Telecoms Hedge Bets Amid Middle East Internet Blackouts

In a move unprecedented in communications history, 90% of Egypt’s Internet and mobile traffic temporarily vanished from the map on January 28, creating a headache for multinational companies straddling the line between a government in crisis and irate customers.

While smaller-scale government-imposed blackouts have occurred in the past in an effort to quell protests, Egypt’s coordinated, widespread and simultaneous maneuver catapulted censorship to a whole new level.

Human rights protests continue to mount in the Middle East and Africa, and multinational companies seem to be facing a slew of new pressures, including the potential for backlash depending on the stance they take and the conclusions reached in the emerging economies they operate.

“Historically when dictatorships have been overthrown there has been a popular backlash against companies that supported the dictatorship,” said Phil Nichols, associate professor of Legal Studies and Business Ethics at the University of Pennsylvania’s Wharton School. “Whether complying with the mandate of a dictatorship would be perceived as supporting the regime? Who knows.”

Transnational companies have historically had little choice but to comply with governments’ stringent requirements. However, amid rising global pressure and surging protests, it seems multinationals operating under regimes are now starting to hedge their bets in preparation for rapidly changing times in a tech savvy world.

It’s the Law

Egyptian President Hosni Mubarak, who has led Egypt for the past three decades, ordered the country’s monopolized Internet and mobile phone carriers to halt their service, an effort to squash rising protests calling for the ouster of the autocrat dictator and hinder social media-based coordination efforts.

Smaller scale blackouts such as this have occurred before, exemplified by Iran in 2009, which blocked social media sites like Twitter, Facebook and YouTube, as well as in Burma in 2007 and Nepal in 2005, though none have been to Egypt’s scale.

“You can use Internet to galvanize the reform movement, but it is just one tool in the toolbox of a reform movement,” said Dr. Sylvia Maier, Assistant Professor at NYU School of Continuing and Professional Studies who has focused some of her research on Muslim minority rights in Western Europe. “States will strike back, and companies will have to respond to legal obligations.”

Maier said she finds it troubling that international companies seem to be fully compliant with governments' attempts to limit people’s access to Internet and mobile communication, even if it is technically their legal obligation.

“Egypt was well within its rights, by the law, to ask Vodafone to disrupt its services,” Maier said. “Legally, Vodafone had no alternative but to comply with this request. Whether it was right morally, that’s a whole different story.”

Britain’s Vodafone (NYSE:VOD), though, sees no moral dilemma. The company said in a brief statement that it pulled its service because there was no other “legal or practical options open.”

Egypt’s largest mobile operator, which has also been sending out pro-government text messages to its Egyptian customers, said it was required to comply with officials’ requests under the emergency power provisions of the Telecom Act. Under that mandate, government officials can script messages and force carriers to send them out.

Vodafone has “protested to the authorities,” calling the current situation regarding messages unacceptable, though it added that it “does not have the ability to respond to authorities on their content.”

Companies have two primary choices when it comes to international law, according to Nichols. They can either follow the rules, or leave the country and attempt to provide services from a different location, similar to how online gambling companies serve U.S. customers.

“An entity is required to comply with the law wherever it is,” he said, though international laws sometimes conflict, as seen through adversarial antitrust rules in the U.K and U.S. When this occurs, Nichols said, companies must choose which to follow.

It is possible that a mandate from a government could violate its own country’s law, he said, in which case companies’ recourse would be through the courts. If the order were legal, however, as it was in Egypt, options would become scarce.

“They do have a choice, not a nimble choice,” Nichols said. “But when governments get too egregious they should make the choice to leave.”

Hedging Bets

As seen in Tunisia, where a leader as powerful as Ben Ali was brought down by massive public outrage, and in Egypt, where a week of protests led to Mubarak’s decision to step down at the next election in September, some say companies need to start leveraging their options.

If the Egyptian government had survived, and Vodafone had not complied, the repercussions could have been serious, Nichols noted. Since the company complied, however, and Mubarak has agreed to step down, Vodafone has now entered a new playing field where it may see potential backlash from customers.

“We’re seeing around the world much more militancy against companies that have cooperated with repressive regimes,” said Jonathan Armstrong, a partner at Duane Morris who practices Internet law.

In Indonesia, for example, companies perceived of supporting Suharto, who served as president of Indonesia for 32 years in the 20th century, felt resistance from citizens amid his resignation.

Telecom companies such as Vodafone, however, have an advantage – or a disadvantage depending on how you look at it – over other industries, since they operate under deeply lucrative, monopolized contracts.

Maier said telecom contracts will help carriers in Egypt avoid militancy.

“It’s a lose-lose situation for the protestors,” she said. “Vodafone has nothing to lose. There is no meaningful reason for a boycott in the West and probably not in Egypt, as there is no real alternative for people who need to use communication devices.”

Armstrong, however, argued that the licenses pose a disadvantage, as they give companies fewer options in terms of standing up against a regime, thus facing potential consequences if the government is overthrown.

“That’s always got to be part of the strategy, looking at the different scenarios, determining what happens if we cooperate, what happens if we don’t,” Armstrong said.