The Internet Access Problem: Investments Not Matched by Revenue Growth
The big problem with mobile internet access or fixed network internet access is that exponential increases in supply--with investments to supply faster speeds and higher capacity--are not matched in a linear way with revenue increases that match the magnitude of investments.
In fact, some argue that most such investments now are bearing low to possibly negative financial returns. That, it is argued, is the case in the U.S. telecom market, where most service providers have negative cash flow.
Note the huge cost contribution “operating expense” represents. Nothing else comes close, as a driver of cost, or arguably, the overall business model, in the short term. That is true only if gross revenue remains at current levels. Any serious revenue declines would cause huge pressure for the business model.
EY consultants for example, argue that “downward trends in return on invested capital (ROIC) are the result of a number of factors, from regulated price reductions to cannibalization of legacy revenues by OTTs, along with high capital intensity required to support demand for data.”
So if revenue growth is muted, what matters is how well access providers monetize invested capital. That is not going to be easy.
With one exception, you can see that average U.S. mobile internet access speeds have grown by an order of magnitude in about seven years, close to what you would expect from a Moore’s Law rate of increase (doubling about every two years).
“Looking at the maximum download speeds, it looks like there's a 2x jump every two years or so—from 50 to 60Mbps in 2014, to 120 Mbps in 2016, and now to 200 Mbps,” PCmag says.
The results were obtained by drive tests conducted by PCmag.
Average speeds, as you would expect, are lower, but still follow the “close to Moore’s Law” rate of improvement.
That is one of the surprises in the networks business. One would not expect speed or performance increases for physical networks (civil engineering projects) to improve as fast as chips. But that seems to be happening in fixed and mobile networks.
The difference is that cost is not declining as those performance increases happen, as has been the case for computing devices, for example.