For all the potential enhanced connectivity has to greatly impact business around the world, consumers are still the primary driver of demand—and their role isn’t likely to decrease, as cheaper, faster devices enable access to more and more data.
Consumers account for more than 80 percent of all internet traffic on average, according to research by the McKinsey Global Institute (MGI) and the McKinsey Center for Advanced Connectivity (MCAC). Of that population, a relatively small number of “power users” worldwide take in the massive amounts of data moving through the internet (Exhibit 1).
Just 5 percent of households generate more than 40 percent of global data traffic. Similar patterns hold for wireless usage, which accounts for 15 percent of total traffic; in many advanced economies, the top 20 percent of users accounted for more than 60 percent of cellular data traffic in 2018.
What is driving the vast majority of this usage, and what promises to continue to drive it over the next decade, is video (primarily entertainment). Today it accounts for 70 percent of all global internet traffic. By 2030, the number of global video users is estimated to grow from 2.5 billion to 3.7 billion, drawn by a 6.5X increase in graphic quality, including a widespread shift from SD to HD video, and fueling a 22X surge in total online video traffic.
While most of those new users will come from China, India, and less-developed markets in Africa, Asia, and Latin America, a similar coterie of power users in advanced economies will continue to consume an outsized share of the video online. These consumers are the most likely to be early adopters of new connectivity technologies such as high-band 5G, which will significantly improve connection speeds and reduce latency. We estimate that connections could be ten times faster and latency 50 times lower because of such advances. Next-generation technologies such as Wi-Fi 6 will offer even better access to data, while the advent of low-power wide-area networks, with their positive impact on battery power, could further drive consumer demand.
More advanced network technology and broader coverage are critical for catering to the expected spikes in demand over the next decade. They should spur development of an array of more affordable and more complex devices, as well as data plans. Not only should these systems be less expensive to operate thanks to greater spectrum efficiency, but the ability to do “network slicing” should enable providers to more efficiently differentiate service levels, offering price-sensitive users basic, entry-level packages while more effectively monetizing their power users. Finally, much faster, more reliable connections and lower latency (along with cheaper hardware) are essential if augmented- and virtual-reality entertainment is going to begin to fulfill its promise and take off with a critical mass of consumers.
One key driver of connectivity demand over the next decade that isn’t the exclusive domain of consumers is the rapid rise in the number of machine-to-machine (M2M) connections (Exhibit 2).
The sheer number of devices that will encompass the expanding Internet of Things (IoT) for all manner of industrial and residential applications is astounding; at the end of the decade, those used as part of M2M should account for more than 70 percent of all connected devices. These connections will depend on broad network coverage that can reliably support high device density with lower power consumption to extend the life of sensors and hardware. Yet because of the relatively small amounts of data they use, those same smart devices will account for only 12 percent of total internet traffic.
As big an opportunity as it is, the continuing data dominance of B2C (rather than B2B or M2M) also poses a challenge for connectivity providers. So far, the explosion in video-fueled traffic has been a boon for other players, including content creators and streaming platforms, but telecom operators haven’t come up with a sustainable way to monetize all that consumer demand. Figuring out new models and partnerships to capitalize on the trend will require ingenuity and innovation, and it’s not just their future that is riding on it. These providers already face serious investment challenges to build out the next-generation infrastructure. If they don’t have a path to realizing something approaching the full value of advanced connectivity, there is a chance many others won’t be able to as well.
This post was adapted from the recent MGI/MCAC discussion paper, Connected world: An evolution in connectivity beyond the 5G revolution. It is the first in an ongoing series.
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