Telecom business model threatened by Big Tech network push • The Register

Telecom business model threatened by Big Tech network push • The Register

Telecommunications companies are at risk of losing the revenue needed to finance new networks, despite skyrocketing demand for their services, and Big Tech is to blame.

That’s the thrust of the GSM Association’s 2022 Internet Value Chain Report, posted yesterday.

The Association considers that the Internet value chain comprises the income obtained by all the actors involved in the end-to-end service experienced by end users who use the Internet for any purpose. The report suggests that the value of that chain has grown remarkably, from $3.3 trillion in 2015 to $6.7 trillion in 2020, helped by the growth of the online population from 3.2 billion to 4.4 billion.

57 is another important number in the report, as that’s the percentage of global internet traffic represented by Alphabet, Meta, Netflix, Apple, Amazon and Microsoft combined. 57 is also the percentage of revenue earned by online service providers, up from 48 percent in the 2015 edition of the Value Chain Report.

The document also measures global traffic in petabytes and finds growth from 41.3 petabytes of total global data movement in 2015 to 181.1 petabytes in 2020. Most of the growth was in video traffic.

While much of that traffic moves through networks operated by Big Tech Carriers, the majority also goes through carrier-operated networks. But the GSMA cites figures suggesting that social media and content players have lower costs and higher returns for shareholders than operators.

“The online services and user interface segments are benefiting the most from value chain growth and generating the highest returns for shareholders, while the Internet access connectivity segment has generated relatively low returns on capital and even of a single digit”, affirms the Report.

That low return on capital is problematic because network operators have the job of operating, extending and improving their networks even as their business model becomes less profitable.

“Enterprises are replacing high-margin MPLS and VPN services with more basic Internet access services, resulting in an overall loss of revenue and margin for operators,” the report states.

Meanwhile, hyperscalers have found that their global scale allows them to run the kind of network functions once provided by carriers, and earn revenue, some of it from carriers turning to clouds for network-as-a-service offerings rather than to run their own network functions. The report cites AWS’s 5G offering and Microsoft’s acquisition of core network function providers Metaswitch and Affirmed Networks as an example of such a trend.

While that arrangement is attractive, “from a telecoms operator’s perspective, they are selling the access portion but without the core network services they would have previously sold, reducing their returns and requiring the same asset base to deliver,” he argues. The report.

“If these trends play out to their full extent, telecom operators run the risk of becoming predominantly Internet access providers, fulfilling a sales and service function, but with significant capital expenditure requirements to build and maintain infrastructure. of access”, argues the report. And if network operators can’t raise enough capital, it’s not at all clear how the billions more who will come online in the coming years will get connected.

The Report calls on business leaders and policymakers to ensure that network operators enjoy an enrollment where they can build core and edge networks. The Report does not detail how network operators could become more sustainable, but calls for ecosystem-wide discussions to make this happen in the interest of another five years of value chain growth for all. ®

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