The Economic Impact of Internet Traffic Growth on Network Operators

Abstract

In recent years, a number of telecommunications network operators have repeatedly raised concerns that the explosive growth of Internet traffic is causing their costs to spiral out of control, to the point where their services may no longer be sustainable. We find that this concern is not well supported by the data. While Internet traffic is certainly increasing, there have also been offsetting cost reductions thanks to technological innovation. On fixed networks, the total usage-based cost per user is likely declining, despite the increase in traffic; on mobile networks, although the usage-based cost per user cost is likely increasing, network operators are benefiting both from cost declines, and from offsetting revenue increases. The current data continue to demonstrate that traffic growth is not a root cause of the challenges that network operators face.

Keywords: Internet, content provider, network operator, two-sided market

JEL Classification: H54, L51, L86, L91