14

Connecting the Next Billion People

The most questionable business decision for the best reasons

Imagine Making this Pitch to Your Board:

I know we’re still 25% below our IPO stock price and barely have the advertising engine accelerating again in developed markets, but I want to engage in a project that will cost hundreds and hundreds of millions of dollars annually for an unknown length of time in areas we have little proven experience so that we can develop new technologies most of which we will—assuming we overcome the high risk of failure—give away to telecommunications operators known to be some of the most difficult partners in the technology ecosystem in places in the world we understand the least from a cultural and regulatory perspective with the strong chance of not producing appreciable returns for many years and even under the best of circumstances, only being guaranteed to acquire our least profitable future customers worth less than a 10th of those in the United States.

That’s essentially what Zuckerberg proposed to his board in early 2013 as he set out to connect the rest of the world via new hardware, software, services and partnerships.

It is the kind of quixotic undertaking that would be most CEOs’ and boards’ fiduciary responsibility to not do.

Luckily, Zuckerberg has structural control over his board that precludes his being beholden to their vote—not to mention that his board of disruption-minded and forward-looking leaders has an appetite for exactly the kind of world-altering effort he was proposing—so the project dubbed internet.org went ahead.

That spring, he laid out his vision internally. The plan had had so little detailed analysis over the December 2012 holidays that certain quantitative elements would wind up being off by an order of magnitude. That could not have mattered less. It proved a brilliant elevating of the sights he was setting the company on to combat any potential letdown after the holy-sh*t-we-somehow-made-it-to-a-billion-users moment everyone had enjoyed in October 2012. Connecting everyone was an obviously greater and more worthy goal than a mere 1 billion. No matter how impossible it might have seemed, he successfully made the entire company believe that being the largest service in the world was merely the beginning.

Before we take a closer look at how he would try to do this, let’s take a step back.

Why?¹

Connecting the world falls into the category of challenges—peace, hunger, poverty, healthcare, education—so obviously important but so complicated, so large-scale and so widespread that they become overwhelmingly abstract to the average person. They are the kinds of problems in the face of which most of us can only offer tokens of support and a furrowed brow. Their scope is hard to fathom, with meaningful solutions so clearly beyond our individual means.

You could argue that connectivity is actually a challenge in a class of its own. A problem with disproportional leverage that, if summarily addressed, could contribute to addressing all other challenges in this category. Education and healthcare benefit from access to information. Poverty can be addressed in turn through education and connecting more people into the digital fabric of jobs and trading that is the increasingly global village.² Hunger is attacked through decreased poverty. And as a species we have to believe that peace—the canonical unsolvable challenge—is at least nudged forward by a more open and connected world.

Getting—and keeping—someone “on the grid” involves a series of costs and complexities. From the phone in your hand to the wireless antennae infrastructure (or base stations) that has to densely dot the world around you (at a radius of a few hundred feet for WiFi or a few miles for cellular telephony like 3G and 4G, in the United States alone, there are over 300,000 such cell sites installed at a cumulative capital expenditure of over $460 billion,³ to say nothing of annual operational expenses that have likely pushed total investment over the past three decades in the United States over the trillion dollar mark) to the land-based connections from the wireless infrastructure (or backhaul), which often account for the majority of costs for a local provider and carry data on small tributaries to and from ever larger Internet connection and routing facilities (or Internet exchange points) to the main arteries (or backbone) of the Internet that simultaneously carry trillions of bits of information across countries and oceans in the form of light riding impossibly thin optical fibers.

It is these costs and complexities that cause the gap between the haves and have-nots in connectivity around the world to be as wide as 10 times: Internet penetration among the population of the most developed countries like the Netherlands, Denmark and Norway exceeds 95%, but is below 10% in a group of the least developed countries with a total population of 900 million.

Approximately 4 billion people in the world are not on the Internet as of 2015, with the weakest penetration in South Asia (only 17% of 1.4 billion people) and sub-Saharan Africa (only 19% of 800 million people). Out of that group, 1.4 billion have mobile phones but no data plan, making them the nearest opportunity for addressing the challenge, but 2.6 billion don’t have a phone—and 1.1 billion don’t even live on the electrical grid—making them most exposed to the connectivity divide. (See Figure 14.1.)

Two specific groups are disproportionately disadvantaged by the connectivity challenge:

Rural: Rural network sites are two to three times as expensive to install and manage as urban sites (due primarily to the 10-fold increase in the cost of so-called backhaul connectivity—usually underground cables—required to deliver data to and from the core of the networks) and serve fewer revenue-generating customers due to lower population density. No wonder this population is among the hardest to connect, while being the most in need of that very connection.

Figure 14-1. State of infrastructure for the world’s population

Women: In places like India and sub-Saharan Africa, women are 70% less likely than men to be connected. Not a recipe for dealing with the two-fold per-capita income gap between men and women globally or for addressing the troublingly unbalanced reality of two-thirds of illiterate adults in the world being women.

The connectivity challenge is a vicious circle: it is harder to increase your income if you’re not connected, but it is harder to become connected if you cannot increase your income.

It takes an odd combination of near-term socialism, high-risk long-term capitalism and fast-moving commercial attitudes to break this stalemate. Governments, especially in countries most in need, rarely have the means to take significant steps; global telecommunications equipment providers like Cisco and Ericsson lack the financial strengths of days gone by to be involved deeply in the early and unprofitable days of bringing this “long tail” of people onto the Internet; and no telecommunications operator is global enough to influence the challenge beyond their local market, if they’re even willing to go that far (although competition among local telecommunications operators is crucial to more affordable Internet access, as we can see from Kenya where competition among three large operators causes 21% of the population to be able to afford a 500-megabyte/month data plan, while in Ethiopia with a single operator almost no one can afford such a plan).

The list of global players who can—and want to—contribute to this challenge is short: Google and Facebook. Apple—holder of over $200 billion in cash and a key potential beneficiary of a more connected world—has appeared to be entirely absent.

Breaking Down the Problem the Zuckerberg Way

The economic, cultural, sociopolitical, educational, technical, regulatory and business issues of making headway in the connectivity challenge may appear overwhelming at first, second and even third glances, but just as one approaches the oversized task of eating the proverbial elephant one bite a time, so too Zuckerberg rationalized the giant undertaking—once it had entered the crosshairs of his and Facebook’s mission—in three parts:

1. Availability: More than a billion people live entirely outside the coverage of today’s mobile communications networks, largely due to the unattractive economics—higher-than-average cost and lower-than-average anticipated revenue—of supplying connectivity to these populations. As we saw in Chapter 5, Facebook’s Connectivity Lab, under the engineering leadership of MIT PhD Yael Maguire, is not afraid to launch satellites (to cover sparse populations), build high-altitude UAVs with laser optics (for higher-density populations) and invent 10-fold efficiencies in urban terrestrial wireless technologies.

The aim in each case is for Facebook to take on the development risk for achieving cost breakthroughs and subsequently give away or license the technology to local infrastructure providers for them to address the unconnected or underserved—legacy 2G wireless infrastructure is as much a block to accessing the modern Internet as no infrastructure at all—with a better economic equation.

2. Affordability: Affecting another billion people, affordability of the Internet is less about the phone—the efficiencies of the scale of particularly the Google Android ecosystem are such that useful smartphones can be built to retail for well under $50 without subsidies by the telecommunication operators—and more about the cost of the data that, even for basic plans, can amount to two to three times the cost of the phone over its lifetime. Using less data (we’ve already seen how the low-bandwidth Facebook Lite has become Facebook’s fastest product ever to 100 million users) and making data cheaper to deliver (the job of the Facebook-led open source Telecommunications Infrastructure Project) are the two gifts from Facebook to telecommunications operators on this front.

People in developing countries are already willing to spend twice the fraction of their income on data as are people in developed countries (3.8% vs. 1.8% on average and as divergent as 7% in Nigeria and 1% in the UK), but more reductions in the cost of infrastructure and competition between operators are necessary to meet people halfway on the road to broader connectivity.

But if everything comes together, progress can be made. The year 2014 showed that a 7% increase in income and a 12% decrease in the cost of data around the world can lead to an additional 500 million people globally being able to afford a 500-megabyte/month data plan.

3. Awareness and relevance: Who would have thought that one of the biggest parts of the connectivity challenge has nothing to do with technology and economics? It’s difficult to imagine for those of us who open our phone over a hundred times a day to access the Internet, but in a survey of 42,000 people aged 15 to 64 in 11 countries across Latin America, Asia Pacific and Africa, 85% of the unconnected did not know what the Internet is, and half had never even heard the word.

Estimated by Facebook to be a blocker for as many as half of the 4 billion unconnected, the plan to address awareness and relevance of the Internet was to provide a simple and free on-ramp to a connected experience via stripped-down versions of Facebook’s apps and other basic services, such as healthcare, education and job information compatible with local interests, cultures and needs, delivered by local providers bundled together in an application called Free Basics that telecommunications operators would offer for free to their mobile phone users who did not have a data plan. Led by Facebook’s head of product partnerships—and former Yale basketball team captain—Ime Archibong and borne out of the 0.facebook.com service launched with selected telecommunications operators in May 2010, Free Basics launched in Zambia in July 2014 and by April 2016 had provided access to Facebook and 500 other services to 25 million people in 37 countries across the Middle East, Africa, Asia Pacific and Latin America. Half of the people who used Free Basics paid to access the Internet the following month.

Perhaps the only thing more surprising than awareness being such a sizable gap is that this seemingly less difficult to address aspect of the connectivity challenge would be the biggest stumbling block for Facebook in the early days.

Can’t Give It Away

You’d think anything free would be easy to grow. Not so much.

To understand how Free Basics, a service that seems to provide nothing but upside for the underserved, could come first under scrutiny—and then fire—requires a little background on two complex and related issues: (1) net neutrality and (2) digital colonialism.

Net neutrality is the principle that no telecommunications operator should be allowed to throttle, differentially price or block access to any service on the Internet. Net neutrality’s main job is to prevent an operator from fleecing you for the services that are important to you. You wouldn’t want Verizon to charge you double your normal data rate for using your Facebook app or Comcast to charge you extra for each Google search. Conversely, net neutrality is also meant to avoid operators’ advantaging certain services through lower data rates. It is this part of net neutrality that began to catch the attention of advocacy groups and some governments observing the so-called zero rating of Free Basics, a selection of services making up only a small part of the Internet—in a move considered misleading, the app was initially called internet.org—which were offered for free.

As for digital colonialism, the arrival of global connectivity has brought with it concerns over the emergence of digital versions of colonialist practices—the extension of control by one people from one territory to another possibly weaker and more dependent people and territory, a pattern most often associated with European overreach in the 16th to mid-20th centuries. Could a technology company deliver crucial capabilities to a particular part of the world that over time—whether by accident or design—undermine or control the choices and agency of those people. Incomplete Internet access? Misuse of personal information? Economic lock-in after “the first one was free”? Profiteering?

When you fan the budding flames of net neutrality concerns with the shades of digital colonialism that come with large multinational companies arriving with free gifts related to their commercial services that trade on people’s information, perception problems can arise no matter how laudable the motive.

By May 2015, 65 advocacy groups from 31 countries expressed these misgivings in an open letter critical of Facebook, and several countries—including Egypt only five years after Facebook had played an enabling role in the Arab Spring—shut down Free Basics through regulatory means.

No criticism, however, was more withering—or impactful in perception and reality—than the January 2016 response by the Telecom Regulatory Authority of India (TRAI) to Facebook’s awkward lobbying campaign—which had collected the commentary of over 10 million Indian Facebook users—for allowance of Free Basics in India, the single largest opportunity and need for the service with nearly 1 billion unconnected people. The regulatory body accused Facebook of “reducing this meaningful consultative exercise designed to produce informed decisions in a transparent manner into a crudely majoritarian and orchestrated opinion poll,” suggested it would have “dangerous ramifications to policy-making in India” and expressed concern over Facebook’s “self-appointed spokesmanship on behalf of those who have sent responses to TRAI using your platform.” No wonder that the regulator blocked Free Basis the following month, a tough blow for the overall connectivity effort and for Zuckerberg who had written op-eds in The Times of India and appeared to enjoy a strong relationship with Indian Prime Minister Narendra Modi.

The day after the ban, Internet pioneer and Facebook board member Marc Andreessen appeared to give credence to the kind of digital colonialism fears—borne of India’s experience with the likes of the East India Company, which at one point controlled half the world’s trade and ruled the beginnings of the British Empire in India via private armies and the assumption of administrative functions—when in response to the ban he tweeted, “Anti-colonialism has been economically catastrophic for the Indian people for decades. Why stop now?” Zuckerberg strongly disavowed the comments the following day by saying that he found them “deeply upsetting, and they do not represent the way Facebook or I think at all” and that “to shape the future we need to understand the past . . . and I look forward to strengthening my connection to the country.”

Clearly, finding on-ramps for the unconnected is a complex issue, as Zuckerberg is being doubted on one hand by shareholders concerned about the poor economics of the effort while simultaneously being vilified on the other hand by people who believe the move is grotesquely profit motivated.

Is the digital equivalent of small medical clinics and libraries that do not deliver access for everything and everyone but deliver what they can for free (an analogy first put forward by Andreessen Horowitz partner and former Microsoft President Steven Sinofsky) not better than no access for the poor and unconnected who have no voice in the online discourse on the topic? Is it impossible for those from Silicon Valley to appear anything but reductive in their arguments about connectivity challenges without understanding the complex local cultural, language and historical context? Is the pushback on Free Basics simply, as journalist David Kirkpatrick put it, “anti-corporate, anti-American and anti-poor”?

The Way Forward

As pitched as the battle over Free Basics appears to be (and not just in developing economies with The Washington Post reporting in October 2016 that Facebook is even working with the U.S. government to deliver Free Basics to low-income and rural Americans), it will not halt connectivity progress. At least two workable solutions present themselves:

Turn over the administration of Free Basics to neutral or even regulated bodies. This will align the perception of openness—one of the big concerns around Free Basics had been the fact that Facebook controls the effort and may gate access in ways deemed opaque or in direct conflict with popular opinion—with the already existing technical reality that Free Basics is an open platform with a published API and participation criteria that ensure the effective use of the technology. Facebook would continue to enable the effort via the technologies it develops, and telecommunications operators would use the service as a way to on-ramp previously unconnected users most able to evolve to paying for data plans, but local governments and populations would have the peace of mind that the on-ramp is not controlled by someone who may later exact a toll people do not want to pay.

Alternatively, Facebook could move beyond the Free Basics approach entirely and concentrate on ways to enable free on-ramps to the unfiltered Internet—and its popular Facebook Lite service—albeit with limits that make it economically feasible for operators to provide while still giving the previously unconnected an awareness of the Internet and its value. Novel tariffs—pay by the hour or day and limited-time free samplers during low-utilization hours—create low-risk opportunities for operators to create awareness while appreciating the crushing daily economic uncertainty of the unconnected who live close to and below the poverty line. Journalist, entrepreneur and cofounder of SaveTheInternet.in Nikhil Pahwa, writing in The Times of India, perhaps captured the sentiment of this approach best: “The trade-off users are willing to make is how much they use the Internet, not necessarily how much of the Internet they get to use.”

Either way, Facebook will continue to focus on doing the unprofitable heavy lifting of developing hardware and software—from satellites and drones to network architectures and services obsessed with the efficient use of scarce bandwidth, like Facebook Lite—in order to show that higher scale and lower cost are feasible and then partner with or give away the technology to players that have the local experience and long-term business incentive to make these technologies thrive with the next few billion people.

The circumstances in Facebook’s efforts to connect the unconnected are just another example of the Facebook way and therefore the Zuckerberg way: not everything will work at first—or even be conceived in the best possible way—but it is better to act and adjust than to wait, and Zuckerberg and his teams have just enough humility neither to be put off by failure nor to resist changing their approach after new learnings. It’s the only way Facebook knows. It is the way that has gotten them as far as they have. And they will not stop now.