Internet value chain at risk, GSMA report reveals

Internet value chain at risk, GSMA report reveals

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Market imbalances between operators and service providers may stunt the growth of multiple sectors across the internet-based economy, a GSMA report has warned.

The GSMA 2022 Internet Value Chain Report revealed that factors including asymmetric regulation and restrictions, sector-specific taxes and spectrum costs could squeeze the business models of infrastructure providers.

Revenues across the internet value chain nearly doubled in five years from US$3.3 trillion in 2015 to US$6.7 trillion in 2020.

Much of this growth comes from online services which saw an increase of 19% in revenue per annum in 2020.

The GSMA’s Chairman José María Álvarez-Pallete said, “The internet connects 4.6 billion people and drives the global economy.

“It is transforming business models, unlocking new opportunities, and uplifting communities across the world.

“But as some sectors in the internet value chain thrive, the demands of investing in the infrastructure those sectors rely on for growth are squeezing network operators.

“We welcome the growing recognition of this issue by policymakers, and as the internet-based economy expands across all sectors over the next decade.”

The study also found that paid-for online services will soon exceed US$1 trillion in revenues driving huge capacity demand on global networks.

And with an annual growth rate of 7.5%, the number of users being connected to the internet continues to rise.

Traffic per user grew at 27% per year, with almost 80% being driven by video traffic.

Although, return on investment in infrastructure for network operators stood at between 6% and 11%.

The report highlighted average sub-10% returns on capital as a concern due to pressure on telecom operators to keep investing CAPEX at rates of up to 20% of revenue.

It adds that counterproductive taxation on infrastructure, regulatory requirements and other “value-eroding” factors can reduce incentives for infrastructure investment.

It says policymakers should consider the full landscape of taxation and regulation, ensuring that companies investing in infrastructure are incentivised to build and upgrade the networks that underpin online services.