Telcos concerned Big Tech will drain them dry until they are unable to develop new networks

Despite rising demand for their services, Telco’s risk missing out on the income needed to support new networks — and Big Tech is to blame.

This is the gist of the GSM Association’s 2022 Internet Value Chain Report, which was issued yesterday.

The Association defines the internet value chain as the money earned by all stakeholders participating in the end-to-end service enjoyed by end-users who utilize the internet for whatever reason. According to the analysis, the value of that chain has increased significantly, from $3.3 trillion in 2015 to $6.7 trillion in 2020, aided by an increase in the internet population from 3.2 billion to 4.4 billion.

Another significant figure in the study is 57, which is the percentage of worldwide internet traffic accounted for by Alphabet, Meta, Netflix, Apple, Amazon, and Microsoft combined. 57 is also the proportion of income made by online service providers, up from 48 percent in the Value Chain Report’s 2015 edition.

The study also monitors worldwide traffic in petabytes, revealing that overall global data transfer increased from 41.3 petabytes in 2015 to 181.1 petabytes in 2020. The majority of the growth was in video traffic.

While much of such traffic travels over networks controlled by Big Tech Carriers, the majority also travels through networks run by carriers. However, according to the GSMA, social media and content players have cheaper costs and larger shareholder returns 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 adds.

That poor return on capital is an issue since network operators must continue to operate, develop, and improve their networks even as their business model becomes less viable.

Meanwhile, hyperscalers have discovered that their global scale allows them to operate the kind of network operations traditionally provided by carriers – and earn income, some of it from carriers that use clouds for network-as-a-service offers rather than operating their network activities. As examples of this tendency, the paper cites AWS’ 5G service and Microsoft’s acquisitions of network core function providers Metaswitch and Affirmed Networks.

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 can’t get enough funding, it’s unclear how the billions more who will come online in the future years will be linked.