| Kippreport.com

Middle East Telcos want to fight Facebook

September 27, 2012 9:32 by Reuters

Middle East telecommunications firms are discussing the idea of creating a pan-Arab online platform that would earn them more revenue from their networks by challenging Facebook and other Internet behemoths of the West.

The ambitious project faces technical and financial obstacles and may never be implemented on a large scale. But proponents argue the common language and culture shared by the world’s more than 350 million Arabic speakers, plus the webs of affiliated companies which Gulf operators own across the Middle East and North Africa, could make the project viable.

“A single operator, even one in multiple geographies and with tens of millions of subscribers, can’t create this platform on its own,” said Osman Sultan, chief executive of du, the second biggest operator in the United Arab Emirates.

“It would be restricted to the customers of this operator and wouldn’t have sufficient scale to succeed. But a unified platform spanning the Arab world would,” he told Reuters.

Sultan said he had proposed the idea to all major operators in the Arab world over the past 12 months.

Behind the proposal is a frustration shared by telecommunications firms globally: as they spend heavily to build networks, data traffic on the networks is increasing rapidly, but the firms essentially only make money from charging for access to their networks – a low-margin business.

The lion’s share of new revenue from traffic is being taken by so-called “over-the-top” (OTT) Internet companies such as Facebook, Google, Apple and Twitter. The telecommunications firms have unsuccessfully pressed them for bigger contributions to the cost of building the networks.

“OTT players…we can’t share their gain and they won’t share our pain,” said Sultan. “Network traffic doubles every eight to nine months, but revenue is heading to a plateau, so we need to claim part of the new revenues alongside OTT players.”

VERY DIFFICULT

The proposed Arab online platform would feature social media and online shopping for goods and services, including digital content such as music, video and applications, Sultan said.

He declined to give details, saying parts of the talks were confidential, and most other Arab telecommunications operators contacted by Reuters declined to comment or did not respond to requests for comment

But Sheikh Mohamed Al Khalifa, chief executive of Bahrain Telecommunications Co, welcomed the idea.

“Telcos are beginning to look to the deployment of OTT services such as streamed TV and video-on-demand,” he said. “Such diversification (into) adjacent industries has become necessary. There are gains to be made by collaborating within our industry in the Middle East.”

Sceptics point to the fact that efforts by telecommunications firms elsewhere in the world to set up online ventures have often failed when faced with the technical savvy and marketing muscle of the established Internet giants.

“Fundamentally, it’s very difficult to complete against OTT players – operators lack the agility and the core competencies as well as the brand appeal,” said Guillermo Escofet, a senior analyst at Informa Telecom and Media in London.

“They’re used to running networks, not being media companies. Also, operators instinctively try to differentiate themselves from each other – it’s against their DNA to work together.”

London-listed Vodafone is one of a number of operators that have had difficulty creating Internet services. The Vodafone 360 service, based on customers’ phone address books, was launched inEurope in 2009, letting customers import contacts from social networks and use an online application store. In 2011, Vodafone said it was winding down the service.

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