Facebook's increasing reach, bolstered by an initial public offering that may value the company at more than $100 billion, will hurt mobile carriers' sales from services such as text messaging, Magister Advisors said.
"Facebook's IPO is about the worst thing that could happen to network operators," Victor Basta, managing director of Magister Advisors in London, which has advised companies such as Amazon.com's movie-streaming unit Lovefilm, said in a note Wednesday. "They're supporting the end users' social-networking habits, but they see very little, if any, commercial benefit, and the downside risks are significant."
European carriers including Deutsche Telekom and Royal KPN NV have struggled to adapt to the rising demand for social media on mobile phones, with people increasingly circumventing traditional text-message charges by sending free messages over the Internet. Operators may lose $23.2 billion in texting revenue this year, after $13.9 billion in 2011, as subscribers turn to outside social-messaging apps, according to researcher Ovum.
As Facebook feels more pressure to meet investors' expectations for profitability, wireless operators will have to deal with more traffic on their networks and Facebook will have a difficult time justifying sharing revenue with mobile companies, Basta said. Facebook applications such as the chat feature may eat into operators' income for features such text messaging, he said.
Still, many operators are embracing Facebook because they want customers to sign up for more-expensive data plans to surf the Web. Vodafone Group has begun a partnership with the social-networking site to drive traffic among Indian customers. France Telecom, the owner of the Orange mobile brand, announced plans last year to sell phones with unlimited access to Facebook in some markets in Europe and Africa.
"The fundamental challenge for network operators will be finding a way of becoming part of the Facebook ecosystem rather than simply external enablers," Basta said.
A Facebook spokeswoman declined to comment on anything relating to the IPO. Magister Advisors said it is not involved with the transaction.
Facebook filed in February to raise $5 billion. The company's implied valuation rose to $102.8 billion on March 30 in what is expected to be the last auction of internally circulated stock traded on the SharesPost exchange. The world's most popular social-networking site plans to hold its IPO in May, a person familiar with the company's plans said last month.
Amy Thomson and Jonathan Browning are Bloomberg writers. athomson6@bloomberg.net, jbrowning9@bloomberg.net
This article appeared on page D - 2 of the San Francisco Chronicle
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