Facebook (FB 4.02%) recently partnered with several of the world's top telecom companies to build a subsea internet cable to improve internet access across Africa. The cable, called 2Africa, will be 37,000 kilometers (23,000 miles) long and link 16 African countries to Europe and the Middle East.
The project will reportedly cost nearly $1 billion, according to Bloomberg, and the costs will be shared with two of Africa's biggest wireless carriers, MTN Group and Telecom Egypt, as well as European telcos Vodafone and Orange, China's top telco China Mobile, and Nokia's Alcatel Submarine Networks.
Image source: Getty Images.
When completed, 2Africa will be one of the longest subsea cables in the world -- but it will still be shorter than the 39,000-kilometer (24,000-mile) SEA-ME-WE 3 cable that currently connects 33 countries. It might seem odd for Facebook to take on such a massive infrastructure project when it generates most of its revenue from online ads, but it's a strategic move that raises the ceiling for its long-term growth.
Why is Facebook interested in connecting Africa to the internet?
Facebook hasn't disclosed how much money it's contributing to the project, but it won't be a significant percentage of its projected revenue of $78 billion this year.
Facebook likely isn't thinking about short-term gains with this project. Instead, it's focusing on its ability to gain more users in developing countries with limited access to the internet. That's why it previously tested solar-powered internet drones, an internet-beaming satellite, and data-free apps for wireless users in developing countries. It also developed lightweight versions of its apps for weaker devices with slower internet connections.
The company's monthly active users (MAUs) rose 10% annually to 2.6 billion last quarter. Here's a breakdown of its growth in MAUs and average revenue per user (ARPU) across its four main regions:
|
Region |
MAUs (Millions) |
Growth (YOY) |
ARPU |
Growth (YOY) |
|---|---|---|---|---|
|
Rest of World |
851 |
10.8% |
$1.99 |
5.3% |
|
Asia-Pacific |
1,093 |
11.4% |
$3.06 |
10.1% |
|
Europe |
406 |
5.7% |
$10.64 |
11.4% |
|
U.S. and Canada |
253 |
4.1% |
$34.18 |
13.5% |
Source: Facebook Q1 earnings presentation. Table by author.
Facebook is generating stronger MAU growth in countries with lower ARPU than in the U.S., Canada, and Europe. However, its ARPU could still rise across those developing markets as income levels rise, and companies target those consumers with more ads.
To prepare for that growth, Facebook must keep growing its "Rest of World" MAUs. Africa has a population of 1.3 billion people but an internet penetration rate of just 39%, according to Internet World Stats, versus an average rate of 59% for the whole world.
That rate varies widely by country: Chad has a penetration rate of just 6%, while Kenya's 87% penetration rate rivals those of Western countries. Therefore, connecting more African countries with a subsea cable could boost penetration rates for underserved countries -- and those new users will likely hop aboard the Facebook bandwagon.
That's why Alphabet's (GOOG 2.37%) (GOOGL 2.35%) Google also started building its own subsea cable from Europe to Africa last year. Like Facebook, Google is running out of room to gain new users, so it's bringing internet access to developing countries to expand its core search engine, YouTube, and cloud-based services. That same logic spurred the development of Google's Project Loon internet balloons and Android One devices.
Another piece of Facebook's long-term plan
Facebook realizes it's running out of room to grow in developed markets. Instead of waiting for developing countries to build adequate infrastructure for its apps, Facebook wants to help develop the infrastructure and lock users into its ecosystem. It also wants to solve money transfer issues for those developing countries with its Libra cryptocurrency. Simply put, Facebook wants to become synonymous with the internet for many first-time internet users.
Image source: Getty Images.
But that ambitious goal has already run into plenty of problems: Its internet drone and satellite projects failed; its data-free apps were banned in India; and government regulators forced it to scale back its initial vision of Libra. Facebook's platform was also abused by governments and organizations to suppress free speech in countries like Myanmar, and it continues to struggle with the proliferation of fake news stories.
Therefore, Facebook might have a grand plan for conquering developing markets to bolster its long-term MAU and ARPU growth, but those plans could collapse under the weight of its growing social responsibilities. Nonetheless, the 2Africa subsea project clearly indicates Facebook won't give up those long-term ambitions.
