'CP Network Investment Sharing' Discussed at MWC... GSMA Report Released

'2022 Internet Value Chain Report' Published
"Internet Companies Grow Rapidly While Imbalance Deepens"
Telecom Operators Bear 20% Revenue Investment Burden

[Asia Economy Reporter Cha Min-young] A follow-up report on the "need for global content providers (CPs) to share network investment costs," which was a major agenda item at the 'Mobile World Congress (MWC) 2022' held in Spain this March, has been released. The report includes claims that legislative efforts considering the mutual dependence of both industries are necessary to resolve the imbalance between network operators and online service providers.

Global Internet Traffic Share. Big tech companies such as Alphabet (Google), Meta, Netflix, Apple, Amazon, and Microsoft account for about 56%. Source: GSMA report

According to the industry on the 17th, the Global System for Mobile Communications Association (GSMA), a global association of telecommunications operators, recently published the "GSMA 2022 Internet Value Chain Report" containing these claims.

According to the report, led by online service providers, the total revenue of the internet value chain grew more than twice from $3.3 trillion in 2015 to $6.7 trillion in 2020, with an average annual growth rate of about 15%. In 2020, annual revenue is estimated to have increased by 19%. GSMA stated, "Paid online services will soon exceed $1 trillion in sales, causing enormous global network demand," and added, "The number of internet-connected users worldwide, which increases by 7.5% annually, shows no signs of decline."

While the revenues of internet-based service companies have been rising, the capital expenditure (CAPEX) burden on global network operators has surged. GSMA emphasized, "The return on infrastructure investment for network operators is between 6% and 11%, which is much lower," and "Telecom operators face pressure to continuously invest 20% of their total revenue in CAPEX, causing their return on capital (ROC) to fall below an average of 10%."

Total shareholder returns by sector over five years since 2016. Source: GSMA report

Total Shareholder Return (TSR) has also stagnated for six years since 2016. While companies in other sectors such as cloud, entertainment, and social media have seen soaring returns, network operators have only repeated stagnation. Every time internet connectivity is overloaded, the burden to increase network speed, capacity, and coverage rises, which ultimately pressures the business models of network operators.

Jose Maria Alvarez-Pallete, CEO of Spanish telecom company Telef?nica and chairman of GSMA, said, "The internet connects about 4.6 billion people and drives the global economy," adding, "The internet transforms business models, opens new opportunities, and activates communities worldwide." He further stated, "However, the demand for infrastructure investment due to the flourishing internet value chain is pressuring network operators," and expressed hope that "policy makers will raise awareness of this issue as the internet-based economy will expand across all sectors over the next decade."

In particular, it was pointed out that various factors such as asymmetric regulation, tax burdens, and frequency costs are pressuring the business models of incumbent telecom operators. These factors also hinder companies' willingness to increase CAPEX. GSMA noted, "Policy makers should create an environment considering taxes and regulations to encourage incumbent telecom operators to build networks and improve network performance."

This report is part of the follow-up to discussions held at the board meeting during MWC 2022, the world's largest IT and mobile exhibition held earlier this year in Barcelona, Spain. GSMA board members reached a consensus that global CPs should share costs amid increasing traffic burdens such as 4K video. KT CEO Koo Hyun-mo, who participated as a board member representing the Korean telecommunications industry, revealed at a press conference, "The GSMA board's study group released a report stating that global CPs should share network investment costs, and the board approved it." However, specific cost-sharing methods such as government-led funds or financial mechanisms were not included.