Services can save the day
The traditional CSP revenue model has relied almost exclusively on selling connectivity. CSPs’ ownership of network infrastructure has given them the ability to profit from a surge in distributed computing and mobile services over the past 20 years, charging consumers for the bandwidth required to connect them with online services.
But revenue from traditional connectivity is no longer a route to growth. Traditional text and voice services (for which CSPs charge customers directly) are in decline, according to several reports from across the industry.
Juniper Research predicts that total voice revenue from consumer mobile subscriptions will decline from $230 billion in 2023 to $182 billion in 2028, though it does note regional differences in revenue, for example, with North America seeing a 73% drop, and the Far East & China seeing a 28% growth.
Another study from Juniper Research, released in 2024, predicts that operators are expected to lose $3.1 billion in business messaging revenue to OTT (over the top) messaging channels (eg. WhatsApp, iMessage) in the next five years.
At the same time, the cost of maintaining and improving networks to keep up with increasingly complex and data-heavy services is substantial.
McKinsey has stated that it expects mobile operators to invest more than $600 billion in 5G networks between 2022 and 2025. GSMA Intelligence goes further, predicting that mobile operator capex will reach $1.5 trillion between 2023 and 2030, with the vast majority (92%) on 5G related expenses. Grand View Research predicts a growth rate in the 5G infrastructure market of 22.9% between 2024 and 2030, taking it from $27.76bn in 2024 to $95.88bn in 2030.
The combination of declining revenue streams and rising infrastructure costs has dented the growth plans of many CSPs. One leading global CSP had become one of the most valuable firms in the FTSE 100 at the turn of the millennium. On December 29th 1999, it had a market capitalization of $152bn, whilst Apple’s was $16bn. Today Apple is worth $2.6trn and the CSP in question just $24bn. This presents a stark demonstration of why CSPs are losing out: selling services that utilize network connectivity is far more lucrative than selling connectivity alone.
That trend will almost certainly continue. Just look at the growth of Internet of Things (IoT) devices and cloud-based services - which both rely on CSPs’ networks to function properly.
Transforma Insights believes that the number of active IoT devices will grow to 39.9 billion in 2033, compared with 16.1 billion at the end of 2023, whereas IoT Analytics predicts that there will be more than 29 billion IoT connections in 2027. Statista has stated that the IoT market will grow at an annual growth rate of 10.49% between 2024 and 2029, reaching the staggering volume of $1,560.00bn by 2029, with much of this led by automotive IoT.
Significant growth is also expected in cloud computing. Grand View Research estimates the global cloud computing market size at $602,310.7 million in 2023, growing to US$ 2,390,184.5 million by 2030, with the largest segment being software as a service (SaaS).
CSP networks have enabled this growth, but they are now looking at ways to benefit from it more directly, evaluating ways to profit from the very services they already underpin. One of the reasons these CSPs have a good chance of success is because they own the premium real estate at the edge of the network – the point where network technology is physically closest to the end user. And that is where the future looks most exciting.
