Facebook Inc (FB) picked a bad time to irritate India’s telecom regulator, and the blunder might just hamper FB’s grand strategy in the massive market that is the subcontinent.
Facebook is pushing its Free Basics service in India, which delivers news, maternal health, travel, local jobs, sports, communication and local government information at no cost.
With roughly 1.3 billion people, according to the World Bank — only about 18% of which are online — India is clearly a fountain of opportunity.
Facebook contends that its Free Basics service is a public good. It’s all about bringing internet access the world’s poor. Sure it is. Nevermind that FB makes its money by getting eyeballs on ads, and the more people it can get using the social network, the better.
But now Facebook’s plans are on hold because the government halted the service over questions of net neutrality. Facebook fought back by mounting a public relations campaign, including an letter-writing campaign that regulators called an “orchestrated opinion poll.”
Given that the regulators are trying determine whether or not the Facebook service is legal, that not exactly great development.
Hopefully for FB, the regulators have short memories, because India could become a significant market for Facebook in the future. After all, in a world of sluggish-to-decelerating growth, India is a star. That’s why Apple Inc (AAPL) wants a green light to open Apple Stores in the country.
No Impact for FB Stock — Yet
The International Monetary Fund expects the Indian economy to expand by 7.5% over the next two years, driven by increasing urbanization and a swelling middle class.
That makes India the world’s fastest growing economy by a wide margin. China is rapidly cooling off, with economic expansion targeted at 6.3% and 6% over the next couple of years.
Meanwhile, developed economies are stuck with that status quo. The U.S. is targeted for economic growth of just 2.6% in both years. Europe is even worse.
Another aspect of India that’s very attractive to FB is the potential for mobile, which is the future, after all. Only about 2% of the user base has smartphones. Facebook is wise to do everything it can to entrench itself in the fastest growing smartphone market in the world.
However, the important thing for anyone holding Facebook stock to remember is that, although India is an outstanding market for potential user growth, this regulatory setback has no implications for shares at this time.
The market doesn’t care about what is essentially a sideshow, especially when the only things that matter these days are the Chinese economy and the price of oil.
FB stock was slammed in Wednesday trading, but that was due to the market-wide selloff. The same goes for its bad start to the year. Shares are down close to 15% for the year-to-date. True, Facebook stock is trailing the broader market by a significant margin in the selloff, but that’s because it smoked the S&P 500 last year.
As for FB’s regulatory problems in the world’s second largest country, there’s nothing to sweat. If anything, it underscores India’s tremendous potential.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
