Facebook's WhatsApp deal has unnerved phone companies - Telegraph.co.uk ~ Electronic Gadgets

Global giants of the sector, such as Samsung and Vodafone, battle for attention with obscure Taiwanese game developers and iPhone case makers. Barcelona's economy is dominated by the event for a week, its streets are choked with taxis and its tapas restaurants do enough trade to fight on for another year.

Mobile World Congress was once an event dominated by mobile networks; they had the money and the power. Zuckerberg's box office appeal at what used to be their show demonstrates how that has changed.

He was the man hosting the top dinner of the week in Barcelona. And why not? After all, he can get away with betting $19bn on a company with tiny revenues and no unique intellectual property.

Apple, which keeps a low profile but is always there influencing and making deals in the background, began the shift in power away from operators. When it kickstarted the smartphone boom with the iPhone it meant the most interesting things about mobile communications for consumers were no longer subscription prices and inclusive minutes. Instead, the gadgets themselves were the story.

Six years later, smartphone hardware is less interesting but the power is still shifting. Apple's rivals have caught up and dozens of barely distinguishable new pocket computers were announced in Barcelona, with virtually identical capabilities and designs.

Samsung's decision to unveil its new flagship, the Galaxy S5, at the event was seen by many as a sign that smartphone hardware is not as exciting today. Its predecessor got a big budget one-off launch in New York; in Barcelona it was just one of the crowd, vying with new handsets from BlackBerry and Nokia.

Instead, the innovation in the mobile industry is today dominated by services and the likes of Zuckerberg and WhatsApp, while network operators fear relegation to "dumb pipe" status and are reduced to griping about regulation.

Holding court on the fringes of the conference, Vittorio Colao, the chief executive of Vodafone, summed up the frustration caused by the regulators. He was asked about his views on ongoing mobile network mergers in Ireland and Germany, which are seen as test cases for a consolidation of European mobile networks.

He replied: "There is a guy [Zuckerberg] who has a billion users and has just bought half a billion users [WhatsApp] and I have to talk about Ireland."

Colao's favourite tactic in his long-running battle with European regulators is to cite the total number of government bodies Vodafone has to deal with across the continent: 187.

Alongside Randall Stephenson, the chief executive of AT&T, and other leading multinational players, Colao put his concerns to Neelie Kroes, the European Commissioner responsible for telecoms, in their annual closed-door session at Mobile World Congress. It is known to insiders as "the bloodletting".

Stephenson had been due to speak publicly at the conference but backed out last week amid renewed rumours he will make a takeover bid for Vodafone.

This year's session with Kroes was seen as more pointless than usual, given she has only months left in office and the telecoms regulatory reform package she drew up has been kicked into the long grass, which in Brussels is often very long indeed.

In the meantime, European operators will continue to make poor returns compared with their American and Asian counterparts. They can only look on jealously as the likes of WhatsApp, which are relatively unencumbered by competition, radio spectrum, infrastructure and tax regulations, erode their revenues.

However, no one should feel sorry for network operators. They still boast global revenues of more than a trillion dollars, dwarfing online advertising companies such as Facebook and Google, and have plenty of clout in the world.

For instance, Vodafone is expected within days to announce how it will carve up its $30bn "Project Spring" investment to upgrade its networks around the world. For telecoms equipment manufacturers such as the Chinese giant Huawei, which had a bigger presence than ever in Barcelona this year, it will be a second Christmas.

It is the scale of the industry that led Zuckerberg to pay $19bn for WhatsApp. While the price has been raising eyebrows all week, most senior telecoms executives who rode the dotcom wave in the late 1990s and suffered the crash do not believe it is a bad bet.

WhatsApp is already eroding their texting revenues. In Barcelona its co-founder Jan Koum, made a billionaire seven times over by the deal, announced that within weeks it will introduce free voice calls to the app's 465m users. All of this over the mobile internet infrastructure that is costing operators billions to build.

In that context, Zuckerberg's appeal for them to offer Facebook for free in developing countries received a polite "no thanks" in public and derision in private.

To the mobile networks, the price Facebook paid for WhatsApp is more a worrying signal of its intent than a warning of a technology bubble and they are certain that Zuckerberg and Mobile World Congress will be back and even bigger next year.

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