(Updates with analyst’s comment in 10th paragraph, Deutsche Telekom’s response in 13th.)
June 8 (Bloomberg) -- Google Inc. and France Telecom SA are in discussions that may lead to an agreement to work together on reducing the impact of data traffic on telecommunications networks, according to two people familiar with the situation.
The talks concern the fixed-line and mobile-phone networks operated by France’s largest phone company, and an accord would probably focus on technological cooperation and research rather than financial compensation from Google, said the people, who declined to be identified because the discussions are private.
France Telecom is among European telecom operators seeking a new deal with Internet companies including Google and Apple Inc., which they say are overloading networks without contributing enough to their upkeep. The quantity of mobile-data traffic in Paris is growing by 5 percent every week, driven by videos like those on Google’s YouTube, according to France Telecom Chief Executive Officer Stephane Richard.
“You hear the content industry say they struggle to make money with piracy and so on, while we have challenges with the investment requirements versus the revenues,” Richard Feasey, public policy director of Vodafone Group Plc, the world’s biggest mobile-phone operator, said in an interview in Athens last week. “Everybody faces a challenge in the long run.”
Officials at Mountain View, California-based Google and Paris-based France Telecom declined to comment.
Even though telecom operators’ first choice is direct payments by content providers, network congestion can be reduced with new technologies. Such stopgaps include storing more content on mobile devices, rather than sending it over wireless networks, and finding segments of radio spectrum that are underused by current equipment.
The number of mobile data connections in western Europe will rise by an average of 15 percent a year to 270 million in 2014, as overall end-user revenue falls by about 1 percent annually, research firm IDC estimated last year.
Google Executive Chairman Eric Schmidt told the e-G8 Forum in Paris last month that operators and content companies are “incredibly co-dependent” and that technological solutions to help spread out data demand are one solution operators and content companies can pursue.
Foot-dragging on finding a solution to the network traffic issue may create a situation where governments feel compelled to step in. French officials including President Nicolas Sarkozy, who hosted the e-G8 conference, and Industry Minister Eric Besson have told Web companies to remember the value of network investments.
While technology co-operation “is a step in the right direction of the telecom world working with the Web world,” imbalances between revenues and investment remain that may only be addressed with new regulation, Paolo Pescatore, an analyst at CCS Insight in London, said by phone.
France Telecom slipped 0.1 percent to 15.29 euros in Paris trading as of 12:08 p.m. Google yesterday declined 0.4 percent to $519.03 in New York on the Nasdaq Stock Market.
Former state monopolies including France Telecom, Telecom Italia SpA, Telefonica SA and Deutsche Telekom AG are trying to convince investors that they are more than conduits of other companies’ electronic commerce.
Deutsche Telekom plans to introduce various levels of connection quality to manage the surge in data traffic and enable high-bandwidth services such as video conferences and tele-medicine, spokesman Philipp Blank said today. The Bonn- based company is also tripling the capacity of ports that connect its network with that of Google over the coming weeks to eliminate a bottleneck that slows down the Youtube service.
The operators, who lost the battle for online application stores to Apple and Google, are scrambling for the lead in offering services like near field communication payment systems, which will let people buy everything from milk and butter to clothes with a swipe of their smartphone.
“Google’s massive, but Google does not have a billing relationship with 99 percent of its customers,” giving operators an edge in the move to secure mobile payments, Deutsche Telekom Chief Technology and Innovation Officer Ed Kozel said in an interview in February.
--With assistance from Cornelius Rahn in Frankfurt. Editors: Kenneth Wong, Simon Thiel.
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