Facebook, Twitter Win if European Wireless Carriers’ Ad-Blocking Plan Passes Muster

NEW YORK (TheStreet) -- A reported plan by unnamed European wireless carriers to block mobile ads in an effort to provide an improved mobile experience may face significant backlash from content publishers and advertising-reliant Internet companies, including Google (GOOGL).

If implemented, the plan could have a devastating effect on revenues for digital advertising companies such as Yahoo! (YHOO) and AOL (AOL), but Google would be most severely affected. The company earns more than 70% of its revenues from digital advertising and is expected to dominate digital ad spend in the near future. And nearly a quarter (24%) of its $17.3 billion in revenues in its latest quarter were from the "Rest of the World" region, which includes Europe, but excludes the United Kingdom.

However, the planned move by telecom carriers may be good news for social media companies, such as Facebook (FB) and Twitter (TWTR), as it will not affect advertisements that are shown in a user's social media feed.

The plan's implementation could be thwarted by a number of EU regulations, as well as discontent from content publishers, said Nitesh Patel, director of wireless media strategy at research firm Strategy Analytics. "I don't think it will fly," he said.

As an example, he points to the failure of a similar plan by Swedish telecom giant Teliasonera. In 2008, the company launched a service known as SurfOpen to provide a cheaper, better mobile experience to users. The telecom company transcoded popular mobile sites by redirecting users to another server for a better mobile experience. In the process, it blocked ads (and select content) and inserted its own ads instead. Content publishers revolted against Teliasonera, and eventually, it had to withdraw the service.

Google could not be immediately reached for comment on this story.

The Financial Times report states that the wireless carriers plan to use the services of Shine, an Israeli startup headquartered in New York City, to implement ad blocking services on services such as Google.

The proposed plan, which is slated to be implemented by the end of this year, could also run afoul of Europe's net neutrality law. That law, which was adopted last year, states that "all internet traffic is treated equally, without discrimination, restriction or interference, independently of its sender, recipient, type, content, device, service or application." Attempts by wireless carriers to tamp down on mobile ads would amount to interference with regards to content.  

Patel says European wireless carriers could adopt a "healthier attitude" by using data available at their disposal to improve ad targeting, a strategy which has already been adopted by their U.S. counterparts.

Verizon (VZ) and Sprint (S) use anonymized data to collate customer insight packages for advertisers. These packages include important customer information, such as spending based on location patterns and browsing habits in select locations. According to Patel, the business model for European wireless carriers is currently used to upsell services and data to customers. "I don't think [improved ad targeting] is a priority in the scheme of things for them," he says.

The search behemoth has further angered wireless carriers by introducing Project Fi -- a cheap wireless service that uses bandwidth bought from multiple carriers to connect users to the Web. The service, which currently is only available in the U.S., has the potential to unify Europe's fragmented wireless carrier market and make Google a major force for Internet connectivity there.

  This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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