Telcos At Risk Of Becoming Internet Service Providers Only —Operators
TECHDIGEST – Telecommunication companies are at risk of becoming predominantly Internet access providers as a result of a shrinking business model according to GSMA, the global association for operators in the world.
The association disclosed that as consumers shift online, they spend more time and money there. It added that since 2015 the Internet had continued to grow at pace and there were over 4.6 billion users in 2020, representing 59 per cent of the world population.
It said the revenues of the segments that make up the Internet value chain were $6.7tn in 2020, up from $3.3tn in 2015.
In its ‘The Internet Value Chain: 2022 (May 2022),’ report, it said, “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.
“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.”
GSMA stated that while the Internet value chain is growing, the benefits and returns are flowing principally to players in the online services segment, while the telecom operators that are building and running the connectivity infrastructure which underpins these services are not benefitting as strongly as expected.
It added that even though operators continue to invest in complex networks that enable the entire ecosystem, the low returns raise questions about the robustness of continued investment in capacity, coverage, and speed of the networks to connect internet users with services.
It said telecom operators were dealing with declining returns by carving out the infrastructure assets and sharing them to increase asset utilisation. It stated that there were also tapping into infrastructure investment funds to meet capex needs.
GSMA explained that in financial terms, this replaces the upfront capex need with a long-term opex cost, pressuring operators’ margins and returns.
It said, “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.”