Will MEC Revenues Ever Surpass Capex to Create it?

One recurring issue with forecasts of multi-access edge computing is that it is easier to make predictions about cost than revenue and infrastructure investments than customer demand. Beyond that, MEC almost necessarily involves some sharing of revenue among ecosystem participants. 

To determine whether the connectivity provider business model for MEC actually works, one has to delineate cost (capital investment as well as operating costs) as well as revenue. And some of us still do not clearly see how the business plan works out, at least where it comes to retail revenue.

It is a bit easier to envision how edge computing works as a necessary part of the network infrastructure to support advanced mobile networks, which are, by definition these days, distributed. In other words, MEC might be just as important as telco operating infrastructure as a possible source of retail revenue from customers.

Research and Markets has forecast 2028 MEC revenue at about $23 billion. That mostly includes infrastructure sold by hardware and software suppliers to create MEC capabilities. 

Service revenue from actual “edge computing” is included, but one still must make assumptions about the receipt of such revenue by ecosystem partners, such as a hyperscale computing as a service supplier and its access network partners. 

But one matter is clear enough: most “MEC” revenue is generated by the sale of hardware and software to create the capability, not revenues earned by the supplier of the actual “computing” service. 

source: Research and Markets 

It matters greatly “who” is supplying the edge computing “as a service” and who is providing other necessary infrastructure. It also matters “what” is defined as “edge computing revenue and services.” In addition to the “as a service” revenue, there are recurring revenue contributions from real estate (colocation) and connectivity. 

Right now, it is nearly impossible to accurately predict the magnitude of “edge computing” revenues. How does Amazon Web Services state revenue for a customer account that uses both cloud and edge resources, for example? 

Does a mobile operator report additional connectivity revenue supporting internet of things use cases as “connectivity” revenue in its business customer segment, or as “edge computing” revenues?

Looking only at private networks, there are similar issues. How do we separate “edge” from other “computing infrastructure” spending? As always, attributions matter. What is “private edge;”what is use of “public edge?”

 It is far easier--if not “easy”--to estimate what it might cost to create MEC capabilities. 

Private network multi-access edge computing investments will amount to about $6 billion by 2030, ABI Research now estimates.  

Juniper Research predicts that annual investments by telecommunications operators on multi-access edge computing infrastructure will reach $11.6 billion in 2027, up from $5.4 billion in 2022; a CAGR of 16.7 percent.

Total “spending” on  MEC facilities will be higher. Juniper Research estimates investment of nearly $9 billion in 2022 growing to nearly $23 billion in 2027. 

By 2027 mobile operators will have built out more than 3.4 million MEC nodes, up from less than one million by the end of 2022. 

Juniper forecasts that over 1.6 billion mobile users will have access to services underpinned by MEC nodes by 2027, up from only 390 million in 2022. 

Of course, that is a prediction about capital investment, not revenue. And revenue also is a complicated matter where it comes to edge computing. Edge computing spending can represent purchases of user or network devices; software capabilities or computing as a service or 5G access to support edge computing. 

So revenue can accrue to a number of participants in the edge computing ecosystem: device retailers, network infrastructure providers, software suppliers or connectivity service providers. So when researchers talk about MEC revenue or investments, one has to separate shares within the ecosystem. 

source: Grand View Research 

Some estimates have total MEC revenues exceeding $25 billion by perhaps 2027 and close to $70 billion by 2032.  Other estimates suggest annual revenue of close to $17 billion by 2027.  

But those forecasts virtually always lump together revenues earned by hardware, software and services suppliers: infrastructure and platform plus computing as a service revenues. And computing as a service revenues will likely be dominated by hyperscalers, not mobile operators. 

Connectivity providers will profit from real estate support and some increase in connectivity revenues, but relatively rarely from the actual “edge computing as a service” revenues. 

For example, assume 2021 MEC revenues of $1.6 billion globally; a cumulative average growth rate of 33 percent per year; services share of 30 percent; telco share of service revenue at 10 percent. 

Multi-access Edge Computing Forecast
Year	2021	2022	2023	2024	2025	2026	2027	2028
Revenue $B	1.6	2.1	2.8	3.8	5.0	6.7	8.9	11.8
Services Share	0.3	0.6	0.8	1.1	1.5	2.0	2.7	3.5
Growth Rate	0.33
Telco Share	0.1
Telco Revenue	0.2	0.2	0.3	0.4	0.5	0.7	0.9	1.2
source: IP Carrier

The actual MEC revenue from MEC is quite small by 2028. In fact, too small to measure. Of course, all forecasts are about assumptions. 

One can assume higher or lower growth rates; different amounts of connectivity provider participation in the services business; different telco shares of the actual “computing as a service” revenue stream; greater or lesser contributions from mobile connectivity revenue from MEC. 

The point is that actual MEC revenues earned by mobile operators or other connectivity providers might actually be quite low. So value earned from all those infrastructure investments would have to come in other ways.

Higher subscription rates; higher profit margins; lower churn; higher average revenue per account are some of the ways MEC could provide a return on invested capital. Some service providers might actually provide the “computing as a service” function as well, in which case MEC revenues could be two to three times higher. 

But many observers are likely to be disappointed by the actual direct revenue MEC creates for a connectivity provider.  

So revenue can accrue to a number of participants in the edge computing ecosystem: device retailers, network infrastructure providers, software suppliers or connectivity service providers. So when researchers talk about MEC revenue or investments, one has to separate shares within the ecosystem. 

How Much Incremental New Revenue for Mobile Operators from Edge Computing?

As important as they might be, incremental new revenue streams from 5G, internet of things, private networks and edge computing might possibly be far smaller than many assume. For starters, the bulk of 5G revenues will continue to come from business and consumer "phone" subscriptions.

New connectiions supporting IoT, private networks or edge computing will take time to develop, and might not create as much revenue as some project. IoT average revenue per device, for example, is more than an order of magnitude lower--and often nearly two orders of magnitude lower--than for a consumer mobile phone connectiion. So volume matters.

5G private networks will not necessarily be "managed" services supplied by mobile operators. Enterprises will build their own networks, as they build their own Wi-Fi and other local networks.

And multi-access edge computing business models are generally shifting towards partnerships with hyperscale cloud computing suppliers. That means most of the "edge computing service revenue" will be earned by the hyperscalers, not mobile operators.

But value and revenue for mobile operators are expected from all those areas. The issue is how much it will cost to participate, and the magnitude of revenue streams. Consider the investment side.

Juniper Research predicts that annual investments by telecommunications operators on multi-access edge computing infrastructure will reach $11.6 billion in 2027, up from $5.4 billion in 2022; a CAGR of 16.7 percent.

Total “spending” on MEC facilities will be higher. Juniper Research estimates investment of nearly $9 billion in 2022 growing to nearly $23 billion in 2027.

By 2027 mobile operators will have built out more than 3.4 million MEC nodes, up from less than one million by the end of 2022.

Juniper forecasts that over 1.6 billion mobile users will have access to services underpinned by MEC nodes by 2027, up from only 390 million in 2022.

Of course, that is a prediction about capital investment, not revenue. And revenue also is a complicated matter where it comes to edge computing. Edge computing spending can represent purchases of user or network devices; software capabilities or computing as a service or 5G access to support edge computing.

So revenue can accrue to a number of participants in the edge computing ecosystem: device retailers, network infrastructure providers, software suppliers or connectivity service providers. So when researchers talk about MEC revenue or investments, one has to separate shares within the ecosystem.



source: Grand View Research

Some estimates have total MEC revenues exceeding $25 billion by perhaps 2027 and close to $70 billion by 2032. Other estimates suggest annual revenue of close to $17 billion by 2027.

But those forecasts virtually always lump together revenues earned by hardware, software and services suppliers: infrastructure and platform plus computing as a service revenues. And computing as a service revenues will likely be dominated by hyperscalers, not mobile operators.

Connectivity providers will profit from real estate support and some increase in connectivity revenues, but relatively rarely from the actual “edge computing as a service” revenues.

For example, assume 2021 MEC revenues of $1.6 billion globally; a cumulative average growth rate of 33 percent per year; services share of 30 percent; telco share of service revenue at 10 percent.

The actual MEC revenue from MEC is quite small by 2028. In fact, too small to measure. Of course, all forecasts are about assumptions.

Multi-access Edge Computing Forecast $Billions
Year	2021	2022	2023	2024	2025	2026	2027	2028
Revenue $B	1.6	2.1	2.8	3.8	5.0	6.7	8.9	11.8
Services Share	0.3	0.6	0.8	1.1	1.5	2.0	2.7	3.5
Growth Rate	0.33
Telco Share	0.1
Telco Revenue	0.2	0.2	0.3	0.4	0.5	0.7	0.9	1.2
source: IP Carrier

One can assume higher or lower growth rates; different amounts of connectivity provider participation in the services business; different telco shares of the actual “computing as a service” revenue stream; greater or lesser contributions from mobile connectivity revenue from MEC.

The point is that actual MEC revenues earned by mobile operators or other connectivity providers might actually be quite low. So value earned from all those infrastructure investments would have to come in other ways.

Higher subscription rates; higher profit margins; lower churn; higher average revenue per account are some of the ways MEC could provide a return on invested capital. Some service providers might actually provide the “computing as a service” function as well, in which case MEC revenues could be two to three times higher.

But many observers are likely to be disappointed by the actual direct revenue MEC creates for a connectivity provider.

Throwing Stones When Living in Glass Houses

It is hard to find anybody who argues the Australian National Broadband Network has been a success, after a decade of turmoil. On the other hand, broadband upgrades have presented a difficult business case in many large countries with relatively low density and serious competition. As easy as it might be to criticize apparent failure, the difficulty is not to be underestimated. 

 

Since wholesale networks seem to have worked elsewhere, albeit in smaller countries, it is hard to argue that the wholesale model itself is the issue.

To be sure, high construction costs are a real issue in a country as large as Australia, with so many low-density areas. But many would say the unexpectedly high costs have other causes.

The Australian Communications Commission plans to revamp wholesale pricing. But ACCC believes the NBN--even if changes are made--will not be profitable until 2040. The new plan hopes to recoup accumulated investment losses by that point. 

Some might argue the better course is to amidst failure and allow the equivalent of a bankruptcy. There seems no political appetite for doing so, despite the advantages. For more than 20 years, private connectivity firms that have amassed unworkable levels of debt have been allowed to fail. 

There is much pain for lenders and shareholders when this happens, but successful restructurings that eliminate the debt problem often allow firms to create business models that have a chance of succeeding. 

In other cases firms simply find they are unable to continue, and assets are sold. Many forget that the company once known as AT&T was itself acquired by SBC, which rebranded itself after the acquisition. 

That demise was, in turn, fueled by high debt AT&T took on in an effort to rapidly create a national access strategy based largely on the use of cable TV physical plant. 

The strategy failed, in part because the debt burden was too high; in part because the cost of upgrading the cable TV plant proved too daunting in the timeframe AT&T required. 

AT&T’s big move into cable TV in the mid-1990s came at a time when the long distance provider was seeking a way to reenter the local access business with its own facilities. The thinking at that time was that a largely one-way cable TV plant could be upgraded to become full communications facilities, supporting home broadband and voice. 

Given that development by virtually all cable TV companies in North America and Europe, the thinking was sound. But timing and huge capital investment costs were issues.

On June 24, 1998, AT&T acquired Tele-Communications Inc. for $48 billion, marking a reentry by AT&T into the local access business it had been barred from since 1984. 

Beside TCI, at that point the largest U.S. cable company, AT&T also bought MediaOne, the cable asset holding of US West. 

US West had in 1994 purchased Wometco and GTC cable operations and then Continental Cablevision, creating MediaOne Group. 

US West also participated in a joint venture agreement with Time Warner Cable to form Time Warner Communications (later known as TW Telecom).

In 1993 MediaOne purchased a 26 percent stake in Time Warner's entertainment operations including Warner Bros. and HBO. Those assets also wound up at AT&T. 

AT&T also purchased Teleport Communications Group, a $500-million-a-year local business phone company, for $13.3 billion; MetroNet, a Canadian phone system, for $7 billion; and the IBM Global Network, which carries data traffic, for $5 billion. 

AT&T also signed a joint venture with Time Warner Cable ( to carry phone calls over the entertainment conglomerate's cable TV systems, and with British Telecom to serve multinationals overseas. 

Nor was AT&T the only telco to consider the cable TV strategy. Since 1994, major telcos had been discussing--and making--acquisitions of cable TV assets. In 1992 TCI came close to selling itself to Bell Atlantic, a forerunner of Verizon. Cox Cable in 1994 discussed merging with Southwestern Bell, though the deal was not consummated. 

US West made its first cable TV acquisitions in 1994 as well. In 1995 several major U.S. telcos made acquisitions of fixed wireless companies, hoping to leverage that platform to enter the video entertainment business. Bell Atlantic Corp. and NYNEX Corp. invested $100 million in CAI Wireless Systems.

Pacific Telesis paid $175 million for Cross Country Wireless Cable in Riverside, Calif.; and another $160 to $175 million for MMDS channels owned by Transworld Holdings and Videotron in California and other locations. 

AT&T also made its first investment in DirecTV in 1996, owned and spun off Liberty Media. 

But the debt burden was too high and AT&T reversed course in 2004 and sold most of those assets. AT&T Broadband (the former TCI and US West Broadband assets) were sold to Comcast, making that firm the biggest U.S. cable TV company. 

By 2005 AT&T itself was acquired by SBC Communications, which promptly rebranded itself AT&T. 

The point is that broadband upgrade strategies that might have seemed reasonable at the time often turned out to be unworkable in the time frame required, with the hoped-for costs. Excessive debt almost always was among the chief problems. 

As it turned out, there often was no quick, affordable alternative for telcos looking to create broadband networks that were ubiquitous, capital efficient and timely. 

That “get there fast” mentality remains, as the cost and time to completely revamp the fixed network plant remains an issue. That is why 5G fixed wireless now looms so large. Some believe 5G and future untethered networks will provide further complications to NBN profitability. 

No matter how one looks at the business case, fixed network broadband remains expensive, time consuming, with a difficult business case. It never is surprising that firms look for shortcuts.

The whole argument made by cable operators, in fact, has been that hybrid fiber coax provides a faster, cheaper way of getting to gigabit broadband on a mass scale, compared to fiber to the home. 

Multi-gigabit speeds are coming, so a tough business case will not be getting much easier.