Please ensure Javascript is enabled for purposes of website accessibility

Facebook Expansion Plans Hit a Speed Bump

By Adam Levy - Feb 18, 2016 at 12:20PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

India's regulatory agency said Free Basics violates net neutrality.


Image source: Facebook.

The Telecom Regulatory Authority of India just dealt a major blow to Mark Zuckerberg's goal of reaching 5 billion Facebook (META -0.76%) users by 2030. The agency said Facebook's Free Basics, which provides free access to some Internet services including Facebook, is in violation of net neutrality. Net neutrality is a set of principles that call for equal treatment of all traffic across the Internet. Offering free access to some sites but not others "is not in the interest of consumers, or of the growth of the Internet," according to R.S. Sharma, chairman of the Telecom Regulatory Authority.

India is one of the largest and fastest-growing Internet markets, so the shutdown of Free Basics is a major setback for Facebook. Additionally, the decision could set a precedent for other regulatory authorities to shut down Free Basics in their own countries; Facebook has partnerships with carriers in nearly 40 countries. Zuckerberg will have to reevaluate his plans to offer free Internet access in developing markets.

The importance of India
India represents a huge growth market for every major Internet-based company. Twitter (TWTR 2.25%) has been investing heavily in the region with its acquisition of ZipDial and recent partnerships with wireless carrier Reliance Mobile and e-commerce app LookUp. Alphabet's (GOOG -0.27%) (GOOGL -0.21%) Google, meanwhile just announced plans to provide free Wi-Fi in train stations across the country.

India is already Facebook's second-largest market by users after the United States, and Free Basic users were only a small percentage of the 130 million Indians using Facebook every month. Late last year, Reliance Communications -- Facebook's wireless partner for Free Basics in India -- said nearly 1 million subscribers had tried the app.

But the next 100 million users won't be as easy to sign up. The vast majority of the population still has limited-to-no access to the Internet. That's where efforts like Free Basics, or Google's Wi-Fi plans, or Twitter's ZipDial and SMS Fast Followers come into play. They cater to working with the technology and limitations experienced by most Indians, while at the same time expanding access to Internet services.

Free Basics was Facebook's edge over the competition. Indians typically rely on wireless carriers for Internet access, and are more likely to use services that don't count against their data caps, all else being equal. Twitter is following the same playbook with ZipDial, which allows users to subscribe to text-message notifications by placing a missed call (which doesn't cost anything since the call never connects and most carriers only charge for outgoing texts).

So, where does that leave Facebook in India?
Facebook is still a very compelling product. The ability to connect with friends and see what people in your social circles are up to is something humans naturally crave. As more Indians gain access to the Internet, Facebook will surely benefit.

Free Basics intentionally limited access for two reasons: It funneled users toward Facebook, and it's easier to convince wireless carriers to sign on to give away data for a limited set of low-data apps.

Google's Wi-Fi plans, for their part, are aimed at funneling users toward Google Search and other services (even if it offers free access to the entire Internet). Facebook could work on a similar principle, requiring users to log in with Facebook to access its free Internet service. That would provide it with lots of data and onboard a lot of new users.

India remains a poor country, so even massive user growth wouldn't result in a big gain in revenue. It's a long-term investment. Last quarter, Facebook's average revenue per user in the U.S. and Canada was 8.5 times as much as that in Asia-Pacific. With foreign-exchange pressure and the mature market in the U.S. and Canada, that gap is actually widening. At some point, that trend is bound to reverse. And that's when a large established user base in India will become a tremendous growth driver for Facebook. How it goes about attracting those users, however, is now up in the air.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Meta Platforms, Inc. Stock Quote
Meta Platforms, Inc.
META
$160.03 (-0.76%) $-1.22
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOGL
$2,174.75 (-0.21%) $-4.51
Twitter, Inc. Stock Quote
Twitter, Inc.
TWTR
$38.23 (2.25%) $0.84
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOG
$2,181.62 (-0.27%) $-5.83

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
316%
 
S&P 500 Returns
112%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/03/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.