Phoney war to climax at Mobile World Congress 2016

If you are smart enough to look beyond the glitzy product launches and well-meaning statements about changing the world, the long-simmering rivalry between mobile networks and over-the-top (OTT) players like Google, Facebook and WhatsApp is about to boil over. The gloves are coming off and it won’t be pretty, says John Kennedy.

If you really want to feel the pulse of what’s happening in technology, and I mean right now, the GSM Association’s annual shindig in Barcelona, Mobile World Congress, towers over other tech trade events like CES or E3, which are just about gadgets and gaming. I’m not talking about glitzy PR events showing off the newest smartphone or intimate tête-à-tête networking events that are dotted all over the place, but the real drama, the sense of momentum of where the world is going with mobile.

At this year’s Mobile World Congress, the headlines will be dominated by the newest smartphones, it will be the year of virtual reality (VR) and internet of things, no doubt, and watch out for projections on what’s happening with 5G. Hardly a speech will take place without mention of the fact that mobile is part of humanity’s destiny and will change the lives of several billion people on planet Earth.

But the real action isn’t the phones or the headgear or the parties.

The real conversation will be about data and how the mobile networks who built the networks in the first place will get a return on their investment.

That is the heart of the matter. All of the rest is just window dressing.

Money and mobile make the world go round

Not many people know this but, for its formative years during the 1990s, the GSM Association was headquartered in Dublin 4. From the early days of the Mobile World Congress in Cannes to its present location, there has always been an Irish presence. And it is fitting that we have 26 Irish companies in all their glory at this year’s event.

My first Mobile World Congress was in 2010 and while it was, at that stage, the largest tech event I had ever attended, it was still an intimate affair and a shadow of what it will be this week where almost 100,000 people will converge on Barcelona.

I remember seeing Pat Phelan who recently sold Trustev for $44m bouncing energetically through the Enterprise Ireland pavilion sealing deals for Cubic Telecom, now a major enabler for mobile networks in the internet of things space. There were only a few hundred people in the room and plenty of spaces to sit during one of the keynotes when then Google CEO Eric Schmidt spoke with feeling about his intentions to use the then-new Android operating system to connect the next 5bn people on the planet and change their lives for ever. Only months earlier at a meeting in Killarney, Schmidt was pretty open about the purpose of building Android and giving it away for free to device makers: advertising revenue.

It was of little surprise to me that, two years later at Mobile World Congress 2012, there were queues of thousands around the corner to hear Schmidt give an update keynote on connecting 5bn people to the internet via mobile devices.

But there has always been tension. No one has said it, but hidden behind the masks of politeness and professionalism was a simmering rage among the mobile operators that they built the networks while players like Google and Facebook are making vast piles of advertising revenue from their endeavours.

Every year, this tension and sense of injustice became more palpable. There was polite incredulity – even controlled consternation – last year at soon-to-be Google CEO Sundar Pichai and Facebook CEO Mark Zuckerberg’s took part in keynotes and told how they planned to connect the world with broadband using balloons and aeroplanes and creating free internet services through Internet.org.

While Google and Facebook’s ambitions may seem honourable, the network builders in the room fumbled with polite questions around walled gardens, advertising and strained to get to the point – who’s going to build these networks and who will pay for them?

Clash of cultures

It’s literally suits vs t-shirts. The bigger picture, of course, is you can’t stop mobile or the march of technology and the evidence is that the internet does change lives and raises economic boats.

But it is also true that Google and Facebook are getting richer on the back of networks built by firms that are in fact floundering as people stop using SMS or making voice calls when they can get them for free over Facebook Messenger, WhatsApp, Skype, Google+ or whatever they choose.

The counter-argument to this is surely mobile operators can pivot in the direction of mobile data plans, but that pivot hasn’t been happening fast enough.

The gloves are coming off and it is going to be disconcerting for OTT players and the overall internet industry to adjust to.

It is ironic that the polite “phoney war”, as I call it, ended on Friday, not in Barcelona but in London. It emerged that Three, the mobile network owned by Hutchison Whampoa, is introducing ad-blocking technology on its networks in the UK and Italy, to be closely followed by other European operations, including Ireland. On the face of it, Three argues this is about protecting consumers’ privacy, but if you ask me it is down to money and the fact that OTT players are getting richer off other companies’ investments in networks.

Don’t be surprised if Three and other operators soon come up with an alternative way of pumping advertising themselves at consumers in a way that they can control.

Three is introducing ad-blocking through a partnership with Israeli tech firm Shine, the same company that it emerged last year Denis O’Brien’s mobile operator in the Caribbean, Digicel, is also partnering with to block advertising from Facebook and Google on its network.

There are other ructions too taking place around the world that are disconcerting for the OTT players. In recent weeks, India’s telecoms regulator banned services like Facebook’s Free Basics internet service because it is claimed it infringed upon the principles of net neutrality.

The move came as a blow to Facebook and its founder Mark Zuckerberg, who is the driving force behind Internet.org, an effort to empower 4bn people by providing access to the internet. The blow was only exacerbated when Silicon Valley investor Marc Andreessen made some ill-advised comments on Twitter that only served to illustrate the growing divide between the tech giants profiting hugely from mobile and the network builders who don’t think they are profiting hugely from their investments.

By failing to include mobile networks fully in the conversation, Zuckerberg has stifled his own ambitions somewhat.

Reality dawns at Mobile World Congress 2016

The essential purpose of trade events like Mobile World Congress is ultimately how the network builders can make more money from their investments. VR and smartphones are only part of the picture, the icing on the cake, the reality is what happens behind closed doors at the Barcelona event.

It is worth pointing out that the 26 Irish tech companies that are attending Mobile World Congress have an intuitive grasp of the real issue – enabling those who construct networks to get a return on their investment. By doing so, the network investment can accelerate, more networks get built and the world gets connected much faster than through balloons and aeroplanes.

For example, among the Irish companies at Mobile World Congress is Xintec, a data science company that has figured out a solution to the problem of International Revenue Share Fraud (IRSF), which accounts for 26pc of the total $48bn a year in fraud that impacts mobile operators. Aspire Networks, for example, helps mobile operators see a 78pc reduction in LTE call rates and 66pc reduction in network capital spend. And Accuris Networks helps service providers monetise the connectivity between networks. Another player, Asavie, is helping mobile network giants move faster and faster into the internet of things world through machine-2-machine (M2M) gateway technology.

If Three’s example last week is anything to go by, OTT providers ignoring the feelings of the network builders could spell bad news, not only for the internet giants but ultimately for the users of their services as the threat of walled gardens re-emerges.

The global cost of ad blocking to the advertising ecosystem is expected to be $41.4bn by 2016, according to Irish start-up PageFair. This impacts not only the internet and social media giants but also countless publishers who have been caught in the crossfire.

This isn’t just the result of actions by networks but consumers themselves, alienated by the lack of thought and invasive design that has characterised internet marketing to date. They don’t like it.

In October, the Internet Advertising Bureau (IAB) admitted the digital publishing industry has cared too much about revenues and not enough about user experience and launched a new effort called L.E.A.N. Ads, which means Light, Encrypted Ad-Choice-supported, Non-invasive ads.

Mobile World Congress 2016 is the final round in a long-running saga that saw OTT internet giants blithely build up revenues while talking about idealistically changing the world in the process.

They just never included the mobile network operators who built the 3G and 4G networks in the conversation. And that was stupid and pretty arrogant.

The introduction of ad blocking is just one way the mobile network operators will start hitting Google, Facebook et al where it hurts. The stalemate is over, the phoney war is over.

So, at the biggest mobile event on the planet, it’s time to start talking.

Barcelona image via Shutterstock