With growing costs and increasing demands on their networks, European mobile companies think that companies getting rich off their networks owe them a cut of the profits. And at least when it comes to costs, they've got a point.
European Mobile Companies spent billions of Euros during the past five years to upgrade, expand, and maintain their networks because of increased data usage. Global data traffic grew 70 percent in 2012 with that expected to continue to rise, and because Europe is a mostly mature market, new subscribers, the basic way mobile providers paid for growing networks before, have dried up. European mobile operators have also paid substantial fees to get 4G licenses, and because of the financial crisis, their revenue per customer is shrinking.
Add up these costs and the industry is not happy. Telefónica's CEO Cesar Alierta cried during the Mobile World Congress that "Internet companies are riding for free on the mobile networks," while not sharing the cost of infrastructure and continuing to offer more data-hungry services, such as HD Video.
While Telefónica acknowledged that "Mobile data revenues continued to be the main growth driver in 2012, rising 12.8% year-on-year to account for more than 34% of consolidated mobile service revenues, on the back of the rapid expansion of non-SMS data revenues (57% of total data revenues)," they believe this is not enough to compensate for the investment and support they need to improve their networks, as people and businesses are hungry for faster networks and lower prices.
Alierta thinks the mobile operators should "write the rules" of the mobile data ecosystem and regulators should not interfere. They're looking to expand their businesses in places traditionally they've been kept out of. Telefónica and other operators such as Vodafone, Orange, and T-Mobile have launched services to compete with messaging apps such as Whatsapp and Skype. Sprint and Telefónica have signed a global alliance to create one of the world's largest mobile advertising networks, aiming to offer global brands the chance to reach 370 million mobile customers across the United States, Europe, and Latin America.
However, the current advertising revenues of the operators on their own networks pale in comparison to advertising giants such as Google, Facebook and Yahoo. That's why the industry is desperate to find ways to get a bigger slice of the pie.
Ultimately, a showdown is in store. The mobile companies that have based their business model largely on the idea of ever increasing subscription numbers are finding that it is difficult to maintain margins in a largely mature market. It is highly unlikely that Internet companies that have never paid any real attention to the amount of data their offerings use up will either work to lower that data usage or share their revenues.
Mobile companies, if left alone by regulators, do have something few other Internet companies have, however: immense amounts of personal usage data and the ability to contact users directly. As this battle heats up, Internet companies need to watch to see how much leeway regulators give mobile companies to compete in spaces they've previously ignored. They may find, especially in advertising and content service, that they have new competitors they hadn't previously considered a threat. And mobile companies, if permitted, may find themselves looking to move into businesses they never thought possible a decade ago. People in the mobile and Internet space will need to watch carefully in the next few years.