The assumed growth in the mobile data market is failing to materialize. In fact, Finland’s largest telecom operator has shown a decline in mobile data traffic for three quarters in a row. With its high-quality infrastructure and well-equipped telecom market, Finland is usually the canary in the coal mine in this area.
What is going on? And how much ammo do telcos now have left in their quest to pressure big tech companies like Netflix and Google to pay their share to keep mobile networks on the air? Let’s state the obvious first: mobile data traffic has grown tremendously over the past 15 years. Sometime at the beginning of 2017, mobile device use overtook that of desktops and laptops for the first time.
Of course, this has had an impact on data usage. Mobile devices and their users were gobbling up ever more data. Although wireless internet via Wi-Fi also became more widely available during the same period, the big advantage of a smartphone is that you can email, browse, play games, use Whatsap, Youtube, Netflix, TikTok, and Instagram on the go.
Mobile data went through the airwaves ever faster (thanks, 5G!), and cheaper subscriptions came along. With a sim-only subscription, you can now have unlimited internet for as little as 20 euros a month. For users, connecting to wi-fi at a public location like a restaurant or hotel is sometimes not even worth the trouble anymore. “I have unlimited data, so I’ll just use that”, is something you hear quite often these days.
Largest Finnish telco showing decline
You might think that this market is far from saturated. Yet there are signs that this assumption is too optimistic. Finland’s largest telco, Elisa, has been showing a decline in mobile data traffic for three consecutive quarters. This decline came after years of steady growth. Due to an error in the original calculation, the decline was less spectacular than it initially appeared –consumption was 537 petabytes instead of 456.
Nevertheless, the corrected figures still show a startling trend. Consumers in ahead-of-the-curve Finland (at least, Elisa’s customers) consume less mobile data. What consequences could this have for the global market in mobile data traffic? Network suppliers such as Nokia and Ericsson are on their guard, because in recent years they have encouraged their customers, the large telcos, to invest heavily in the infrastructure that makes fast mobile data traffic possible, such as 5G. If demand for it were to decline, those investments become harder to justify.
Taking the pressure off
In the short term, a stabilization or decrease in traffic is not even such bad news for telecom operators. It takes some pressure off them to keep investing in the latest infrastructure. The money saved can be added to their cash flow or distributed to shareholders.
According to some analysts, the telecom industry’s capital intensity—the ratio of investment to revenue—is expected to decline over the next decade. Analysys Mason even unequivocally states that there is bandwidth overproduction. In other words, telcos have prepared themselves so well for a growing demand for fast, reliable mobile data that they are way ahead of the troops. There is simply not (yet) as much demand as there is supply.
Should big tech still pay the price?
The drop in traffic, however, largely takes the wind out of the sails of the idea floated last year by telcos that big tech companies should contribute to the cost of (the infrastructure around) mobile data traffic. After all, big players like Apple, Google, Facebook, Amazon, and Netflix account for more than half of Europe’s data traffic, a telco lobby group calculated. The services and content their customers consume require huge amounts of data. So why shouldn’t they help pay for the infrastructure that makes it possible?
Tip: European competitiveness under pressure due to overly strict and complex policies
If it now turns out that that growth in mobile data traffic is slowing or even going to decline, then there isn’t a strong argument anymore for passing some of the costs on to the big tech companies. What does come into play is that telcos’ revenues have been under pressure for years. Most innovation policies are pretty conservative. Time after time, telcos watch as IT innovations put further pressure on their business models. Recovering some of the cost of developing and maintaining expensive infrastructure from the big tech players would be a welcome addition to revenue.
If the decline in data traffic continues and also starts to show up outside the borders of trendsetting Finland, that is bad news for a party like Ericsson. In fact, the latter has divested other parts in the recent past to focus entirely on the 5G market. This strategy helped the company regain competitiveness against rivals such as Huawei, but its fate is now tied to that of the mobile data market.
Figures ‘a mess’
Incidentally, the company’s most recent ‘Mobile data traffic outlook’ still predicts steady growth in this market, even though the same report admits that providers and regulators have provided lower user figures compared to previous periods. Apparently, that’s no reason for Ericsson to adjust its forecasts. These and other reports caused at least one analyst to conclude that the company’s numbers are ‘a mess’.
Nokia, that other big player (from Finland, even), shifted its focus from telecom to the data center market. Although that market is smaller, according to the company, the pie in this sector is not yet completely divided and there is still opportunity for growth across the board. This contrasts the telecom market, where one company’s gain is usually another’s loss.
Read also: Where fast 5G is missing, Nokia and NTT Data will bring it