Telcos fear Big Tech will bleed them until they can’t afford network builds

The GSMA would say that, yet Big Tech is making it harder for carriers to turn a quid

Telcos risk missing out on revenue needed to fund new networks, despite demand for their services soaring – and Big Tech is to blame.

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

The Association considers the internet value to chain to comprise revenue won by all players involved in the end-to-end service experienced by end users using the internet for any purpose. The report suggests the value of that chain has grown markedly, from $3.3 trillion in 2015 to $6.7 trillion in 2020, helped by growth in 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 accounted for by Alphabet, Meta, Netflix, Apple, Amazon, and Microsoft combined. 57 is also the percentage of revenue earned by online services providers, up from 48 per cent in the 2015 edition of the Value Chain Report.

The document also measures global traffic in petabytes, finding growth from 41.3 petabytes of total global data movement in 2015 to 181.1 petabytes in 2020. Most of the growth came in video traffic.

While plenty of that traffic moves over networks operated by Big Tech Carriers , most also passes over networks operated by carriers. But the GSMA quotes figures that suggest social media and content players have lower costs and higher returns to shareholders than carriers.

“The online services and user interface segments are benefiting most from value-chain growth and generating the largest shareholder returns, whereas the internet access connectivity segment has generated relatively low and even single-digit returns on capital,” the Report states.

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 the operators,” the report states.

Hyperscalers, meanwhile, have figured out that their global scale lets them run the kind of network functions once provide by carriers – and score the revenue, some of it from carriers that turn to clouds for network-as-a-service offerings instead of running their own network functions. The report mentions AWS’ 5G offering and Microsoft’s acquisition of network core function providers Metaswitch and Affirmed Networks as an example of that trend.

While that arrangement has appeal “From a telecom operator perspective, they are selling the access portion but without the core network services they would previously have sold on top, reducing their returns while requiring the same asset base to deliver,” the Report argues.

“If these trends play out to their full extent, telecom operators risk becoming predominantly internet access providers, fulfilling the sales and service function but with significant capex requirements to build and maintain the access infrastructure,” the report argues. And if network operators cannot secure enough capital, it’s far from clear how the billions more coming online in coming years will be connected.

The Report calls for business leaders and policymakers to ensure that network operators enjoy an enrolment in which they can build both core and edge networks. The Report doesn’t detail how network operators could be made more sustainable, but calls for ecosystem-wide discussions to make it happen in the interests of another five years of value chain growth for all. ®

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