Global Telecom Revenue Will Have Grown 1% in 2021

Global spending on telecommunications and TV services is forecast to reach $1.5 trillion in 2021, representing an increase of one percent  over 2020, according to IDC. That is generally in line with most other forecasts, which call for growth of perhaps one percent to 1.5 percent annually on a global basis. 

Some forecasts call for higher growth, though, in a three percent to five percent range. Some forecasts call for lower growth. Often, revenue sources matter, both to total revenue forecasts and growth rates. It matters whether subscription TV services are included, for example.  

source: IDC 

The fastest expansion is still expected in the Asia/Pacific region, with growth of 1.6 percent. 

Global Regional Services Revenue and Year-on-Year Growth (revenues in $B)
Global Region	2020 Revenue	2021 Revenue	2021/2020 Growth
Americas	$581	$584	+0.5%
Asia/Pacific	$482	$490	+1.6%
EMEA	$467	$471	+0.9%
Grand Total	$1,530	$1,545	+1.0%
source: IDC

"Data Center to Data Center" Traffic Drive About Half of WAN Demand

Data center traffic moving to end users was a decade ago a larger percentage of total wide area network data volume. That has been steadily changing, with more traffic moving between data center locations.  

In 2021, the volume of data moving between data centers is about equal to the amount of data moving to end users. Content caching accounts for some of the data center to data center increase. Content mirroring accounts for an additional amount of inter-data-center traffic. 

source: Cisco 

The huge amount of “within the data center traffic” is partly caused by applications that involve lots of queries. Many internet applications are extremely “chatty”. A single search query within the data center might involve hundreds of server requests, for example. 

A social networking transaction has a similar multiplier effect, as it draws in an entire social graph to respond to a single query. 

The architecture of data centers can contribute to the amount of traffic as well, using with separate storage arrays, development or  production server pods and application server clusters that all need to talk to one another.

Still, wide area network bandwidth now is about equally composed of traffic heading for end users and traffic moving between data centers, a trend itself driven by the dominance of content as a driver of network capacity. 

source: Telegeography 

Content drives as much as 83 percent of transAtlantic traffic and 66 percent of transPacific traffic, for example. 

source: Telegeography

How Far can Asset Light Business Models be Extended?

One hears quite a lot about connectivity provider “asset light” business models these days. Aside from new interest on the part of institutional investors and private equity in owning communications infrastructure in alternative asset portfolios, service providers also are pondering new ways to redeploy assets. 

source: American Tower 

An early example was ownership of mobile cell towers, which in all markets is getting traction. There also is high interest in optical fiber infrastructure, including transport and access; consumer and business assets. 

More recently, mobile and fixed network operators have concluded their internal cloud computing operations, necessary to support virtualized networks, can be done using hyperscale cloud computing suppliers, rather than building and owning an internal cloud computing infrastructure.

Regulators Cannot Keep Up with Pace of Change in Computing and Communications

It often has been said that regulators cannot keep up with the pace of change in computing, broadband and applications. That has proven to be true for regulators looking at home broadband performance. 

About 2010 or so Ofcom, the U.K. regulator laid out a national goal for “superfast” internet access of about 30 Mbps, at a time when the typical speed most consumers were able to use was about 6 Mbps.

Average actual U.K. fixed-line residential broadband speeds grew from about 3,6 Mbps in 2008 to about 15 Mbps in 2013. 

source: Ofcom 

In 2011, Ofcom warned of low interest in 50-Mbps services, for example. 

Ofcom also worried about low interest in 30 Mbps services as well. 

That same year, a 50-Mbps internet access connection (home broadband) cost close to $100 a month. 

The next formal goal will be gigabit per second access, which shows you just how fast improvements are coming in the home broadband business. 

That same degree of improvement was seen in the U.S. market as well. Back in 2010 average U.S. home broadband speeds were about 5 Mbps. By 2019 speeds had climbed to about 33 Mbps. 

U.S. median home broadband speeds were about 131 Mbps in October 2021.  

source: Nielsen Norman Group 

By 2050 the home broadband headline speeds are likely to be in terabits per second. Though the average or typical consumer does not buy the “fastest possible” tier of service, the steady growth of headline tier speed since the time of dial-up access is quite linear. 

And the growth trend--50 percent per year speed increases--known as Nielsen’s Law--has operated since the days of dial-up internet access. Even if the “typical” consumer buys speeds an order of magnitude less than the headline speed, that still suggests the typical consumer--at a time when the fastest-possible speed is 100 Gbps to 1,000 Gbps--still will be buying service operating at speeds not less than 1 Gbps to 10 Gbps. 

Though typical internet access speeds in Europe and other regions at the moment are not yet routinely in the 300-Mbps range, gigabit per second speeds eventually will be the norm, globally, as crazy as that might seem, by perhaps 2050. 

The reason is simply that the historical growth of retail internet bandwidth suggests that will happen. Over any decade period, internet speeds have grown 57 times. Since 2050 is three decades off, headline speeds of tens to hundreds of terabits per second are easy to predict. 

source: FuturistSpeaker 

Some will argue that Nielsen’s Law cannot continue indefinitely, as most would agree Moore’s Law cannot continue unchanged, either. Even with some significant tapering of the rate of progress, the point is that headline speeds in the hundreds of gigabits per second still are feasible by 2050. And if the typical buyer still prefers services an order of magnitude less fast, that still indicates typical speeds of 10 Gbps 30 Gbps or so. 

Speeds of a gigabit per second might be the “economy” tier as early as 2030, when headline speed might be 100 Gbps and the typical consumer buys a 10-Gbps service. 

source: Nielsen Norman Group 

How Far Can "Asset Light" Model Go?

In addition to network virtualization, private equity and institutional investor interest in communications infrastructure might be part of a reconceptualization of where value lies in the connectivity business, from the standpoint of service providers. 

For investors, fiber assets, for example, represent an alternative asset similar to airports, seaports or other physical infrastructure. For service providers, there are new ways to conceive of where sustainable business advantage can be gained. 

As the competitive era of telecommunications dawned, service providers gradually moved away from developing and creating their own platforms, from switches and access media to applications. They almost universally now rely on third parties for infrastructure. 

So the issue is how far the trend can extend. 

As mobile operators have concluded that owning tower assets does not provide as much value as other uses for cash, if such assets are sold, so there could be new thinking about the value of copper access assets and access networks generally.

Specifically, service providers might decide that, though still valuable, access assets need not be 100-percent owned. Partial ownership might still provide the required business value, but at less overall capital investment. Freed up capital from asset sales might then be applied to other more-strategic growth initiatives. 

That is not to say there is a general rethinking of operating solely on the basis of wholesale access. “Owner’s economics” and the ability to differentiate still flow from network ownership and control. 

Also, mobile operators increasingly are comfortable outsourcing their core network information platforms to public cloud providers, showing yet another way that service providers are rethinking the ownership versus leasing of platforms and capabilities. 

All of this should lead to a rethinking of where sustainable advantage lies, for service providers. How much of the core infrastructure they once developed and owned becomes less strategic over time. How far can the “asset light” approach be carried?

U.S. FTTH Seems Poised to Accelerate

GlobalData expects the number of U.S. fiber-to-home subscriptions will grow at a compound annual growth rate of 10.8 percent and reach 28.2 million accounts by year-end 2026.

If total U.S. home broadband accounts number 112 million at that point, as GlobatData predicts, then FTTH would represent about 25 percent of total subscriptions. 

source: S&P Global Intelligence 

As other forecasters estimate, cable operators will gradually lose installed base share to other internet service providers between now and 2026. 

Cable’s share of total US fixed-broadband subscriptions will decline to 67.1 percent  by year-end 2026, down from 68 percent in 2021, Global Data estimates. A different enumeration, including mobile-only households, suggests cable has 65 percent of the installed base, while telcos have 27 percent. 

Total U..S fixed-broadband lines, including fiber, fixed wireless and cable, will increase from 103.1 million in 2021 to 112.3 million by 2026, the firm predicts. 

Unclear at this point is how faster FTTH deployment could change those scenarios. Most observers believe faster FTTH is coming, paced by ISP competitive concerns and more government subsidies for faster home broadband. 

Many of us would now bet that the FTTH deployment rate will exceed 10 percent per year to the end of the decade. Some forecasts already call for 14 percent annual growth, for example. 

Singtel Financial Return Shows Potential Value of a Portfolio

Singtel’s latest quarterly results illustrate one connectivity provider  growth strategy: a portfolio of assets without majority ownership or control. 

To be sure, the core connectivity business continues to produce most of the revenue and free cash flow. But growth largely is driven by businesses in adjacencies: business services, data centers, advertising and minority stakes in other connectivity providers, where  revenue grew 21 percent.  

The point is that organic growth in the core connectivity business is tough. Connectivity business operating revenue was up about 0.4 percent on an annual basis, the company reported in November 2021. Mobile operating revenue in Singapore declined 1.3 percent on an annual basis. 

Enterprise revenues were flat while voice revenue fell 16 percent. 

Growth is faster in adjacencies. Data center and security services revenue rose 9.6 percent while technology services related to cloud and digital climbed 9.3 percent. 

Also key: profits from ownership stakes in other entities grew 18 percent, especially from its minority interests in Africa and India and the share of profits from those investments. 

In fact, the minority interests drove higher cash flow than did the fully-owned operations. Where cash flow from Singtel’s fully-owned assets produced S$572 million in cash flow, the minority interests produced S$954 million in cash flow, though representing about 13 percent the volume of revenues produced by the fully-owned asserts. 

source: Singtel 

The point is that a portfolio of minority-owned assets can produce significant revenue, cash flow and profit, providing most of the actual revenue growth at the margin. Picking the right assets, in the right markets, matters. 

But the traditional, monolithic “branded” approach to assets is not the only way to attain growth. In fact, that approach is yielding slow to negative growth. 

Telcos long have believed they had to own and control, brand and manage, all their assets. That is not the only model. Looking at growth as including a portfolio of complementary assets not fully consolidated, controlled and managed, can work. 

The trick is to make the right acquisitions, while avoiding the temptation to own and control 100 percent of every asset. It sometimes is not needed, and not helpful.