Telecoms operators have lost about $3.82 trillion supposed to be generated from internet services to online service providers. A report by the GSM Association (GSMA), the global body of mobile network operators, revealed that online service providers such as Google, Facebook, Netflix and others are getting more revenue from internet services using the infrastructures provided by telecoms companies. GSMA, in its 2022 Internet Value Chain Report, stated that aggregate revenue from the various segments of internet value chain peaked at $6.7 trillion as at 2020, pointing out however that the online service providers alone raked in 57 per cent of the entire revenue.
The Association said the situation must be addressed to correct the imbalances between network operators that provide infrastructures and the online services providers, warning that global growth prospects is at risk across various sectors of the internet-based economy. According to the Association, the internet has continued to grow since 2015 with over 4.6 billion users in 2020, representing 59 per cent of the world population.
A study of the sector by the Association indicated that traffic per user grew at 27 per cent per year, with almost 80 per cent of that being driven by video traffic. Other findings of the study indicated 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 per cent increase in revenue per annum in 2020. It suggested that paid-for online services will soon exceed $1 trillion in revenue, driving huge capacity demand on global networks. With an annual growth rate of 7.5 per cent, the number of users being connected to the in-ernet globally shows no sign of slowing. However, the report stated that there is much more to do to connect more people to what has become an entire economic system, while emphasising on the need to address the imbalance in the revenue generation. In terms of commercial size, the revenues of the segments that make up the internet value chain were $6.7 trillion in 2020, up from $3.3 trillion in 2015. The strongest growth over that period has been in content rights (23 per cent per annum, from a low base) and online services (19 per cent p.a.), which now make up 57 per cent of the entire value chain in terms of revenues.
The enabling technology segment grew at 13 per cent and the internet access connectivity and user interface segments at 11 per cent and six per cent, respectively. The growth of online ser-vices since 2015 is said to have been driven on the consumer side by the emergence of many gig-economy services with consumers shifting more of their entertainment spend to online services, including online gaming and video streaming services, while search and social media services have continued to grow strongly. On the enterprise side, there has been a strong, on-going migration of on-premise IT applications to cloud-based services. The growth in entertainment has prompted increases in the activity and revenues of the content rights segment, with online video services paying more for exclusive television and movie content and the growing value of influencers creating content to reach their followers directly.
Gaming content is also an active sub-segment with the gaming platform companies increasingly investing directly. The revenues of the enabling technology segment have also grown, offering more advanced services, including the sophisticated advertising ecosystem and advanced, hyperscale infrastructure services enabling more services to migrate online and the expansion of payment gateways to support the ever growing volume of internet transactions. Revenues of the internet access connectivity segment have grown at 11 per cent per annum since 2015 as more people and devices are connected to the internet, but the growth is a substitution for previously offline or private network services such as voice, MPLS and VPN services. The user interface segment has grown at only six per cent per annum in total revenue. While there has been growth in the volume of connected devices, including Smart TVs and smartphones, much of the growth has been at the value end, so, average unit prices have declined. With these, GSMA lamented that the returns are not equally distributed.
The online services and user interface segments are benefiting most from valuechain 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 GSMA’s Chairman, José María Álvarez-Pallete, said although the internet value chain is growing strongly, the benefits and returns are flowing principally to players in the online services segment, while the telecom operators building and running the connectivity infrastructure, which underpins these services, are not benefitting as strongly as one might expect. He noted that while the operators continue to invest in extraordinarily 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.