Facebook CEO touts Internet.org progress, trumpets success of free tier of service

BARCELONA, Spain--A year after asking mobile operators to support Facebook's (NASDAQ:FB) Internet.org effort, Facebook CEO Mark Zuckerberg returned to the Mobile World Congress keynote stage here to tout the success of the program and to reiterate his call for more operators to participate. He also made a point of praising wireless operators' work in connecting new users to the Internet, noting that "it's really important not to lose sight of the fact that it's the operators that are driving this."

"The real work happens here," Zuckerberg said to the operators attending his keynote appearance. He explained that wireless operators invest billions of dollars acquiring spectrum and building out networks. He described efforts by Facebook to deploy Internet services to new areas using drones and lasers as merely experimental and not a challenge to operators. "I think that that's on the fringe of what's actually going on," he said.

Further, Zuckerberg acknowledged that both Facebook and wireless carriers need to be profitable for the Intenet.org initiative to succeed. "We realize that this needs to be sustainable," he said. "We're aware of that and want to be a good partner."

Those comments are noteworthy considering wireless operators during past MWC events have bemoaned the growth of over-the-top (OTT) players like Facebook, which offer IP-based messaging and calling services that have cut into the revenues operators have traditionally derived from offering such services. During his keynote appearance, Zuckerberg worked to toe the line between commending the wireless carriers in attendance and pushing Facebook's business priorities.

Importantly, Zuckerberg said that those operators that have participated in the Intenet.org effort have been able to grow their revenues and customer base by offering a free tier of service that includes access to Facebook. Zuckerberg and Facebook founded Intenet.org with the goal of connecting people in emerging markets to the Internet. A big part of that push involves encouraging wireless carriers to offer free access to a handful of Internet services as a way to show people what is available on the Internet, and to encourage them to purchase access to more services.

"It works," Zuckerberg said of the Internet.org approach. He said the carriers that have joined Internet.org to offer a free tier of service have found that the offering does encourage users to pay for additional data service. Further, he said, carriers participating with Internet.org have not lost revenues to customers who previously paid for access to Facebook but then stopped paying in order to take advantage of the operators' free tier of service. "Will these people who are already paying move to this trimmed down service? The answer is basically no," Zuckerberg said.

Zuckerberg also said that the free tier doesn't include services that would cut into operators' revenue streams, such as WhatsApp's messaging services or Facebook's VoIP-based calling service. "That would be too cannibalistic," he said.

To underscore his argument, Zuckerberg was joined in his keynote appearance by operator executives who have participated in the Internet.org initiative. Christian De Faria, CEO of African operator Airtel, said that the free tier of service "has been a retention tool and acquisition tool," and that it has not cut into the operator's data revenues. "I have not seen any negative impact--so far," he said.

Mario Zanotti, senior EVP of Latin America with operator Millicom, said that in Paraguay the operator has seen a 30 percent increase in data sales and a 50 percent increase in the number of its new data users. He said in Tanzania the operator has seen a ten-fold increase in smartphone sales since it launched its Internet.org services.

However, Jon Fredrik Baksaas, CEO of Telenor, sounded a note of caution in response to a question about whether Telenor would maintain a free tier of service indefinitely.

"This is a touchy part of the relationship," he said. "This is a point of tension." He added: "We don't' want to see a bit of that revenues stream move too quickly."

"Every company would be careful to deliver the key to the house to your competitor," he said.

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