Bloomberg News

Facebook IPO Cuts Operators Out of Cash From Messaging

April 04, 2012

Facebook Inc. (FB:US)’s increasing reach, bolstered by an initial public offering that may value the company at more than $100 billion, will hurt mobile-phone operators’ sales from services such as text messaging, Magister Advisors said.

“Facebook’s IPO is about the worst thing that could happen to network operators,” Victor Basta, managing director of London-based Magister Advisors, which has advised companies such as Amazon.com Inc.’s movie-streaming unit Lovefilm, said in a note today. “They’re supporting the end users’ social networking habits, but they see very little, if any, commercial benefit and the downside risks are significant.”

European carriers including Deutsche Telekom AG (DTE) and Royal KPN NV have struggled to adapt to the surging demand for social media on mobile phones, with consumers increasingly circumventing traditional text message charges by sending free messages over the Internet. Operators may lose $23.2 billion in SMS revenue this year, after $13.9 billion in 2011, as subscribers turn to outside social messaging apps, according to researcher Ovum.

As Facebook feels more pressure to meet investors’ expectations for profitability, wireless operators will have to deal with more traffic on their networks and Facebook will have a difficult time justifying sharing revenue with mobile companies, Basta said. Facebook applications such as the chat feature may eat into operators’ income for features such text messaging, he said.

Data Plans

Still, many operators are embracing Facebook as they want customers to adopt more-expensive data plans to surf the Web. Vodafone Group Plc (VOD) has begun a partnership with the social networking site to drive traffic among Indian customers. France Telecom SA (FTE), the owner of the Orange mobile brand, announced plans last year to sell phones with unlimited access to Facebook in some markets in Europe and Africa.

“The fundamental challenge for network operators will be finding a way of becoming part of the Facebook ecosystem rather than simply external enablers,” Basta said.

A Facebook spokeswoman declined to comment on anything relating to the IPO. Magister Advisors said it is not involved with the transaction.

Facebook, based in Menlo Park, California, filed in February to raise $5 billion. The company’s implied valuation rose to $102.8 billion on March 30 in what is expected to be the last auction of internally circulated stock traded on the SharesPost Inc. exchange. The world’s most popular social- networking site plans to hold its IPO in May, a person familiar with the company’s plans said last month.

To contact the reporters on this story: Amy Thomson in London at athomson6@bloomberg.net; Jonathan Browning in London at jbrowning9@bloomberg.net

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


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