Monday , July 22 2024
GSMA Warns Against Market Imbalance as Internet Value Chain Hits $6.7 Trillion

GSMA Warns Against Market Imbalance as Internet Value Chain Hits $6.7 Trillion

…Grows 15% per year

As Internet value chain continue to grow by 15% per year, a new Global System for Mobile telecommunications Association (GSMA) report warns market imbalances between network operators and online services providers may put global growth prospects at risk across multiple sectors of the internet-based economy.

Policymakers, the report urges, must consider the interdependence of online services and other growth sectors on the underlying infrastructure investment.

The GSMA 2022 Internet Value Chain Report reveals factors including asymmetric regulation and restrictions, sector-specific taxes, and spectrum costs are squeezing the business models of infrastructure providers whilst allowing Big Tech to thrive.

The study finds that revenues across the internet value chain nearly doubled in five years, from $3.3 trillion in 2015 to $6.7 trillion in 2020. Much of this growth comes from online services; they saw a 19% increase in revenue per annum in 2020.

Online services saw a 19% increase in revenue in 2020, while the return on investment in infrastructure for network operators was only between 6% and 11%, according to the publication.

This is problematic, the report argues, because the telecom operators who are running the connectivity infrastructure should continue to invest in capacity, coverage and speed of the networks, which connect internet users with online services.

The report also noted that Paid-for online services will soon exceed $1trillion in revenues, driving huge capacity demand on global networks.

With an annual growth rate of 7.5%, the number of users being connected to the internet globally shows no sign of slowing. Traffic per user grew at 27% per year, with almost 80% of that being driven by video traffic. Yet the return on investment in infrastructure for network operators was far lower, between 6% and 11%.

The report highlighted average sub-10% returns on capital as a concern due to pressure on telecom operators to keep investing CAPEX at rates of up to 20% of revenue.

The body noted that the internet continues to grow at pace in terms of users, services and, most of all, traffic. It stressed that the growth is relentless, and there is much more to go. “The number of people with access to the Internet has reached 4.6 billion in 2020 (via either fixed or mobile networks), an increase of 44 per cent since 2015 and a yearly growth rate of 7.5 per cent. While this rate of growth shows no sign of slowing, 41 per cent of the world’s population still does not have regular access to the Internet.”

Also Read: DG NITDA Tasks Expert on Digital Innovations as Africa’s Internet Economy Hits $180 Billion in 2025

GSMA observed that the growth of digital services, whether streaming content, e-commerce or enterprise digitalisation, is powering the continued growth of the online services segment most strongly.

It stressed that a lot of innovation and investment is making this possible, particularly the increased functionality of end-user devices and sensors, advances in connectivity, growth of hyperscale technologies and cloud infrastructure through to application interfaces that connect these to the central systems of the service providers.

Reacting to this, GSMA’s Chairman José María Álvarez-Pallete said, “The internet connects 4.6 billion people and drives the global economy. It is transforming business models, unlocking new opportunities, and uplifting communities across the world. But as some sectors in the internet value chain thrive, the demands of investing in the infrastructure those sectors rely on for growth are squeezing network operators. We welcome the growing recognition of this issue by policymakers, and as the internet-based economy expands across all sectors over the next decade.”

The report notes that counterproductive taxation on infrastructure, cumbersome regulatory requirements, and other value-eroding factors can reduce incentives for infrastructure investment. It encourages policymakers to consider the full landscape of taxation and regulation, ensuring that companies investing in infrastructure are incentivised to build and upgrade the networks that underpin online services.

Also Read: Mobile Technologies, Services Generate $4.4 Trillion in 2020, Adds 5.1% to Global GDP – GSMA

However, the vice president of the tech trade association CCIA, Christian Borggreen argued that emphasised that tech companies have already been spending a lot of resources on network infrastructure, subsea cables and data centres. “And they are investing billions in innovative content and services, which in turn is driveing demand for telco services,” Borggreen said.

In his view, the real problem is that telecom companies struggle to charge their own customers for their data consumption.

 

 

Internet Value Chain

 

About Bukola Olanrewaju

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