Growth of internet traffic threatens internet
A.T. Kearney says network operators must overhaul pricing structures, infrastructure to maintain services
According to a study by global management consulting firm A.T. Kearney, European network operators will need to budget an additional $11.17bn annually to maintain current service levels, and manage the data explosion. The company says Middle Eastern operators may face the same issue.
The current growth of internet traffic delivered via fixed networks is growing at 35% per annum and more than 100% via mobile networks.
Video content on both mobile and fixed-line services is having a serious effect on internet usage as more and more internet connected mobile devices and high-bandwidth services are released.
According to A.T. Kearney, the internet is under threat of becoming a victim of its own success as video traffic is threatening to swamp network capacity and cause congestion for users without generating revenue for operators.
A.T. Kearney has forecast that if networks address the need to upgrade before 2014, but do not revise their price structures or increase revenues, their returns on capital will fall by 3 percentage points to around 9% and potentially as low as 7%.
"The technical robustness of the internet is closely tied to the sustainability of the underlying commercial model and therefore both are vital to support the growth of current and future economic activity. Operators and regulators in the region need to think now how to tackle the problem of ever increasing dataflow via the internet," said Dr Martin Fabel, partner and senior media expert at A.T. Kearney Middle East.
A.T. Kearney says regional industry stakeholders must pay attention to the infrastructural needs of the internet to maintain the success of services in the Middle East.
The company says that the increased costs of handling rapidly growing traffic will not be matched by an increase in revenues for network operators.
A.T. Kearney also revealed that current pricing models of the services do not promote efficient use of existing capacity in bandwidth availability.
"Without significant improvements in pricing and investment incentives, internet services could be seriously jeopardised. This will have an immense impact on sectors that want to offer new services but are reliant on efficient networks," added Fabel.
A.T. Kearney suggests that telecom providers need to introduce a differentiated approach to bandwidth, services and pricing that addresses both current and future needs for business, entertainment and communication.