Telcos reap 17 per cent of total revenues from the global internet economy
- New report from the GSMA looks at the economics of the digital ecosystem
- Global internet economy was worth nearly $3.5 trillion in 2015
- Connectivity revenue grew from €199bn in 2008 to €508bn in 2015
- Share of total internet value chain fell to 17 per cent
The internet economy was worth nearly $3.5 trillion in 2015, which is the equivalent to more than 4 per cent of gross world product. However, connectivity providers – i.e. telcos – claimed just 17 per cent ($577billion) of this total. What’s more, whilst internet connectivity revenue is growing, the proportion of value captured by connectivity players is declining.
These figures derive from a new report from the GSMA cellular industry association, which investigated the changing economics of the digital ecosystem. The report only counted the proportion of spend attributable to internet provision of a product or service. In other words, if someone buys a used car from a website, for example, it counts the commission earned and not the full value of the vehicle
Not surprisingly, given that it was commissioned by the GSMA (and undertaken by A.T. Kearney), the study highlights the key implications of the changes over the past five years for the mobile sector. It reveals that the value created by the internet ecosystem is increasingly captured by online service providers. In 2015, online services captured nearly half of the revenues of the entire internet ecosystem (47 per cent, or €1.4 trillion).
Although internet connectivity revenue is growing, the proportion of value captured by connectivity players is declining. Connectivity revenue grew from €199 billion in 2008 to €508 billion in 2015, but this represents a smaller share of the total internet value chain, declining from 18 per cent to 17 per cent, with a continued slide to 14 per cent expected by 2020.
It adds that for mobile network operators, connectivity revenues generated by increased internet use are not offsetting the decline in revenues from traditional communication services, and mobile data revenues are also forecast to grow at a lower rate than the growth of other segments. These trends pose challenges for investment in mobile networks that support the growth of the internet ecosystem.
Calls for fresh debate on competition policy
Within the connectivity segment, the report identifies three shifts taking place:
- From fixed to mobile networks, as new higher-speed mobile services are rolled out globally and access to these services continues to rise,
- The relative growth in emerging markets,
- Operators globally are seeing a greater proportion of their revenues attributable to internet connectivity services.
Concerning the last point however, the report notes that in the fixed segment – and, in many regions, in the mobile segment too – the growth in internet services revenues is being more than offset by the decline in legacy revenue streams (mostly voice and SMS), resulting in an overall decline in revenues to operators as more of this segment moves online.
Which brings us to the crux of the GSMA’s argument, and it’s not a new one. It wants to see more debate on aspects of competition policy across the internet value chain. It believes that a concentration of returns and inflows of capital to select internet segments, the increasing influence of a few mega internet companies (especially through acquisitions), and the changing competition dynamics indicate the need for debate on future competition policy framework.
“Connectivity is at the heart of the digital ecosystem, but policy and regulatory frameworks have not been modernised to reflect these new market dynamics brought about by the internet,” said John Giusti, Chief Regulatory Officer at the GSMA. “We hope this study will be a useful input at a time when policymakers are thinking about the policy implications of the digital ecosystem, and we encourage them to remove unnecessary regulation to foster innovation and drive consumer benefits.”