Anyone who has had a dropped call, inability to connect or complete a call due to network overload, app failure, latency delay in video or online game has experienced a localized version of a bandwidth crunch. Those failures and inconveniences will become more frequent if usage exceeds wireless bandwidth capacity.
As just one example, a study by Google indicated that a one-second delay in displaying ads could have cost the tech giant $13 billion last year.
This illustrates that, if a bandwidth crunch should happen, the economic consequences would ripple far beyond the wireless industry to negatively impact such prominent growth areas as e-commerce, cloud computing, the Internet of Things, the App Economy and more.
This is especially critical because, according to a Cisco VNI white paper(3), mobile data will account for 66% of all Internet traffic by 2019. That same Cisco paper noted that by 2014, mobile had accounted for more than half of Internet traffic.
According to a Deloitte study(4), leadership in global mobile communications, “has enabled the United States to reap substantial economic and societal benefits that are being enjoyed by consumers and enabling numerous U.S. industries to strengthen their global competitive edge.”
“A decline in leadership would not only hurt the U.S. mobile industry and the U.S. mobile ecosystem, but could create a chilling effect on the broader U.S. economy, which increasingly relies on mobile services for both consumer and business use,” said Deloitte.
That leadership nurtures millions of jobs and trillions of dollars that depend on continued reliable and quality wireless bandwidth. The looming bandwidth crunch that would pose a threat to the future and financial stability of the $3.1 trillion global wireless industry(5). North American wireless revenues alone account for $670 billion of this industry, which is 3.5% of the region’s GDP(6).
In addition, bandwidth shortages would curtail the overall growth of wireless related businesses which produce a greater economic impact per dollar invested than any other business sector(7).
Rarely do private industry, government, and academia agree on an issue. But the global consensus agrees that unless a solution is developed, this impending crisis will:
- Have a broad chilling effect on the U.S. economy and its global economic status
- Adversely impact the U.S. Gross Domestic product and employment rates.
- Cost wireless companies billions in new expenses and lost revenues,
- Cause network lags where a half a second slowdown could cost major e-commerce and cloud computing companies billion dollars every year.
- Stifle technology innovation in such areas as 5G mobile, and the Internet of Things (IoT),
- Severely penalize both consumers and business users, and
- Create a political firestorm over access because classless service because “Net Neutrality” — is only possible when an excess of bandwidth is available(8).
Bandwidth crunches have already affected wireless customers in the forms of
- Data caps,
- Slower Internet connections,
- Dropped wireless calls, and
- More expensive cellular service.
As the direct supplier of bandwidth, the demands and responsibility for being a reliable and sustainable source rests with wireless carriers.
As a result, they struggle with maintaining bandwidth in three ways: As the direct supplier of bandwidth, the demands and responsibility for being a reliable and sustainable source rests with wireless carriers. As a result, they struggle with maintaining bandwidth in three ways:
- In the long term, carriers work with regulatory bodies to project needed wireless spectrum. As we discuss elsewhere in this business plan, those efforts often take a decade or longer to enable new bandwidth. Those efforts include the re-allocation of existing frequencies to other users (such as military, government, law enforcement, and emergency services).
- Because wireless spectrum is ultimately limited by the laws of physics and encumbered by previous allocations, the wireless industry spends heavily on new equipment. According to a study by The Brattle Group(9), from 2008 to 2014, “wireless operators have invested over $160 billion and, even with additional spectrum, a similar financial commitment will be necessary to enhance and expand networks to help meet significantly higher data volumes. Brattle is an internationally recognized think tank and consulting firm .
- The wireless industry also develops, enables – and encourages third-parties – to create innovative ways to create more bandwidth from existing spectrum like offloading traffic to WiFi. These require carriers to spend money in ways that they cannot recover through increased revenues.
Consumer Value: $5-$10 Trillion
Increased personal and commercial efficiency, the ability to enhance productivity and support innovative technologies and businesses means that quality wireless access offers Americans total financial savings of between $5-$10 trillion per year in income that can be invested or spent(10), according to Brattle.
Contribution to the Economy: $400 billion
In 2013, U.S. consumers and businesses spent $172 billion on wireless service. In turn, as wireless service employees, wireless companies, their suppliers and suppliers’ employees spent their paychecks and funds, this generates more than $400 billion in total U.S. spending3(11).
This means that every dollar spent on wireless service resulted in $2.32 of total spending. Half of this spending, or about $200 billion, accounted for approximately 1 percent of the $16.7 trillion U.S. GDP in 2013(12).
This is in addition to generating significant output and employment in the economy. The wireless industry also directly paid over $18.4 billion in federal taxes and $23.8 billion in state and local taxes in 2013(13).
Additionally, the wireless industry directly employed over 180,000 people in 2013, and supported an additional 1.2 million jobs nationwide(14).
Not Just Wireless Companies And Customers At Risk
It would be a strategic mistake to think of this impending crisis as just a “cell phone company” problem restricted to carriers and infrastructure companies.
This is because a vast technical ecosystem of innovative companies and industries has evolved that depends on adequate wireless connections. Entire major business sectors beyond this depend upon swift and reliable wireless connections that would be threatened by a bandwidth crunch. Those include:
E-commerce companies of all sizes including like Google and Amazon. For more on this topic, including studies by Google and Amazon, please see The $13-Billion-Dollar Second: This is How Tiny Delays From A Bandwidth Crunch Can Sabotage Online Revenues.
Cloud operator and vendor revenues for the four quarters ending September 2015 reached $110 billion, and is growing at 28% annually according to Synergy Research(15).
In addition, the cloud infrastructure and platform market could reach $43 billion by 2018(16).
However, the infrastructure and platform market pale beside the economic sectors now using the cloud to deliver their services. One startling example is Amazon which reported $7.9 billion in 2015 net sales to other companies for its AWS cloud infrastructure. Not surprisingly, Amazon uses its own cloud infrastructure and generated $107 billion in net sales that same year(17). Clearly, the amount of revenues generated from utilizing the cloud dwarf the infrastructure market.
There can be risk with the cloud’s rewards
As illustrated by the Cisco chart, below, the use of cloud infrastructure runs deeply and thoroughly through the U.S. economy. While cloud computing infrastructure and platform providers would be on the bleeding edge of a wireless bandwidth crunch, it would be the rare business indeed which would not suffer lost earnings as a result.
Significantly, the risks of relying on cloud infrastructure have become a standard part of the required “Risks” sections of public company filings for the Securities and Exchange Commission(18).
Many other sectors at risk from cloud performance
The App Economy — which did not exist until the iPhone was released in 2007 — is expected to hit $143 billion globally by the end of 2016 and employ approximately 2.3 million people(19). In the U.S. alone, the App Economy accounted for 752,000 jobs and more than $20 billion in 2013. It’s growing approximately 40% per year.(CM5opcit)
The Internet of Things.The multi-trillion-dollar “Internet of Things (IoT) market which includes automated “M2M (Machine to Machine) communications such as medical sensors, remote sensing, wireless utility meter reading and more.
While the press may focus on consumers controlling their thermostats, lights and appliances, Deloitte(20) predicts that 60 percent of all wireless IoT devices will be bought, paid for and used by enterprises and industries.
The Internet of Things could result in $4.6 trillion in savings and revenue to governments worldwide during the next 10 years(21).
Healthcare. Mobile patient monitoring with wireless technologies have been projected to reduce healthcare costs by between $2 billion to $6 billion by 2014(22).
(1) “Substantial Licensed Spectrum Deficit (2015-2019): Updating the FCC’s Mobile Data Demand Projections”, Coleman Bazelon, Giulia McHenry, The Brattle Group, June 23, 2015
(2) “Significant Growth Projections Continue to Drive the Need for More Spectrum”, CTIA, June 22, 2015
(4) “United States expands global lead in mobile broadband,” Deloitte, http://www2.deloitte.com/content/dam/Deloitte/us/Documents/technology-media-telecommunications/us-tmt-mobile-index-09262014.pdf Accessed May 28, 2016.
(5) “Global mobile wireless economy,” GSMA (Groupe Speciale Mobile Association), page 7. Report available at http://www.gsmamobileeconomy.com/. Site accessed and report downloaded May 27, 2016
(6) “North American mobile wireless economy,” GSMA, http://gsmamobileeconomy.com/northamerica/. Accessed May 28, 2016.
(7) “The Wireless Industry: Revisiting Spectrum, the Essential Engine of US Economic Growth”, Recon Analytics, http://reconanalytics.com/2016/04/the-wireless-industry-revisiting-spectrum-the-essential-engine-of-us-economic-growth/, Downloaded .pdf, accessed May 29, 2016
(8) Yuksel, Murat, et al. “Quantifying overprovisioning vs. class-of-service: Informing the net neutrality debate.” Computer Communications and Networks (ICCCN), 2010 Proceedings of 19th International Conference on. IEEE, 2010.
(9) Bazelon, McHenry (June 22, 2015), op. cit.
(10) “Mobile Broadband Spectrum:A Vital Resource for the U.S. Economy,” Coleman Bazelon, Giulia McHenry, The Brattle Group, May 11, 2015
(15) “Review Shows $110 billion Cloud Market Growing at 28% Annually,”Synergy Research, https://www.srgresearch.com/articles/2015-review-shows-110-billion-cloud-market-growing-28-annually. Accessed June 8, 2016
(16) “How Big Can The Amazon Web Services Business Grow In The Future?”. Nasdaq/Trefis Team, http://www.nasdaq.com/article/how-big-can-the-amazon-web-services-business-grow-in-the-future-cm492255. Accessed May 29, 2016
(17) Amazon 2015 Annual Report. Accessed May 29, 2016.
(18) “Securities and Exchange Commission Form S-1,Risks section, Filed May 26, 2016”, Twilio Inc., https://www.sec.gov/Archives/edgar/data/1447669/000104746916013448/a2227414zs-1.htm#riskfactor Accessed May 28, 2016
This very high-profile company described its cloud computing risks in detail:
“We rely upon Amazon Web Services to operate our platform and any disruption of or interference with our use of Amazon Web Services would adversely affect our business, results of operations and financial condition.
“We outsource substantially all of our cloud infrastructure to Amazon Web Services, or AWS, which hosts our products and platform.
“Customers of our products need to be able to access our platform at any time, without interruption or degradation of performance. AWS runs its own platform that we access, and we are, therefore, vulnerable to service interruptions at AWS.
“We have experienced, and expect that in the future we may experience interruptions, delays and outages in service and availability from time to time due to a variety of factors, including infrastructure changes, human or software errors, website hosting disruptions and capacity constraints. Capacity constraints could be due to a number of potential causes including technical failures, natural disasters, fraud or security attacks.
“For instance, in September 2015, AWS suffered a significant outage that had a widespread impact on the ability of our customers to use several of our products. In addition, if our security, or that of AWS, is compromised, our products or platform are unavailable or our users are unable to use our products within a reasonable amount of time or at all, then our business, results of operations and financial condition could be adversely affected.
“In some instances, we may not be able to identify the cause or causes of these performance problems within a period of time acceptable to our customers. It may become increasingly difficult to maintain and improve our platform performance, especially during peak usage times, as our products become more complex and the usage of our products increases. To the extent that we do not effectively address capacity constraints, either through AWS or alternative providers of cloud”
(19) “Sizing the app economy”, http://www.developereconomics.com/report/sizing-the-app-economy/). Accessed May 29, 2016
(20) Deloitte, TMT Predictions 2015, Media and Telecommunications, http://www2.deloitte.com/au/en/pages/technology-media-and-telecommunications/articles/tmt-predictions.html Accessed 11/07/15
(21) Bazelon, McHenry (2015 May 11, 2015), op. cit.
(22) Bazelon, McHenry (2015 May 11, 2015), op. cit.
Other Relevant Links
Roundup Of Cloud Computing Forecasts And Market Estimates Q3 Update 2015, Accessed May 30, 2016
Cisco Visual Networking Index: Forecast and Methodology, 2014-2019 White Paper, Accessed May 30, 2016
Cisco Global Cloud Index: Forecast and Methodology, 2014–2019 White Paper, Accessed May 30, 2016