5G era: skyrocketing traffic, skyrocketing Internet applications, and non-increasing operators

Focus on the cake of 5G infrastructure and make money for operators

In the 5G era, facing the innovation of OTT vendors represented by the Internet, Internet vendors will still consume most of the traffic as in the previous 3G and 4G eras, but at the same time they will still not invest in infrastructure construction. What is even more serious is that Internet manufacturers will also participate in the construction of 5G infrastructure this time, and have to take another share of the infrastructure construction.

Recently, at the MWC conference in Barcelona, ​​the CEO of Deutsche Telekom bombarded OTT Internet applications such as WhatsAPP, saying that “80% of the traffic is generated by OTT vendors, and they did not pay a penny for the use of infrastructure or the cost of expansion. In exchange for all the value of data from our consumers”. Recently, another piece of news has also attracted attention. A South Korean court’s ruling last week actually confirmed that Netflix of the United States is obliged to pay network usage fees to telecom operators.

As early as the commercialization of 3G networks, the game between telecom operators and OTT vendors represented by Internet companies has already begun. Operations need to invest heavily in the construction of network infrastructure every year. Internet companies rely on complete network infrastructure to quickly launch various mobile applications, achieving huge revenue and a significant increase in market value. Operators are responding to the surge in network traffic. At the same time as the important task of infrastructure construction, revenue growth has been very slow.

In the future 5G era, facing the innovation of OTT vendors represented by the Internet, Internet vendors will still consume most of the traffic, but at the same time they will still not invest in infrastructure construction. What is even more serious is that Internet manufacturers will also participate in the construction of 5G infrastructure this time, and have to take another share of the infrastructure construction.

Skyrocketing traffic, skyrocketing Internet applications, and non-increasing operators

The OTT in the Deutsche Telekom CEO’s mouth is the abbreviation of “Over The Top”, derived from basketball and other sports, which means “over the top pass”, which refers to basketball players passing back and forth over their heads to reach their destinations. The communications industry is familiar with OTT. Specifically, Internet companies develop various video and data service services based on the open Internet. These services account for most of the operator’s network traffic, while Internet companies emphasize that the service has nothing to do with the physical network. Sex.

Judging from the current market, OTT is actually mainly a variety of mobile Internet applications launched by major Internet companies, occupying all aspects of consumer life such as clothing, food, housing, transportation and entertainment. Almost all applications consume telecommunications in the form of mobile apps and small programs. The network traffic that operators construct and operate, especially the current high-traffic applications such as short videos and live broadcasts. These mobile Internet applications pay traffic fees to operators in the form of end users buying traffic, while Internet companies do not directly pay operators.

How fast is the growth rate of mobile Internet traffic? Let’s look at the data released by the Ministry of Industry and Information Technology: In 2020, China’s total mobile Internet access traffic reached 165.6 billion GB, which is nearly 40 times that of 2015; in 2015, the monthly access traffic per household was only 0.4GB, and in 2020 it will reach 10.4GB. I believe that everyone has personal experience of this data. In the initial stage of 4G commercial use in 2015, the data rate was relatively high, and the user data was very economical. At the same time, many mobile Internet applications consume little data; but today, most users don’t care too much about data usage Whether it exceeds.

The 40-fold surge in traffic requires network support from telecom operators, but telecom operators did not increase their revenue due to the surge in traffic. According to the statistics of the Ministry of Industry and Information Technology, the revenue of telecommunications business in 2015 was 113 million yuan, and the revenue of telecommunications business in 2020 was 136 million yuan, with a compound annual growth rate of less than 3.8%. Note that this income data is the value of the current year and does not exclude the impact of inflation. If inflation is taken into account, the compound annual growth rate will be lower.

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Comparison of Mobile Internet Access Traffic and Telecom Business Revenue Growth Rate (Source: Ministry of Industry and Information Technology)

Putting the growth rate of traffic and the growth rate of telecom business revenue on a single graph for comparison, as shown in the above figure, the surge in traffic is in sharp contrast with the operators that do not increase.

Since there is a surge in traffic, there must be an expanding network infrastructure. Only a strong network infrastructure can support the demand for a surge in traffic. In 2010, the number of mobile communication base stations in China was less than 1.4 million. By 2020, the number of mobile communication base stations has reached 9.31 million, of which the number of 4G base stations has reached 5.75 million, accounting for more than half of the global 4G base stations, effectively supporting mobile in the past few years The explosion of Internet traffic.

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Number of mobile communication base stations in my country (unit: 10,000, source: Ministry of Industry and Information Technology)

With the COVID-19 pandemic raging around the world last year, all countries have started the online mode, but the fragility of the network infrastructure in many countries has emerged under the sudden increase in traffic demand. The construction of network infrastructure cannot be completed overnight, but requires years of continuous investment and construction. my country has such a complete communication infrastructure, which can be formed by the huge investment of hundreds of billions of yuan each year by operators. According to the Ministry of Industry Statistical Bulletin data communications industry over the years show that during 2010 to 2020, China through telecommunications industry fixed asset investment over four trillion yuan, thus only in exchange for a strong network infrastructure.

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China’s fixed asset investment in the communications industry over the years (unit: 100 million yuan, source: Ministry of Industry and Information Technology)

From the data of fixed asset investment over the years, it can be seen that the investment amount reached a peak of 453.91 billion yuan in 2015, which is closely related to the large-scale construction of 4G networks. Beginning in 2019, fixed asset investment has been on the rise again, and the direct driving factor is the construction of 5G.

At the same time that operators invest huge amounts of money to build network infrastructure on a large scale, it is also a period of rapid development of the mobile Internet. According to data released by the China Internet Network Information Center, from 2015 to 2020, the number of users of various mobile Internet applications has achieved rapid growth, and the number of users of many applications has doubled, thus driving the prosperity of various Internet businesses.

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The growth rate of various mobile Internet application users (unit: 100 million, source: CNNIC)

It can be seen from the data that mobile phone food delivery, mobile payment, online education, webcasting, and online video have the fastest growth rates, and these are also the major players in the growth of mobile Internet traffic. More importantly, the forms and functions of these applications today are unmatched in 2015. Now these applications have embedded a large number of new business models, such as financial functions, social functions, etc., and the single-user value embodied by them is far More than 2015. Therefore, in recent years, emerging Internet companies such as Meituan , Pinduoduo , and Kuaishou have successfully listed at record valuations.

The pattern of OTT game between operators and Internet vendors will not change substantially

For telecom operators, various Internet applications are typical OTT, occupying most of the traffic resources, and constantly challenging network construction and operation, but they will not pay the operator for network construction. Therefore, the game between the two has been continued.

As early as 2013, during the rapid expansion of WeChat, operators encountered the “signaling storm” brought by WeChat. Since mobile Internet applications need to maintain long connections, applications will continue to send “heartbeats” to the server, causing network congestion for operators. Although the impact of the “signaling storm” was resolved through application optimization and network upgrades, it also brought a direct contest between operators and OTT.

Judging from the current market situation, operators seem to be still “making wedding dresses” for Internet companies, and huge network investments are still borne by themselves, and the user and application dividends based on the network and very considerable benefits are obtained by Internet manufacturers. In fact, the communication network infrastructure has the nature of a certain public product. The industry understands it as facilities such as roads, railways, airports, and power grids. It is not surprising that other applications are in the form of OTT.

In addition, the principle of network neutrality is also a focus of the current game. This principle requires equal treatment of all Internet content and access, prevents operators from controlling the priority of data transmission from commercial interests, and guarantees the “neutrality” of network data transmission. The US Federal Communications Commission has passed a resolution to abolish network neutrality, which may give operators a certain advantage in the OTT game. The Korean court mentioned at the beginning of this article ruled that Netflix is ​​obliged to pay network usage fees to telecom operators, which is interpreted by the industry as a challenge to network neutrality.

However, on the whole, mobile Internet application innovation will continue in the 5G era, and there will be more innovative formats that require higher traffic to continue to challenge the network, and operators will still have to invest hundreds of billions of dollars in network construction every year. , In order to cope with the increasing demand for the surge in traffic. Similar to the 4G era, mobile Internet applications are still in the form of OTT and will not invest in mobile network construction.

Focus on the cake of 5G infrastructure and make money for operators

If it is said that various mobile applications of Internet manufacturers in the 4G era have achieved their own commercial success by making full use of the operators’ huge investment in the network through OTT, allowing operators to undertake network construction alone while facing the dilemma of not increasing revenue, then, in the 5G era In the face of To C end users, this status quo will continue. For operators, what is even more serious is that Internet companies may be deeply involved in the construction of 5G networks, and this participation is not to help operators share huge investments, but to change the investment structure of operators so that part of the investment is Internet vendors earn. At present, a typical way is to use the powerful cloud computing capabilities of Internet companies to provide operators with core network hosting services on the cloud, becoming an important supplier of the operator’s core network, cutting into the 5G infrastructure construction and sharing a piece of the pie.

Recently, the US operator AT&T announced that it will transfer its 5G network operations to Microsoft ’s cloud in the next three years. The first step will start with AT&T’s 5G core network, and the follow-up will also include 4G core networks. Although the US operator Dish has previously announced that its 5G core network will be deployed on the AWS public cloud, which is the world’s first large-scale 5G deployment on the public cloud, but Dish is a new and unconventional operator, and the old operator AT&T this time The announced core online cloud, in the eyes of the industry, is an epoch-making change. AT&T believes that by using Microsoft’s cloud services, AT&T can significantly reduce engineering and development costs, quickly innovate based on the flexibility of cloud, edge computing, and AI, and launch new services and customer experiences supported by 5G.

In fact, in addition to cloud services, Microsoft has acquired two vendors Affirmed Networks and Metaswitch Networks in 2020. These two vendors are professional vendors of carrier-grade cloud core networks and edge computing. It can be seen that Microsoft has been trying to enter the 5G network foundation. Develop layout in the field of facilities.

In recent years, the large-scale construction of 5G will bring about a broad market space. Coupled with the rapid development of technologies such as network function virtualization and software-defined networking, Internet manufacturers have been eyeing the cake of 5G network construction. The deployment of edge computing, open source access network, etc. seems to be a new type of communication equipment manufacturer that has emerged besides communication equipment giants such as Huawei and Ericsson. These include:

  • As early as December 2019, Amazon Cloud Service AWS announced the establishment of a partnership with Verizon at its AWS re:Invent conference, thus opening the prelude to cooperation and competition in the 5G industry. AWS launched Wavelength this product to provide services for the construction of 5G infrastructure. With the technical support of Wavelength Zones, this edge data, it allows developers to build 5G applications with low latency. AWS and Verizon are conducting preliminary tests in sports events such as the NFL Professional Football League. They are mainly used in streaming media and games. In the future, they plan to expand to any IoT applications that require low latency and high bandwidth, especially manufacturing and others. Industrial Internet of Things.
  • Google Cloud announced the Anthos for Telecom plan in March 2020 and announced the Global Mobile Edge Cloud (GMEC). Both provide services for telecom networks. Anthos for Telecom follows Google’s focus to use its expertise in Kubernetes to use its container management services to build hybrid cloud applications; GMEC opens Google’s global data centers and edges The location allows telecom operators to run low-latency applications to provide services similar to AWS Local Zones. Initially, Google also cooperated with AT&T to conduct experiments in retail, manufacturing, and gaming. In addition, Google Cloud is also preparing to assist telecom companies in reforming their core IT systems and networks, including moving the operation support system (OSS), business support system (BSS) and various network functions that originally resided in the telecom environment to the cloud. In addition, Google recently announced that it has joined the O-Ran Alliance, and has also begun exploration and deployment on the access network side.
  • Microsoft also released Azure Edge Zones in March 2020 and established a partnership with AT&T. At that time, Microsoft also announced the use of Azure technology to build private 5G and LTE network use cases on the private edge data center Azure Private Edge Zones. Microsoft’s acquisition of Affirmed Networks has rich experience in cooperation with AT&T, Orange and Vodafone, which can accelerate Microsoft’s entry into the 5G field.
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  • In September 2020, Alibaba and Zhejiang Unicom cooperated to complete the full coverage of the 5G lightweight independent core network in Ningbo Zhoushan Port, using the 5G lightweight core network developed by Ali XG Lab.

Providing 5G core networks, edge computing, and open source access networks, Internet companies have fully entered the field of traditional telecommunications equipment. Of course, the supply of these products and services still requires operators to pay. For telecom operators, the benefits of cost savings and cloudification are gradually changing their strategies. Therefore, the structure of hundreds of billions of capital expenditures for operators in the future may be adjusted. If the cloudification solution is mature, perhaps Internet vendors will become important 5G infrastructure providers for operators. In the 4G era, Internet manufacturers make full use of the network infrastructure dividends that operators have invested heavily in construction to achieve their own rapid development. In the 5G era, Internet manufacturers will continue to use the network infrastructure dividends that operators have invested heavily in construction to drive the development of innovative Internet applications. In addition, it may personally enter the 5G infrastructure construction and make money directly from the operators.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/5g-era-skyrocketing-traffic-skyrocketing-internet-applications-and-non-increasing-operators/
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