Bloomberg News

Regulators to Stay Out of Google Fight With Wireless Operators

June 29, 2011

June 30 (Bloomberg) -- Telecommunications regulators in the U.K. and U.S. say they plan to stay out of a dispute between mobile-phone operators and Internet companies such as Google Inc. over who should pay for high-speed wireless networks.

“I think it’s premature to regulate,” Ed Vaizey, the U.K. communications minister, told Bloomberg News during a conference in Paris yesterday. “Right now this really is a matter to be considered between companies.”

Led by European operators including France Telecom SA and Telefonica SA, phone companies in 2010 began demanding a new deal from the owners of bandwidth-heavy services like YouTube and Apple Inc.’s iTunes. The operators face mounting costs for building next-generation networks, and have rarely succeeded in offering their own video or social-networking services over those conduits.

Vaizey joined U.S. Federal Communications Commission Chairman Julius Genachowski at a summit in Paris this week in ruling out regulatory intervention for now to help wireless operators share network costs. France’s Industry Minister Eric Besson, who has in the past strongly backed such measures, softened his position, saying that the subject is ‘legitimate’ for regulators to consider.

“It would be odd to say that disrupting the companies providing valuable services to consumers would be positive for the broadband economy,” Genachowski said at the conference, organized by the Organisation for Economic Co-Operation and Development.

Traffic Surge

Mobile data traffic is growing by more than 100 percent a year, and the necessary investments to keep up with that growth may drive operators’ returns below their cost of capital, according to consultancy AT Kearney.

In the absence of a new economic model for the mobile Internet, operators and Web companies may find stopgap, technological solutions. France Telecom and Mountain View, California-based Google are working on a pact that could lead to co-operation on technologies to reduce traffic impact, two people familiar with the situation said this month.

Such measures might include storing more content on mobile devices, rather than sending it over wireless networks, and finding tiny slices of radio spectrum that aren’t used by current equipment.

Bilateral Accord

“It’s possible to do a bilateral arrangement between the content houses and the telcos that streamlines the process of getting the content to the end consumer,” said Morten Singleton, an analyst at Investec in London. “If the operators do manage to do deals with these major houses, then you could see the need for a more general regulated approach fall away somewhat.”

Tom Wright, a spokesman for France Telecom in Paris, and Bill Echikson, a spokesman for Google, declined to comment.

Without careful design, co-operation between Internet companies and telecom operators could run foul of “net neutrality” -- the principle that all online content should be available at equal speed -- for example, by guaranteeing quality for one company’s services at the expense of another’s.

European Union regulators “will be looking particularly closely for any instances of unannounced blocking or throttling of certain types of traffic,” Internet commissioner Neelie Kroes said in April.

‘All You Can Eat’

For now, operators are calling for a comprehensive plan for compensation. For SFR, France’s second-biggest wireless operator, “the economic conundrum of network deployment is still unsolved,” Sylvie Forbin, head of European affairs at SFR’s owner Vivendi SA, said today.

Telecom operators are also trying to move customers away from unlimited data packages that bring in no extra revenue for heavy use, and are even considering pricing that might reflect network congestion at certain times of the day. AT&T Inc., the largest U.S. phone company, last year eliminated such ‘all-you- can-eat’ data pricing in favor of more restrictive plans.

Still, operators are benefitting from higher data use. Vodafone Group Plc, Deutsche Telekom AG, and Telefonica, Europe’s three largest phone companies, all saw mobile data revenue climb by more than 18 percent last year.

--With assistance from Aoife White in Brussels. Editors: Kenneth Wong, Simon Thiel

To contact the reporters on this story: Matthew Campbell in Paris at mcampbell39@bloomberg.net; Jonathan Browning in London jbrowning9@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.netvroot@bloomberg.net;


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