purchase.

“Although some new smartphone models come preloaded with the Facebook app, it is also important that the Facebook application is tailored for specific popular smartphone models to guarantee a superior quality of experience.”

A research note by John Strand of Strand Consult says that all the news stories that focus on Android and HTC are missing the bigger picture.

“It doesn’t matter that the concept will be launched with an Android operating system on an HTC smartphone. If Facebook’s new concept works, it will become the standard for phones and operating systems. Not only are OTT (over the top) companies such as Facebook rendering mobile operators into dumb pipes, but they are making all smartphones into dumb terminals. If all users want is Facebook, then there are few ways that operators and phone manufacturers can differentiate with services or hardware.

“Facebook’s announcement is an important milestone for investors, for it demonstrates that the gold mine for Facebook is not advertising, operating systems or hardware. The key for Facebook is to monetise its users for the very communication it offers: SMS, voice, and data-enabled services.

“Facebook is not a social network; it is a communication company. Facebook is the place where people connect with friends and family, send messages and post pictures and videos. Should Facebook monetise these activities, it would bigger and richer than any telecommunications operator.”

Strand says that long ago it stopped defining Facebook as a social network; it is a competitive threat to mobile operators’ revenues.

Inside the chicken coop

Describing Facebook as a newborn cuckoo, Strand paints a more vivid picture of mobile operators being converted into shell-shocked cuckolds who have discovered that the useful user-friendly value-add feature on the devices was really a wolf in sheep’s clothing. A Trojan Horse. A fox that disguised itself and snuck into the chicken coop. Whatever the metaphor, the implications could be massive.

Strand points out that SMS messages sent in Denmark have fell by more than 20pc in the first six months of 2011 because people are transferring much of their messaging activity to their Facebook apps.

“There is no doubt that Facebook’s OTT services have impacted operators negatively. SMS revenue for operators is all but disappearing as Facebook enables instant messaging. Voice will also be disintermediated as Facebook moves toward VoIP capabilities. The Facebook SIM card is the next step. We can’t think of one operator that would not want Facebook as an MNVO (mobile virtual network operator) client.”

Strand also points out that Facebook could add US$800m to its revenues by launching its own version of Skype.

But there is a silver lining for mobile operators that agree to work with Facebook in an MVNO fashion.

“A Facebook MVNO would increase revenue and profitability for the company – and be a game changer in the mobile industry. Only two questions remain, whether Facebook is willing to look beyond advertising as a source of revenue, and which operator will succeed to win Facebook MVNO contract.”

So, if Facebook does indeed launch a new smartphone tomorrow could it be the start of a bigger trend that could see the social network become a next-generation communications giant? It’s hard to see how this would be possible without mobile operators getting wary and defensive. Facebook would need to either strike fast to secure key MVNO partnerships or prove to operators it could help stem the fall in OTT revenues.

Tomorrow is just the first step in a necessary evolution for Facebook which will rely on mobile above all else to secure its future relevance. Time, ultimately, will tell.

Wolf image via Shutterstock

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Editor John Kennedy is an award-winning technology journalist.

editorial@siliconrepublic.com