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Summary

In March, Facebook announced the creation of a new subsidiary called Middle Mile Infrastructure (MMI), which will sell spare capacity on some of the company’s fiber infrastructure to local and regional ISPs in a wholesale-only model. Despite this move, Ovum continues to be skeptical that Facebook and the other “hyperscalers” (Amazon, Google, and Microsoft) have long-term aspirations to become wholesale carriers themselves. Instead we believe this is a pragmatic development that is consistent with Facebook’s main objective to increase use of its social media platforms and thereby grow its advertising revenue.

Facebook continues to follow a combination of paths to boost access to its platforms

MMI will offer unused capacity on a pair of new terrestrial fiber-optic cables between Facebook’s data centers in Ohio, North Carolina, and Virginia. The new cable systems will pass through several rural communities where high bandwidth internet access is currently in short supply. By selling capacity on these cables on a wholesale basis to local and regional ISPs, Facebook will enable the ISPs to broaden access to the internet to consumers and enterprises along their routes. Without this initiative, it would be difficult to make a viable business case for deploying fiber to many of these communities.

Facebook is also partnering with fixed, mobile, and satellite operators to expand access to the internet in developing markets in Africa and Latin America. Examples include its work with MainOne in Nigeria, Telefonica in Peru, and Viasat in Mexico. However, Facebook is not seeking to become a retail ISP in any of these markets. Instead it is providing a combination of investment, experience, and practical advice to its partners.

Over the last two years Facebook has been in the headlines for all the wrong reasons. A series of scandals, leaks, and security breaches have battered the social networking colossus, and have increased concerns over its market power from regulators, competition authorities, and politicians across the globe.

By enabling retail service providers to roll out internet access to more consumers and enterprises in developed and developing markets, Facebook is seeking to reduce this political and regulatory pressure and ease its development plans. At the same time, Facebook expects that many of the customers of these retail service providers will become users of its social media services, which will in turn attract additional advertising revenues.

Ovum doubts that Facebook, or any of the other hyperscalers, plan to become wholesalers of telecoms services in the long term. It is a totally different business, with very different timescales and investment profiles. Instead we believe it is more likely that they will at some time in the future decide to spin out their terrestrial and submarine telecoms infrastructure businesses for established wholesale carriers to manage and maintain on their behalf.

Appendix

Further reading

"Facebook security policy failure results in exposure of up to 600 million passwords," INT003-000346 (March 2019)

“Regulator concerns over data sharing could stymie Facebook's messaging app integration plans,” CES001-000045 (February 2019)

“ICPs are changing the wholesale communications market,” GLB006-000020 (December 2018)

“Facebook must diversify revenue streams as core user base nears saturation,” CES001-000033 (November 2018)

“Too big to fail? Why Facebook and Google will survive the growing regulatory backlash,” CES003-000259 (August 2018)

“Facebook embroiled in yet another scandal as UK TV presenter Martin Lewis sues for defamation,” CES001-000015 (April 2018)

“OTTs present valuable opportunities to wholesale carriers,” GLB006-000004 (February 2018)

Author

David James, Practice leader, Wholesale Telecoms

david.james@ovum.com

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