When access providers complain about their revenues not keeping pace with the infrastructure they must build to support their own customer requirements, that argument arguably makes more sense for fixed network home broadband than mobile internet access, looking at mobile data consumption and mobile operator service revenues as analyzed by Omdia.
Granted, mobile networks are less capital intensive than fixed access networks, but mobile data consumption and mobile data revenue growth are not inversely related. Granted, traffic growth is happening at a faster rate than revenue growth, but the revenue trend still is positive.
Some of us might argue that even that trend is misleading, in the sense that it is mobile operator customers who are invoking delivery of nearly all that data, as they watch streaming video, listen to streaming audio or interact with image-rich social media sources.
To the extent that networks are supposed to compensate each other for use of facilities, the asymmetrical flow of data between customers on one network--who request content delivery from sources on other networks--might be viewed as an application of the “calling party pays” arrangement.
In such content sessions, it is the calling party that creates the data demand by invoking delivery of content from a remote network. Only by ignoring that reality can it be claimed that the content delivery network is the “calling party.”
Assume the internet value chain represented about $6.7 trillion in annual revenues, as estimated by Kearney and GSMA. Assume internet access revenue was about 15 percent of that total amount, or about $1 trillion earned each year providing internet access.
Assume global revenue earned by “telcos” was about $1.5 trillion, as estimated by IDC. That implies that as much as 66 percent of total telco and ISP revenue earned annually was generated by internet access.
Even if that is a high estimate, it suggests the importance of internet access for telco and ISP revenue and profits.
It is impressionistic, but even if data demand grows at faster rates than access revenue, logic would suggest that profit margins for internet access are likely higher than for many other services including business data networking, video services or mobile messaging and voice.
Perhaps only legacy voice services, which generally speaking are harvested, requiring minimal new capital investment, might have margins higher than internet access.
Some 40 years ago, linear video might have produced margins in the 40-percent range, where today most providers would be lucky to see 10-percent margins.
By some estimates voice service margins in 1980 were as high as 50 percent. Mobile voice margins might have been in the 30-percent range in 1980 and might be as low as five percent today.
But even if we use a blended rate of 10 percent for ISP and telco service margins, internet access, as the largest product category, still produces the greatest volume of profits.
Again, it might only be illustrative, but ISPs might well be making average profits on their internet access services, but up to two thirds of gross revenues on those services.
We can argue about the cost of delivering capacity now, compared to 49 years ago, but nobody would question that the cost to deliver a bit has declined dramatically over that period.
In that sense, the total capacity demand generated by an ISP’s customers might not matter as much as often portrayed. What matters more is the contribution internet access makes to total revenues and profit margins.
To the extent that traffic asymmetries exist between access providers in different regions, those traffic flows are mostly dictated by the location of content servers and the end user locations where people are requesting delivery of content.
So whether one agrees that content delivery is a remote response to a local customer’s requests, or is an unrelated part of a single session, it is not so clear that ISPs literally have a broken business model. As content servers are deployed “closer to the edge” over time, asymmetrical data flows arguably could be reduced.
No comments:
Post a Comment