Google ‘No Enemy’ of Phone Operators as Sarkozy Weighs Rules
Google Inc. (GOOG), Facebook Inc. and mobile-phone operators are seeking to ease tensions over who will pay for wireless networks as data use surges and leaders including France’s Nicholas Sarkozy consider more regulation.
A compromise can be found between operators urging direct compensation for investment in faster networks and Google, Facebook and Apple Inc. (AAPL), France Telecom SA (FTE) Chief Executive Officer Stephane Richard said in an interview. A “very open” meeting last week with Google CEO Larry Page in Mountain View, Calif., convinced him that a deal is possible, he said.
“We are not the enemies of Google,” Richard said in Paris yesterday. “They understand that if we don’t find a solution, it’s not in their interest either.”
As mobile and Web companies add videos, music and games, operators including France Telecom, Vodafone Group Plc (VOD) and Telefonica SA (TEF) have demanded a new deal that would force content providers to either share revenue or participate in network development. Phone companies say the cost of building bigger networks may outstrip revenue growth.
The network question has taken center stage at a meeting of executives including Facebook founder Mark Zuckerberg, Google Executive Chairman Eric Schmidt and News Corp. CEO Rupert Murdoch in Paris this week. The e-G8 Forum, organized by French President Nicolas Sarkozy, is being held before the full summit of Group of Eight leaders in Deauville, France.
“It’s an issue all Web companies need to resolve collectively,” Paolo Pescatore, an analyst at CCS Insight, said of network expenses. “As we move forward, the bombardment of content on broadband networks will move onto mobile. There’s a clear imbalance in the way that revenues are flowing through the ecosystem.”
France Telecom climbed 0.1 percent in Paris trading to 15.71 euros, bringing its advance this year to 0.7 percent. Vodafone fell 0.7 percent in London to 168.6 pence. The stock has climbed 1.7 percent this year.
Google’s Page indicated he may be willing to cooperate when the two executives met last week, Richard said. The France Telecom CEO said he wouldn’t exclude the possibility of joint work on a solution for network investments later. Operators are “counting much more on technological co-operation than on getting a big check,” said France Telecom executive vice- president Pierre Louette.
Google’s Schmidt stressed both sides’ common interests in Paris.
“I would say we’re incredibly co-dependent,” Schmidt said yesterday. Technological solutions to help spread out data demand are one solution operators and content companies can pursue, he said.
Lighten the Load
Operators are exploring ways to lighten the load on their networks, especially in busy urban areas like New York and Paris, where France Telecom’s data traffic grows by 5 percent every week. Those stopgaps include pushing more mobile traffic onto WiFi networks and storing more online content on devices themselves.
Raising the efficiency of radio spectrum use is another possibility, with companies such as Qualcomm Inc. (QCOM) working on how to find and exploit “underutilized pieces of spectrum,” CEO Paul Jacobs said.
Despite the peace overtures, both sides also used the Paris conference to reiterate their positions.
“You can’t have telecom networks putting in tens or hundreds of billions of dollars for someone else to take all the credit and the revenue,” Sunil Mittal, chairman of India’s largest mobile operator Bharti Airtel Ltd. (BHARTI), said in a Bloomberg Television interview.
Without the networks, there would be “no Google, no Facebook, no Apple,” France Telecom’s Richard said.
Usage statistics in western Europe illustrate the challenge. While the number of mobile-data connections in the region will rise by an average of 15 percent a year to 270 million in 2014, overall end-user revenue may fall about 1 percent a year, researcher IDC estimated last year.
Google’s Schmidt said that phone operators are nonetheless benefiting so far from the surge in demand for data offerings.
“I would argue that the winners are the people who are seeing enormous revenue growth rates,” he said. “The fact of the matter is large telecom companies, and large companies in my industry, are in fact seeing large revenue growth rates.”
Vodafone, the world’s biggest mobile-phone company, said May 17 that full-year sales rose 3.2 percent to 45.9 billion pounds ($74 billion) as mobile data sales surged 26 percent. Telefonica, Spain’s largest phone company, posted a 19 percent increase in mobile data revenue for 2010, while the increase reached 29 percent at Deutsche Telekom AG. (DTE)
Surfing the Web
All operators are banking on the popularity of smartphones that can surf the Web and download music and games to bolster data sales and make up for declining voice call revenue.
Foot-dragging by either side in the network investment debate may create a situation where governments step in.
“We won’t take steps that would damage growth in your industry,” Sarkozy told the assembled Internet executives yesterday. “But you can’t escape a minimum set of rules,” he said, adding that technology companies “need to hear our limits, what our red lines are.”
While never mentioning taxes directly, Sarkozy said that taxpayers support the industry.
“States invest in the technical and technological infrastructure that provide transport for the services and content that are circulated on the Web,” he said. The French state owns 27 percent of France Telecom and Germany has a 32 percent in Deutsche Telekom.
Some executives at the gathering responded to the warning.
“Before we decide that we need some regulatory solution, let’s ask is there a technical solution that can scale, that can work globally, that we all can get around and move very quickly,” Schmidt said yesterday. “I can’t imagine any delegate in this conference would want Internet growth to be significantly slowed by a government.”
To contact the editor responsible for this story: Kenneth Wong in Berlin at email@example.com@bloomberg.net.