1. An uneasy relationship between telecom & technology

An uneasy relationship between telecom & technology

For the next four days, a sprawling conference centre here will become the global hub for the telecommunications and technology industries.

By: | Barcelona | Published: March 3, 2015 12:45 AM

For the next four days, a sprawling conference centre here will become the global hub for the telecommunications and technology industries.

More than 80,000 people — including heavy hitters like Mark Zuckerberg, chief executive of Facebook; Tom Wheeler, chairman of the Federal Communications Commission; and Vittorio Colao, chief executive of Vodafone — will gather to sign contracts and share contacts.

Yet despite the numerous networking events and business deals, there is a love-hate relationship involving some of the world’s largest mobile carriers and tech giants like Facebook and Google.

Both sides rely on each other to provide customers worldwide with high-speed Internet access and online services like music streaming and social networking. Yet as smartphones increasingly become the principal means by which people manage their everyday lives, the telecom and tech giants are jockeying to position themselves as consumers’ main conduit for using the Internet on mobile devices. “There’s a lot of anxiety,” said Adrian Baschnonga, a telecom analyst at the consulting firm Ernst & Young in London. “No one wants to be overshadowed. Everyone is questioning their role in the industry.”

While sales of traditional laptops have stalled worldwide, shipments of smartphones — some of which now sell for as little as $25 — are expected to hit two billion units this year, according to technology researcher Gartner.

At the same time, upgrades to carriers’ networks, particularly in the US, Europe and parts of Asia, have increased mobile Internet speeds to a level that allows consumers to carry out many tasks — like online banking, e-commerce and Internet messaging — that, until recently, had been restricted to computers. “Mobile has become the heart of the Internet,” said Anne Bouverot, director general of GSMA, an industry body that organises the annual conference in Barcelona, known as Mobile World Congress.

This shift has led to some uneasy relationships between telecom and tech companies. For many carriers, which have invested billions of dollars in recent years to upgrade their networks, growing consumer appetite for services like streaming from Netflix has raised fears that telecom operators will be relegated merely to providing the infrastructure that powers the boom in mobile internet.

Telecom executives worry that this role will force operators to miss out on the growing revenue that flows into smartphone applications, Internet gaming and other services, which all run on top of their networks. The concerns come as many carriers’ revenues — particularly in Europe, whose economy is still stuttering — have levelled off.

Some industry insiders also have expressed frustration that American tech giants like Google and Amazon, which have used complicated tax structures to reduce their global tax burdens, do not face the same levels of regulatory scrutiny as carriers. That includes the FCC’s net neutrality decision last week, which will allow the agency to treat broadband Internet access as a public utility for regulatory purposes. “We always pay taxes in Europe,” Pierre Louette, deputy chief executive at the French telecom operator Orange, told an industry conference late last year, in a jab at the Silicon Valley giants. “We can’t continue to be overregulated while they are not regulated.”

At the same time, several tech giants have gained footholds in areas traditionally dominated by the big telecom companies.

Google, for example, is introducing fiber-optic networks in several American cities, offering television and Internet services at speeds of up to one gigabit a second, 100 times as fast as the average Internet connection. The search giant is running other pilot projects in emerging markets, including Kampala, Uganda, to build Internet infrastructure not offered by local carriers.

And Facebook now competes head-on with traditional telecom players after acquiring WhatsApp, the Internet messaging service, last year for $19 billion. Along with Facebook Messenger, the company’s separate messaging service, Facebook now has hundreds of millions of mobile users who have shifted from traditional text messaging — a once highly lucrative revenue source for carriers — to free Internet messaging on their mobile devices. “Operators only have themselves to blame,” said Steven Hartley, a telecom analyst at the research company Ovum in London.

“They didn’t adapt to the mobile shifts in the industry. They can’t complain when others beat them to the punch.”

To avoid falling further behind, operators are trying to adapt.

Some, including Telefónica of Spain and Deutsche Telekom, have opened their own start-up incubators to invest directly in fledgling companies that could one day compete with West Coast rivals. Peter Borchers, who runs Deutsche Telekom’s start-up programme, with offices in Berlin, Tel Aviv and Krakow, Poland, said the investments helped the carrier keep ahead of new tech developments like connected devices and smartwatches that might otherwise pass it by. Investments range from $112,000 to $335,000 for a stake of up to 10% in a start-up.

“The investments have to be strategically relevant to Deutsche Telekom,” Borchers said. “It helps us tap into future innovations.”

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