This weeks industry insight is delivered by Gail Smith, Partner, Cavell Group
Last year’s mobile data traffic was eight times the size of the entire global Internet in 2000 –Source Cisco VNI
Mobile data has come of age. If you attend any industry conference you will hear deep concerns about whether Mobile Network Operators (MNO) can monetize the growth in data and whether the traffic growth will collapse their networks.
Having managed companies that were active the in the early growth of the fixed internet – my first reaction is always “stop complaining and just get on with it!“
Planning and executing for doubling or tripling traffic every year was normal course of business in the Internet during the late 1990’s and early 2000’s. And the cries of the MNO’s that they aren’t getting a fair share of the revenue pie ring pretty false:
- Facebook one of the top 2 drivers of content made $6.5 per active user per year in 2011. A typical mobile data access plan is $50 per month or $600 per year.
- Google has more impressive 2011 revenue ($38BN), but considering it contributes up to 10% of the worldwide traffic (fixed and mobile) it’s revenue is small compared to even a single national operator in 2011 (Verizon) with $23BN in wireless data alone ($110BN total revenue)
- Large operators are still generating massive cash flow from their combined operations (Verizon sites $30Bn cash flow from operating activities and $16Bn in capital investment) Source: Verizon Annual Report (pdf download)
Stepping back, however, there is evidence that the MNO’s are headed for real trouble and that this surge in the Internet is different from the first era of hyper growth.
The factors that make the growth in mobile data hard to manage include:
- Mobile Access is a tough problem to solve:
- There is inherent scarcity in spectrum
- There are considerable policy constraints on mobile builds
- It costs much more to provide a bit of traffic via mobile access as compared to fixed (some people say as much as 1000 times)
- User expectations are blurred between ‘fixed’e.g. wifi access and mobile access. With the move to tablets and large format smart phones expectations for data and video are rapidly converging with what they experience on their laptop.
- The accelerators are much faster in mobile data and are truly difficult for networks to anticipate and plan for. We have seen growth rates as high as 800 % in less than one year in some advanced mobile markets.
- Access to capital is depressed. Raising funds for capital programs is difficult in today’s financial market. If you look at weaker and smaller players they are struggling to generate cash from operations meaning they must go to the market to fund their capital plans.
- Also a large amount of the growth is being driven by OTT traffic from the likes of Facebook, Google, Microsoft which often are not interested in utilizing carriers own CDN strategy, leading providers to have to build strategies to handle this OTT content.
So with supernational mega content aggregators like Google and Facebook driving the demand, and national Mobile Operators needing to invest heavily to meet the demand a perfect storm could be brewing….
Future entries will look at what the next generation business models might look like for operators faced with this new challenge.
If you wish to find out more, take a look at these related case studies from Cavell: