Market Insight

Facebook’s controversial Free Basics program faces backlash in several countries

January 11, 2016


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Facebook’s Free Basics program, which gives free access to certain internet services, has been shut down in Egypt and is currently under review in India due to net neutrality concerns.

The service, available via a dedicated app, offers free access to  30 sites and services including Facebook, Facebook Messenger, BBC News, Wikipedia, AccuWeather and other sites dedicated to health and malaria prevention.

Launched in 2014, Free Basics is currently available in 37 countries and its stated aim is help more people in emerging markets get online. The service is part of Facebook’s Internet.org initiative, which launched on August 2013 and is backed by companies such as Samsung, Ericsson, MediaTek, Nokia, Opera and Qualcomm.

India’s Telecom Regulatory Authority requested Free Basics be suspended until an investigation into net neutrality concerns is conducted. Egypt’s telecoms regulator has also ordered Facebook and mobile operator Etisalat to shut down Free Basics. It had connected more than a 1 million people since the program launched in Egypt.

Our Analysis

Facebook as Internet gatekeeper

Offering free internet services is nothing new for Facebook; it first launched its mobile-only site 0.facebook.com in 2010, which allowed access free of charge in partnership with select mobile operators. Facebook has had a long history of offering free online services predominately in emerging markets like India and in countries in Africa. Facebook’s reasoning for supporting free internet services stems from its desire to increase its advertising revenues by exposing more and more users to online advertising.

Facebook’s strategy has always been focused first on user acquisition and then long term monetisation. It waited years before launching a full mobile advertising business – which now accounts for the majority of its revenues. Facebook’s focus on addressing new internet users in emerging markets recognizes from where its future growth will come. Facebook adoption is nearly saturated in many mature and Western markets, but there are billions of potential users that it can still address provided there is connectivity. Facebook’s Free Basics strategy is about long term monetisation, users in emerging markets may not now be as valuable to advertisers as its Western audience, but there is huge scale that Facebook can still hope to reach and keep ahead of its competitors. 

In mature markets Facebook’s aim is to continue to drive usage and engagement. Recent initiatives include: expanding its Messenger app into a platform; driving mobile video consumption; adding more payments and money services; and offering in-stream retail for US users.

There are also benefits for Facebook’s partners. Mobile operators can use relationships with internet players like Facebook to drive more users to consume more mobile data – hoping that they migrate from a limited free service to a wider paid data plan. Internet partnerships can also help mobile operators differentiate their services. Operators in numerous countries have offered zero-rated data plans for messaging and communications apps, though these have proliferated to such an extent that in some cases they are not differentiators but a necessity.

Net neutrality concerns remain prominent

The benefits for Facebook and its partners are clear, but it has drawn criticism with many arguing that the “free” service goes against net neutrality regulations. Such regulations differ depending on jurisdiction, but the general principle is to maintain the same level of quality and access for all internet services. Some regulations focus on whether operators charge third parties for privileged access or better speeds. Facebook has denied that its program violates net neutrality legislation but it still presents a challenge to its competitors. An alternate messaging app going up against a free Facebook Messenger service would be at a disadvantage. In addition, such an arrangement significantly discourages people from visiting any other sites not available on Free Basics’ roster of approved sites. The counter to this claim is that other services are free to launch their own “free” services.

Other mobile industry players are also looking to address the challenge of connected users in emerging markets. Google’s Project Loon aims to offer open internet access to everyone via the use of floating internet balloons. Another way for operators to encourage wider mobile data adoption in emerging markets is to partner with and promote apps that can provide services using less data. Mobile browser and app provider Opera has partnered with a number of mobile operators to offer its range of apps and services including low-bandwidth browsers and data compression apps.

 

 

 

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