The assumed growth in the mobile data market has not materialized. 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 generally the canary in the coal mine in this area.
What’s going on? And how much ammunition do telecom companies have left in their quest to pressure big tech companies like Netflix and Google to pay their share to keep mobile networks up and running? Let’s first state the obvious: mobile data traffic has grown enormously over the past fifteen years. Sometime in early 2017, the use of mobile devices overtook that of desktops and laptops for the first time.
This obviously has consequences for data use. Mobile devices and their users are consuming more and more data. Although wireless internet via Wi-Fi also became more widely available in the same period, the big advantage of a smartphone is that you can email, surf, play games, use WhatsApp, YouTube, Netflix, TikTok and Instagram on the go.
Mobile data was traveling faster and faster through the airwaves (thanks, 5G!), and cheaper subscriptions were available. With a SIM-only subscription you can now use unlimited internet for 20 euros per month. For users, connecting to WiFi in a public location such as a restaurant or hotel is sometimes not even worth it anymore. “I have unlimited data, so I just use it,” you often hear these days.
Largest Finnish telecom company shows decline
You might think that this market is far from saturated. Yet there are signs that this assumption is too optimistic. Finland’s largest telecom provider, Elisa, has shown a decline in mobile data traffic for three quarters in a row. This decline came after years of steady growth. Due to an error in the original calculation, the decrease was less spectacular than initially seemed: consumption was 537 petabytes instead of 456.
Nevertheless, the corrected figures still show a startling trend. Consumers in progressive Finland (at least Elisa’s customers) use less mobile data. What consequences could this have for the global mobile data traffic market? Network suppliers such as Nokia and Ericsson are wary because they have encouraged their customers, the major telcos, in recent years to invest heavily in the infrastructure that enables fast mobile data traffic, such as 5G. If demand were to decline, these investments would become more difficult to justify.
Take the pressure off
In the short term, a stabilization or decrease in traffic is not such bad news for telecom operators. It takes some pressure off to continue 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 sector’s capital intensity – the ratio of investments to revenues – is expected to decline over the next decade. Analysys Mason even states unequivocally that there is overproduction of bandwidth. In other words, telecom companies have prepared themselves so well for the growing demand for fast, reliable mobile data that they are far ahead of the troops. There is simply not (yet) as much demand as supply.
Does big tech still have to pay the price?
However, the decline in traffic largely takes the wind out of the sails of the idea put forward by telecom companies last year that large technology companies should contribute to the costs of (the infrastructure surrounding) mobile data traffic. Major players such as Apple, Google, Facebook, Amazon and Netflix are responsible for more than half of European data traffic, a telecom lobby group calculates. The services and content their customers use require enormous amounts of data. So why wouldn’t they help pay for the infrastructure that makes this possible?
Tip: The European competitive position is under pressure due to an overly strict and complex policy
If it now appears that the growth of mobile data traffic is slowing down or even declining, then there is no longer a strong argument for shifting some of the costs to the big technology companies. What does play a role is that the revenues of telecom companies have been under pressure for years. Most innovation policies are quite conservative. Time and again, telecom companies watch as IT innovations put further pressure on their business models. Recovering some of the costs of developing and maintaining expensive infrastructure from the major technology players would be a welcome addition to revenues.
If the decline in data traffic continues and manifests itself beyond the borders of leading Finland, it will be bad news for a party like Ericsson. The latter has even divested other parts in the recent past to fully concentrate on the 5G market. This strategy helped the company regain its competitiveness against rivals like Huawei, but its fate is now tied to that of the mobile data market.
Figures ‘a mess’
Incidentally, the company’s latest ‘Mobile Data Traffic Outlook’ still predicts steady growth in this market, even though the same report admits that carriers and regulators have provided lower user figures compared to previous periods. Apparently that is no reason for Ericsson to adjust its forecasts. These and other reports led at least one analyst to conclude that the company’s numbers are “a mess.”
Nokia, the other major player (from Finland even), shifted its focus from telecom to the data center market. Although that market is smaller, the company says the pie in this sector is not yet completely divided and there is still room for growth across the board. This is in stark contrast to the telecom market, where one company’s profit is usually another company’s loss.
Also read: Where fast 5G is lacking, Nokia and NTT Data will bring it
