Telcos want service providers to pay up for data surge

As data consumption by users continues to increase, disgruntled European operators are asking bandwidth-hogging service providers such as Google and Facebook to help defray network investments, according to a news report.
Written by Kevin Kwang, Contributor

European telecom operators are asking bandwidth-hogging service providers such as Apple, Google, Facebook and Skype to chip in and help defray the costs involved in building up their network infrastructure, which is needed to cope with increased data consumption, according to a report. 

A Bloomberg article on Wednesday identified France Telecom, Telecom Italia and Vodafone Group as carriers that have voiced out against mobile and Web companies, which have introduced data-heavy online contents such as videos, music and games. They are mainly asking these service providers to help defray the "billions of dollars of investments" needed to build new network infrastructure to cope with today's bandwidth demands. This can be done by paying fees linked to the usage of their services, the report noted.

Stephane Richard, CEO of France Telecom, for one, was quoted in the article as saying: "Service providers are flooding networks with no incentive [to cut costs]. It's necessary to put in place a system of payments by service providers as a function of their use."

The telcos' displeasure with service providers stem from the fact that as more consumers access the Internet on mobile devices, the cost of building bigger networks may outstrip revenue growth for wireless operators, which would reduce their ROI (return on investment), the article stated.

"[The mismatch between investments and revenue] is set to compromise the economic sustainability of the current business model for telecom companies," said Franco Bernabe, CEO of Telecom Italia, in the report.

Figures from research firms IDC and Canalys appear to support the telcos' argument. IDC, for instance, stated that 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 decline about 1 percent a year. In the same time frame, operators' annual spend on network equipment will grow 28 percent from last year, to about US$3.7 billion, Canalys stated.

Both sides benefit, but not equally
That said, operators are benefitting from the popularity of mobile data use, the report stated. Domestic data revenue at France Telecom--the biggest seller of Apple's iPhones after the U.S.'s AT&T--surged 24 percent in the third quarter, rising to almost 32 percent of network revenues.

With slowing overall revenue growth despite soaring data usage, though, operators are keen to apportion some of the costs to service providers.

According to Paolo Pescatore, an analyst at London-based CCS Insight, the CEOs' statements are a "clear competitive response" by carriers to ensure companies such as Google and Apple "don't have it their own way".

However, a service provider that Bloomberg interviewed said it already pays its fair share of network costs.

Giuseppe de Martino, the legal and regulatory director of France-based online video provider Dailymotion SA, said the firm currently forks out about 40 percent of its expenses to networks for equipment such as servers, peering, and content delivery network, among others.

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

Google and Apple declined to comment for the report.

Editorial standards