Facebook’s Fight to Be Free

The article by Adi Narayan and Bhuma Shrivastava was published in Bloomberg Businessweek on January 15, 2016. Pranesh Prakash was quoted.

Thanks mostly to its mobile-ad profits, Facebook has had a great couple of years. According to its most recent earnings report, in November, the company’s quarterly ad revenue rose 45 percent, to $4.3 billion, from the same period in 2014. It has more than 1.5 billion monthly users, just over half of all the people online anywhere. Keeping up its rate of user growth—more than 100 million people each year—will only get tougher.

A big part of the problem is that a lot of potential new eyeballs are in places where Internet access is patchy at best. Some of Facebook’s grander projects anticipated that issue: It has satellites and giant solar-powered planes that beam Wi-Fi down to areas that don’t have it. And then there’s Free Basics, the two-year-old project Chief Executive Officer Mark Zuckerberg has called an online 911. In about three dozen countries so far, Free Basics—also known as Internet.org—includes a stripped-down version of Facebook and a handful of sites that provide news, weather, nearby health-care options, and other info. One or two carriers in a given country offer the package for free at slow speeds, betting that it will help attract new customers who’ll later upgrade to pricier data plans.

Facebook says Free Basics is meant to make the world more open and connected, not to boost the company’s growth. Either way, online access is an especially big deal in India, where there are 130 million people using Facebook, 375 million people online, and an additional 800 million-plus who aren’t. (The social network remains blocked in China.) That may help explain why Zuckerberg spent part of the first few weeks of his paternity leave appealing personally to Indians to lobby for Free Basics. On Dec. 21 the Indian government suspended the program, offered in the country by carrier Reliance Communications, while it weighs public comments and arguments from Internet freedom advocates who say preferential treatment for Facebook’s services threatens to stifle competition.

“An emerging country like India needs to provide the consumer with incentives to get onto the Internet.” —Neha Dharia, an analyst at consulting firm Ovum

Since the government’s telecommunications regulator announced the suspension, Facebook has bought daily full-page ads in major newspapers and plastered billboards with pictures of happy farmers and schoolchildren it says would benefit from Free Basics. Zuckerberg has frequently made the case himself via phone or newspaper op-ed, asking that Indians petition the government to approve his service. “If we accept that everyone deserves access to the Internet, then we must surely support free basic Internet services,” the CEO wrote in a column published in the Times of India, the nation’s largest daily paper, shortly before the new year. “Who could possibly be against this?”

Opponents, including some journalists and businesspeople, say Free Basics is dangerous because it fundamentally changes the online economy. If companies are allowed to buy preferential treatment from carriers, the Internet is no longer a level playing field, says Vijay Shekhar Sharma, founder of Indian mobile-payment company Paytm. A spokesman for Sharma confirmed that Zuckerberg called to discuss the matter but declined to comment further.

India’s Internet base will grow with or without Facebook’s help, says Nikhil Pahwa, a tech blogger and co-founder of the Save the Internet coalition, which opposes Free Basics. “We don’t see Free Basics as philanthropy. We see it as a land grab,” says Pahwa. When dealing with the famously protectionist Indian government, that’s a pretty good argument. An April attempt by India’s top mobile carrier to underwrite data costs for certain apps drew heavy criticism, and the carrier, Bharti Airtel, has put the program on hold.

None of that means Facebook can’t help get more Indians online, says Neha Dharia, an analyst at consulting firm Ovum. “An emerging country like India needs to provide the consumer with incentives to get onto the Internet,” she says. “What Facebook Free Basics is doing is a bit extreme, but what you do need is a bit of a middle path.”

Internet sampler packages such as Free Basics can also help carriers like Reliance, the fourth-largest in India, upgrade their often-struggling networks, Dharia says. That’s a symbiotic process, because customers may quickly grow frustrated with the bare-bones service and demand more. Free Basics doesn’t have Gmail, YouTube, Vimeo, Twitter, or Bollywood music streaming. (Video will account for 64 percent of India’s data traffic by March 2017, consulting firm Deloitte estimates.) It’s meant to be a steppingstone. Facebook says about 40 percent of Free Basics users start paying for data plans within a month.

But again, if Free Basics catches on in India, people may just keep paying for data to use more Facebook and forget about some of those other services, says Dharia. “Facebook is the Internet” to a lot of people in India, she says. Google, whose services are most conspicuously absent from the Free Basics roster, declined to comment.

India’s telecommunications regulator says Facebook’s advocates and opponents have until Jan. 14 to file public comments; it’s received about 2.4 million responses so far, most of them form letters supporting Free Basics. The government’s decision could also ripple beyond India, says Pranesh Prakash, a Free Basics opponent and the policy director at the nonprofit Centre for Internet & Society in Bengaluru. In the weeks since India suspended Free Basics, Egypt, which had done the same back in October, once again shut down the Facebook plan, though the government wouldn’t say why. The India fight “will be a reputational challenge for Facebook,” says Prakash. “It will set the tone for Free Basics debate in other countries.”

The bottom line: Facebook’s free data plan in India faces strong opposition from local businesses and Internet freedom advocates.