The year 2015 will be marked as a good one for Facebook (FB). Facebook stock gained nearly 35% for the year, fueled by continued revenue and earnings growth.
Facebook is not, however, ending 2015 and starting 2016 on the best foot.
Already fighting a battle in India over its free Internet service (that’s actually only free when visiting certain hand-picked websites), Egyptian authorities also opted to not renew the license that allowed the so-called Free Basics — previously known as Internet.org — to continue operating in that country.
A final decision on the free Internet service is expected to be made in January, but the very fact that authorities are concerned enough to suspend Free Basics just two months after it became available in Egypt doesn’t bode well for its future.
It’s not the way Mark Zuckerberg, CEO of Facebook, was hoping 2016 would get started.
Egypt (and India) Say “Not So Fast” to Free Internet
On the surface, the idea seems benign…even charitable. In order to give more people access to job boards, news portals, government sites, healthcare information, and more, Facebook has been partnering with regional mobile service providers to establish access to a select portion of the Internet using a simple smartphone app.
So far this year, 19 countries opened their doors to Free Basics. And why not? A more connected population is a more productive and advanced population, which is good for those individuals and, eventually, better for that country as a whole.
Yet, several of these countries are already unplugging Free Basics. India was one of them.
When Facebook debuted its free Internet app in February 2015, owners of FB stock were compelled by the altruistic initiative that also served as a platform to bring new Facebook users into the fold. It was a short honeymoon, however. By October, the downside of a curated Internet, when paired with shaky mobile connectivity, ended up proving you get what you pay for when the price is “free”.
As of last week, the Telecom Regulatory Authority of India (TRAI) has suspended Free Basics altogether, effectively saying the service violates net neutrality standards by allowing free access to some sites while requiring payment (one way or another) for access to other sites.
Now, Egypt has done the same, by declining to renew the license that first allowed Free Basics to set up shop in Egypt just two months earlier.
It’s not exactly clear why Egypt’s telecom authorities asked Facebook’s partner and mobile service provider to shut down the free Internet service. Some say the country’s central government fears it’s being used to organize civil unrest
. Others cite more net neutrality concerns.
Whatever the case, one thing is clear…the whole premise is turning into a bigger headache for Mark Zuckerberg than he could have imagined a year ago, just before the free Internet service began to proliferate. So much for charity.
Bottom Line for Facebook Stock
As for the impact these suspensions (and more will certainly follow) may have on Facebook stock, it’s a mixed bag.
On the one hand, viewing Free Basics as a loss-leader to bring new users into the fold, it doesn’t look like the marketing effort will be allowed to pay off.
On the other hand, what if it doesn’t? Although it wasn’t likely an initiative that cost Facebook billions of dollars, it was still not clear there was any meaningful monetization of these new users underway. Besides, while eliminating the cost of connectivity seems like a brilliant way to reach more users, connection costs may be dwindling as an impasses at a faster rate than most realize.
In 2018, a group called OneWeb plans to launch 720 low-orbit satellites to deliver affordable Internet connectivity all over the world. In the meantime, the International Telecommunication Union (ITU) recently reported that the UN’s goal of pushing of mobile broadband prices down to 5% or less of the average person’s income had been achieved in 111 countries. Where it hasn’t happened, a lack of infrastructure is as much of a hurdle as affordability.
Point being, much like broadband became more affordable and more accessible versus dial-up connectivity in the U.S. sooner than most thought it would, the need for a free Internet could fade sooner than even Zuckerberg appreciates.
When that happens, Free Basics and all the debate it’s been fostering will become little more than a faded memory. Then Facebook can, once again, put all of its focus on growing its core product’s revenue-bearing capacity, rather than scheming to add user numbers.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
