A surge in fixed Internet traffic has already started. Internet traffic (of which mobile represents about 3-4 percent worldwide) has increased at a rate of around 30-35 percent per year worldwide for more than a decade, but we believe that the rate of growth during the next five years will outstrip this long-term average. In Analysys Mason's recently published report, Fixed Internet traffic worldwide: forecasts and analysis 2013–2018 we forecast that fixed Internet traffic in Western Europe will grow at a CAGR of 42 percent between 2012 and 2017, in Central and Eastern Europe at a CAGR of about 50 percent, and in some emerging economy regions nearer 60 percent. Levels of usage will be highest in North America.
Fixed Internet traffic growth will be faster than mobile data traffic growth in many countries. This is already the case in quite a few, mainly middle-to-high-income countries. Mobile data traffic growth in Western Europe has turned out to be much lower than many expected--only about 35 percent in 2012, we estimate--largely because users of mobile devices are using Wi-Fi and fixed broadband in preference to cellular.
Figure 1: Annual rate of growth in fixed Internet and mobile data traffic, Western Europe, 2011–2017 [Source: Analysys Mason, 2013]
There are a number of reasons for the surge in Internet traffic.
Absence of cost constraints. Critically, the incremental cost and pricing constraints on heavy usage on fixed networks are far less severe than on mobile. The access network is the costliest element in any network: in a mobile network that has to be upgraded to add capacity, whereas in fixed networks it is generally a matter of increasing the aggregated backhaul bandwidth. This lack of commercial constraints makes forecasting fixed traffic more subject to uncertainty than forecasting mobile data traffic, and therefore we have put upper and lower limits to our forecasts.
Faster Internet access. This is an enabler rather than a driver, but generally there is a correlation between access speed and usage. However, the availability of next-generation access (NGA) in any country is no guarantee that there will be strong growth in fixed Internet data or even heavy usage. Japan has widespread fibre networks but the Japanese are not heavy users, and in the USA, Fiber to the Home (FTTH) connections have lower average usage than cable.
- Connected TV and over-the-top (OTT) services. This is the main driver of accelerated growth. The effects of online video on TV are already evident in the USA, where average monthly usage per connection is above 50 GB. In parts of Eastern Europe the average is approaching 100 GB.
The proliferation of wireless devices actually tends to slow fixed Internet traffic growth. This is not primarily because smartphones cause fixed-mobile substitution (in Europe and North America more than half of smartphone data is already fixed-line), although in some regions they will. It is because using smaller-screen devices takes up time that might be spent on larger screens, and requires far less throughput. Therefore, some of the countries with the highest adoption of smartphones--and some of the richest countries, including the Nordic region and Japan--will have low rates of growth.
A household with the heaviest Internet data consumption has the following characteristics: It is in a country with high TV viewing habits, and which has plentiful and affordable superfast connections; it is a middle-income household with few smartphones; and it has a high proportion of home-based non-working hours. As emerging economies grow, we believe that the case for fixed broadband rather than a wireless-only approach will grow. Online TV appeals to middle-income households and a cellular approach will struggle to meet this demand.
Rapid fixed traffic growth makes copper-to-LTE substitution more problematic
It is important that operators and policymakers pay attention to expected traffic levels as well as headline access speeds when they assess the viability of replacing legacy copper with LTE in less profitable areas. Rural customers are not the same as people that elect to take a mobile broadband service as a replacement for a fixed one, and there is no reason why rural users would want to consume less than their urban counterparts.
Mobile broadband speeds are directly related to the number of users on the network. Doubling the capacity on mobile networks can mean near-doubling of costs, particularly if it means new site acquisitions. Next-generation fixed networks are initially more expensive to roll out, but doubling capacity to any NGA network is relatively inexpensive. The stronger the fixed traffic growth, the stronger the case for fixed networks in the final-third NGA mix, or, alternatively, the stronger the case for more radical approaches to spectrum (such as pooling) in the final third.
Rapid growth in traffic should be reflected both in policy as well as in commercial roll-out. In particular it raises a question as to how policy targets should be framed. Should the target be:
- an nMbps target, where the average achievable speed on wireless does not take into account probable fixed broadband usage patterns
- in which case, is it acceptable to impose what might come to look like severe data caps on rural users so as to guarantee a certain speed?
- a target shaped by likely fixed broadband usage patterns
- in which case, is it really a citizen's birth-right to consume large amounts of presumably non-essential data?
Rupert is the lead analyst for Analysys Mason's Fixed Networks research program. His primary areas of specialisation include next-generation networks, long-term industry strategy and forecasting the dynamics of convergence and substitution across fixed and mobile platforms. Rupert has a PhD from the University of Cambridge, where he was a Lecturer before joining Analysys Mason.