Mobile Data Demand will Grow an order of Magnitude in 6 Years

It is no secret that mobile broadband features now drive mobile service provider revenue growth in developed economies. 

And even if sheer growth of subscribers continues to drive growth in developing markets, revenue from Internet access is becoming more crucial there as well.

Global mobile broadband subscriptions are predicted to grow 400 percent by 2019, reaching eight billion accounts, up from about two billion in service in 2013, according to Ericsson.

While mobile subscriptions globally grew seven percent, year over year, in the third quarter of 2013, mobile broadband subscriptions grew at a rate of 40 percent year over year. 

That trend is fueled by a changing mix of device sales. About 55 percent of all mobile phones sold in the quarter were smart phones, according to the Ericsson Mobility Report. And that in turn drives demand for mobile Internet access.

As a result, mobile data traffic is expected to grow at a compound annual growth rate of around 45 percent (2013-2019). This will result in an increase of around 10 times by the end of 2019.

The number of mobile subscriptions for mobile PCs, tablets and mobile routers is expected to grow from 300 million in 2013 to around 800 million in 2019, as well.

Between 2013 and 2019, mobile data traffic will grow seven times in North America, 11 times in Latin America, nine times in Western Europe, 11 times in Central Europe and Middle East and Africa, as well as in the Asia Pacific region.

Fixed data traffic will grow about 25 percent between 2013 and 2019, on a compound annual growth rate basis, and will remain the dominant way most data is transferred to end users.

Mobile data traffic represents five percent of total Internet end user traffic in 2013, and will grow to 12 percent in 2019.

That, one might suggest, shows the long term value of fixed network access, which will continue to account for most of the total volume of access traffic.

The largest and fastest growing mobile data traffic segment is video, as you have come to expect, expected to increase by around 55 percent annually up until the end of 2019, by which point it is forecasted to account for more than 50 percent of global mobile traffic.

Use of streaming on-demand and time-shifted content, including YouTube, is ubiquitous.

About 41 percent of people aged between 65 and 69 stream video content over mobile and fixed networks on at least a weekly basis, the Ericsson Mobility Report says.

By the end of 2019, total mobile subscriptions will reach around 9.3 billion.

Total global mobile subscriptions, including subscriber information modules and full prepaid or postpaid accounts, numbered 6.6 billion in the third quarter of 2013.

By 2019, almost all handsets in Western Europe and North America will be smart phones, compared to 50 percent of handset subscriptions in the Middle East and Africa.

Mobile phones account for around 50 percent of total mobile data traffic volume in the measured networks. In many European networks, mobile PCs represent 10 percent to 30 percent of the

subscription base and generate 50 percent to 80 percent of the traffic.

In contrast, North America is typically dominated by smart phone traffic, with mobile

PC subscriptions only representing a small share of traffic. Fixed network access, using routers ranges between usage of 1 GB to 42 GB each month.

Mobile PCs represent usage of  0.5 GB to 8 GB while tablets represent monthly usage between 150 MB and 2,200 MB. The largest average traffic volumes for smart phones were measured on Android devices, using up to an average of 2.2 GB per month.

Who Needs to Know What?

It can be a humbling experience to realize how few people in any industry actually need to know the actual business dynamics that drive results in that industry. Even fewer need any serious knowledge of what drives outcomes in other industry segments than their own.

For example, multi-site enterprises are essential for providers of SD-WAN products and services, but irrelevant for internet service providers who only sell to consumers and businesses in local markets.

Likewise retail mobility revenues are mostly irrelevant (in a direct sense) for sellers of wide area network services. For channel partners, business customers matter, generally not consumers.

Hyperscalers do not need to bother with "local access." What matters is connectivity between data centers and points of presence. 

The point is that what drives the whole market can be quite different from what drives each submarket.

In today’s world, up to 85 percent (by some estimates) of total connectivity service provider revenues are generated by mobile services. In most markets, consumers provide up to 60 percent of revenue while business customers supply perhaps 40 percent of total revenue. 

Product	Revenue Percentage	Comments
Consumer Mobile Subscriptions	40%	Subscriptions are the key product. According to a 2022 report by the GSMA, mobile subscriptions generated 40% of global telecom revenue.
Business Mobile Subscriptions	20%	Subscriptions are the key product
Home Broadband	15%	Consumer internet access now is the core product for a fixed network
Voice Services	10%	Declining legacy service on both fixed and mobile networks
Mobile Internet Access	5%	Mobile internet access drives the next wave of mobile segment growth, once subscriptions saturate
Data Transport Services	5%	Data transport services including SD-WAN, MPLS, dedicated internet access are an important niche contributor

Looking only at business customer revenues, mobile services also are the biggest single revenue source, with local data access (internet access, private network access) being the second biggest contributor. 

Product	Revenue %
Wide Area Network Data Transport Services	15
Mobile Services	40
Fixed Network Voice Services	20
Local Network Access Services	25

None to little of that matters, in a functional sense, for suppliers of non-mobile services, ranging from home broadband (with the exception of mobile substitution) to SD-WAN or capacity services. 

The point is that very few people in the broader connectivity business actually care very much about top-line industry revenue trends, nor perhaps do they need to do so. CxOs, equity analysts and market analysts almost always need to have some knowledge of those trends. 

Mobile Drives Subscriptions, Fixed Networks Drive Data Volume

The proportion of Internet access instances originating from mobile devices will vastly outnumber fixed network access, including both fixed networks and Wi-Fi, by 2018, Cisco now forecasts.

It is likely that fixed networks still will represent an order of magnitude more total data throughput than mobile networks do, by 2018, according to Ericsson.

source: Informa Telecoms and Media

Wider adoption of both smartphones and faster networks will help propel the trend, as will consumption of video on phones. Already, real-time video entertainment drives 63 percent of fixed network data usage and 43 percent of mobile data usage.

Globally, smart devices represented 21 percent of the total mobile devices and connections in 2013, but accounted for 88 percent of the mobile data traffic.

As more smartphones are added to the installed base, bandwidth demand is going to grow in almost linear fashion. In 2013, on an average, a smart device generated 29 times more traffic than a non-smart device.

By 2018, there will be more than 10 billion mobile-ready devices and connections, about three billion more than there were in 2013, and about five billion global mobile users, up from more than four billion in 2013.

Global mobile data traffic grew 81 percent in 2013, nearly 18 times the size of the entire global Internet in 2000.

One exabyte of traffic traversed the global Internet in 2000, and in 2013 mobile networks carried nearly 18 exabytes of traffic, while mobile video traffic exceeded 50 percent for the first time in 2012.

By 2018, global mobile IP traffic will reach an annual run rate of 190 exabytes, up from less than 18 exabytes in 2013

And one might reasonably expect that ultra-low-cost smartphones, costing perhaps $25 each, instead of $200 to $600, will help drive the trend, as will growing instances of Internet access by sensors (machine-to-machine apps).

Globally, residential Internet users with fixed Internet access will grow from 1.9 billion in 2013 to 2.5 billion by 2018, according to Cisco's Visual Networking Index.

The total number of global consumer mobile devices and connections will grow from 6.1 billion in 2013 to 8.9 billion by 2018, the perhaps-significant development being that there will be 3.5 billion consumer smartphones in use by 2018, up from 1.5 billion in 2013.

That means Internet access will happen from 3.5 billion smartphones (and some billions of feature phones, to an extent), and 2.5 billion fixed locations, by 2018.

Ultimately, one might argue, mobile access could reach beyond 3.5 billion up to almost nine billion, assuming smart phones eventually become “phones,” and are used by nearly all mobile subscribers.

That will have “speed” implications, as the typical fixed connection will operate at 42 Mbps in 2018, according to the Cisco Visual Networking Index.  

Western Europe will experience the fastest average fixed network speed of 49 Mbps by 2018, and Asia Pacific will have the greatest average speed increase, 2.7-fold growth by 2018 with fixed speeds reaching 48 Mbps by 2018.

Globally, Wi-Fi connection speeds available to mobile devices will more than double by 2018, exceeding 21 Mbps by 2018, yet still representing access at speeds less than half that of the fixed network.

Globally, mobile network connection speeds will nearly double by 2018, yet increase only to 2.5 Mbps by 2018. So fixed networks will continue to operate at an order of magnitude faster speeds than mobile networks, in aggregate.

North America will have the highest average mobile speed (4.5 Mbps) by 2018 along with the fastest growth (2.6-fold) from 2013 to 2018, according to Cisco.

The point is that, as Internet access shifts to mobile methods, the notion of “average” access speed will become more complex. And “average” speeds could decline.

A crucial factor promoting the increase in mobile speeds over the forecast period is the increasing proportion of fourth-generation (4G)mobile connections. The impact of 4G connections on traffic is significant, because 4G connections, which include mobile WiMAX and Long-Term Evolution (LTE), generate a disproportionate amount of mobile data traffic.

Global Mobile Speed Growth

Visual Networking Index

The composition of IP traffic will shift dramatically in the coming few years, Cisco predicts.

During the forecast period, the majority of traffic will originate from devices other than personal computers (PCs) for the first time in the history of the Internet.

Wi-Fi traffic will exceed wired traffic for the first time and high-definition (HD) video will generate more traffic than standard definition (SD) video.

The Internet of Everything is also gaining momentum and by 2018 there will be nearly as many machine-to-machine (M2M) connections as there are people on earth. Smart cars will have nearly four M2M modules per car.

The Lead Product Sold by Access Providers in 10 Years Might Not be Invented Yet

Some might think it is mere hyperbole to argue that connectivity service providers literallly must replace half their current revenue every decade. But that has historically been the norm in the competitive era of connectivity. To use the most-obvious examples, nearly all revenue and profit in the period before 1980 was earned selling voice. Does anybody think that is the case today?

Instead, globally, mobile service is what drives both revenue and revenue growth. On the fixed networks, internet access (home broadband) drives revenue, not voice. In developing markets, mobile subscriptions still drive growth. But in developed markets internet access is the revenue growth driver.

In the enterprise wide area networks market, X.25 once drove revenue, followed by frame relay. ISDN and ATM nver caught on. Now it is dedicated internet access, Ethernet transport or MPLS that are key revenue generators. And MPLS is being replaced by SD-WAN.

The colloquial way of expressing this is to say "my top revenue-producing product in 10 years has not been invented yet." Again, that might seem hyperbolde. But think about 4G, 5G and 6G. Each successive next generation network was introduced 10 years after the prior generation. And each successive generation displaced prior generation customer accounts,

Part of the reason for revenue change of that magnitude is product obsolesence. The other issue is declining average selling prices.

This graph of mobile termination rates--the fee a mobile network charges another network for completing an inbound call--illustrates a couple of principles relevant to the connectivity and computing industries. To the extent that computing costs are driven by chip-level capabilities that double about every 18 months, cost-per-operation drops over time. 

source: iconnectiv 

In other words, the cost of executing a single instruction or operation will fall rather sharply every decade, as they essentially fall by half every two years. In this example of mobile termination rates, costs fell from seven cents per minute to less than two cents per minute over a decade, or more than half--and close to three times--in 10 years. 

All other things being equal--such as holding traffic volumes steady--that means termination revenue would have fallen by close to three times, and clearly more than half, over that decade. In practice, since call volumes rose, the decline was likely less, in absolute terms. 

For example, the global number of mobile subscriptions grew about 52 percent between 2010 and 2019, so there were more people making mobile phone calls. But per-minute charges dropped faster, close to 100 percent lower in some countries. 

Other charges also declined. Between 1997 and 2022, for example, the cost of U.S. mobile 41phone subscriptions dropped by 50 percent. So the actual rate of decline for recurring service was not as fast as the decline of calling costs per minute. 

The actual change in revenue sources was complicated. Revenue was boosted by additional subscribers, replacement services (mobile internet access in place of voice and messaging) and higher possible usage in some cases. But revenue was diminished by lower average unit rates for subscriptions, calls and text messaging. 

That illustrates a second point about revenues in the connectivity business: about half of all current revenue earned by a service provider will be gone, every decade. That might sound like an exaggeration. It is not. How many service providers sell ISDN, X.25, frame relay or ATM anymore? At one time, each of those services was, or was supposed to be, a key driver of wide area network data revenues. 

How many access providers sell dial-up internet access anymore? And, over time, what is the typical downstream package purchased by half of all customers? At one point it might have been 1 Mbps or less. At some point that changed to perhaps 10 Mbps, then 100 Mbps, then higher. The point is that in each generation, the “product” changed. 

International and national  long distance calling rates show the same pattern. 

source: FCC 

source: U.S. Department of Justice 

The general point is that revenue sources changed over that decade, as they tend to do every decade. 

In fact, calling revenues now are minor enough that it is difficult to find statistics on calling volume or revenue, as internet access now drives revenue models. 

Which Revenue Opportunity is Bigger for Mobile Service Providers: Entertainment Video or OTT Messaging?

Will over the top messaging, or video entertainment, will be a more important revenue source for mobile service providers? And, to the extent revenue is earned, will it be a direct or indirect contributor?

Your answer likely would be different, based on which market is considered. Countries at immediate risk include the Netherlands, South Korea, Japan, Spain, Germany, Switzerland, the United Kingdom, Singapore, and Russia.

At moderate risk are Canada, the United States, Italy, Poland, Australia, Austria, France, and Hungary, according to analysts at McKinsey.

At low risk are most countries, where voice and text messaging remain staples, and where mobile data access adoption remains low, at least for the moment.

Conversely, markets where consumers have eagerly embraced social messaging, where smartphone adoption is high or text messaging tariffs are moderately high are most exposed.

Informa Telecoms & Media has predicted that mobile operators will generate a total of $722.7 billion in revenues from text messaging revenues between 2011 and 2016.

Third-party providers of over the top (OTT) messaging services will earn about $8.7 billion in 2016. That disparity in revenue illustrates the issue. Mobile service providers will lose about two orders of magnitude more revenue than all OTT apps earn.

So even if telcos become significant providers of OTT messaging, and it is not clear that can be done to any significant degree, you might ask whether the effort is better placed elsewhere.

Put another way, if the potential market is 50 cents a month in revenue, while the lost text messaging revenue represents $10 a month, it isn’t immediately clear whether the effort is justified.

Some will argue that new forms of bundled products (carrier OTT plus other carrier products) will prove viable. That assumes the carrier OTT product has enough intrinsic value to warrant buying it.

A carrier can, of course, simply structure tariffs in a way that makes carrier voice, text messaging and carrier OTT messaging a single retail offer. Even then, one might argue the effort (time, people and capital) might offer more substantial revenue impact if deployed in other areas.

Still, some might argue the upside is in “higher perceived value” for the carrier communications package, not direct revenue. That’s a valid strategy, so long as carrier OTT messaging actually gets any sizable traction with customers.

At least for the moment, indirect revenue sources seem the most likely outcome, and perhaps most significant for video entertainment, rather than messaging, even if that appears to be off in the future.

Consider that telcos today earn far more revenue from video entertainment than VoIP. In fact, any gains in telco VoIP are more than matched by losses in the traditional voice business. In fact, over the top messaging and voice alternatives almost certainly will be the main trend, not the earning of incremental revenues from carrier VoIP or over the top messaging.

The magnitude of losses from legacy products will simply be too massive, in some markets, with losses possibly ranging from 20 percent to 30 percent over several years, in both voice and text messaging services. It is very hard to see how carrier over the top messaging compensates for losses on that scale.

People will buy mobile Internet access so they can use the over the top messaging apps, as well as buying larger buckets of usage to watch mobile video. In both cases, the primary revenue upside is indirect, coming in the form of higher end user spending on access packages.

Perhaps the bigger question is whether video entertainment--provided as a service or through a gateway app--could emerge as a significant direct revenue generator, and not simply an application that drives demand for Internet bandwidth.

Much depends on the answer.

Though helpful for mobile service providers, direct video entertainment services, modeled on the subscription video model, such a development could have major ramifications for existing providers of such services, including cable TV, satellite TV and telco TV providers, shifting demand in possibly significant ways.

Does mobile-delivered video entertainment seem likely to replicate traditional linear TV? Most probably would agree that is rather unlikely, simply because point-to-multipoint networks are efficient ways to deliver linear content, while point-to-point communications networks, especially mobile networks, are not efficient.

But future video entertainment might include at least some forms that are passably well suited for delivery even over point-to-point networks. Obviously, recent end user behavior with respect to consumption of YouTube, Netflix streaming and other forms of non-linear video consumption provide a reason for suggesting that sort of behavior could underpin a newer form of video service not dependent on linear delivery (not pushed or broadcast but pulled by viewers).

So it is at least possible that some demand for traditional TV subscriptions could shift to mobile delivery, as a byproduct of a switch to greater reliance on "pull" or content on demand modes.

It wouldn't be easy, but video entertainment remains one of the more reliable applications a service provider can sell.

The number of users globally paying for mobile video and TV services is expected to jump to 534 million by 2014, a five-fold increase from 2008, says Pyramid Research.

Derek Medlin, senior analyst at Pyramid Research, says "this is equivalent to 8.5 percent of all mobile subscriptions, up from the current 2.5 percent level."

"Looking ahead, Asia/Pacific will remain in the top spot, attaining more than 281 million subscriptions by 2014, although we expect Latin America to grow at the fastest pace, increasing at a CAGR of 39 percent from 2009 to 2014," Medlin says. 

Until now, mobile operators haven’t done much to promote mobile video. In fact, under challenged bandwidth circumstances, it sometimes makes sense to actively discourage such consumption.

But Long Term Evolution helps. And broadcast forms of LTE will help more, at least for linear content delivery. The challenges of delivering mobile content are balanced by the size of the revenue opportunity, though.

Worldwide video service revenue (cable TV, satellite TV and telco TV) grew in the first half of 2013 to $110 billion, up two percent over the second half of 2012, despite weakness in the U.S. market, where video subscribers are declining at a pace of 1.5 percent to 2.5 percent annually.

You can make your own determinations about whether that trend indicates non-interest in the product, or simply non-interest in the way retail offers are constructed.

By 2017, Infonetics expects the global video subscription services TV market to hit $270 billion in revenue, a 2012–2017 compound annual growth rate of nearly five percent.

The issue is how service providers can earn revenue from mobile video, which today is largely a potential revenue stream for application providers.

Although only a third of Verizon subscribers are on LTE, those users consume 64 percent of its data, with a “surprising” amount of that being video content, according to Verizon. 

And that's why entertainment video might someday generate far more revenue for mobile service providers than over the top messaging.