Internet expansion cuts into telecom market as users migrate online
By Jeph Ajobaju, Chief Copy Editor
Greater internet penetration worldwide is squeezing telecom companies as users bypass their core offerings and migrate online for more wide-ranging activities.
Telecom companies are at risk of becoming predominantly internet access providers because of their shrinking business model, warns the Global System for Mobile Communications Association (GSMA).
GSMA is concerned that as consumers shift online, they spend more time and money there – and the internet has continued to grow at pace since 2015, with over 4.6 billion users in 2020, representing 59 per cent of the world population.
Revenues of the segments that make up the internet value chain chalked up $6.7 trillion in 2020, up from $3.3 trillion in 2015.
“At a time when a greater load is being placed on Internet connectivity infrastructure, requiring network operators to increase speed, capacity and coverage, their business model is being squeezed,” GSMA said in its ‘The Internet Value Chain: 2022 (May 2022)’ report.
“First, 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. Second, the scope of operator activities is being narrowed.
“As virtualisation of core network functions takes place, hyperscalers can develop and run these services at a global scale, playing a greater role in core service and network orchestration, while operators in many markets are separating their infrastructure (i.e., into fibre and tower companies) and selling selected assets.
“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.”
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Lower revenue threatens infrastructure investment
The internet value chain is growing, GSMA said, but the benefits and returns are flowing principally to players in the online services segment, while telecom operators building and running connectivity infrastructure which underpins these services are not benefitting as strongly as expected, per The PUNCH.
GSMA named other concerns to include:
- Though operators continue to invest in complex networks that enable the entire ecosystem, low returns raise questions about the robustness of continued investment in capacity, coverage, and speed of the networks to connect internet users with services.
- Telecom operators are dealing with declining returns by carving out the infrastructure assets and sharing them to increase asset utilisation.
- Telecom operators are also tapping into infrastructure investment funds to meet capex needs.
- In financial terms, this replaces the upfront capex need with a long-term opex cost, pressuring operators’ margins and returns.
“The clear consequence of such an outcome is that with lower revenues and margins, the potential to invest in the critical access infrastructure could also be reduced in the long term,” GSMA said.