Telecom glory days are over – bad news for Nokia, worse for Ericsson

Ericsson, Nokia and other network product vendors may have felt the lurching sensation of weightlessness experienced by people on big-drop fairground rides when they saw the graph from Tefficient, an analytics company, plotting mobile data traffic for Elisa, Finland’s biggest mobile operator. Since the first quarter of 2017, traffic levels have steadily climbed, soon recovering after the occasional dip. But for the first time in more than seven years, they have just fallen for three consecutive quarters. That weightlessness feels prolonged.

Initially, the drop looked even steeper. An error in Elisa’s Excel data, which the operator later acknowledged, led Tefficient to input 456 petabytes instead of 537, the correct number, for the recent third quarter. Equipment vendors may have anticipated a nauseating jolt as traffic seemingly plummeted to levels last seen more than two years ago. Tefficient called it a “shocker.”

But even the corrected version is troubling. It comes amid various analyst predictions about slowing rates of mobile data traffic growth worldwide and follows a downward revision of historical data by Ericsson, which said it had overestimated numbers in its last mobility report. Finland, the home of Nokia, is often seen as one of the most advanced telecom markets and a bellwether for others. Elisa’s latest data is not the signpost many want to see.

Why not? With less traffic, or a lower rate of growth, telcos are not under so much pressure to invest in expensive capacity upgrades. This is one reason why Analysys Mason, a consulting and analyst company, foresees a fall in capital intensity – expenditure as a percentage of sales – this decade. Money once spent on line cards and network software could be invested elsewhere or returned to shareholders. Free cash flow should improve.

Uninspiring messages

Such are the positives. Unfortunately, a slump in demand for gigabytes could have a devaluing effect on traffic. It would certainly not help telcos in their misguided campaign to extract payments from Big Tech’s “large traffic generators,” as they are disparagingly and unfairly described. Modest traffic growth and falling capital intensity will further undermine that case.

Somewhere between a charging meter for every kilobyte and the all-you-can-eat tariff lie various pricing possibilities now under consideration. “One thing I would say is the telco industry historically has had these all-you-can-eat business models and I think the world is moving more toward consumption-based business models versus all-you-can-eat business models and so we’re going to have to adapt to that reality,” said Jeremy Legg, the chief technology officer of AT&T, at the Digital Transformation World tradeshow earlier this year. Monetizing traffic, though, will inevitably be harder if there is less of it on the network than telcos previously expected.

But if there are some upsides for telcos, there aren’t any for Ericsson and Nokia. Last year, the bosses of both Nordic kit vendors argued that telcos would eventually have to reach for their wallets as traffic built to unmanageable levels. “In our view, the current investment levels are unsustainably low for many operators,” said Börje Ekholm, Ericsson’s CEO, in the introduction to the company’s final-quarter report last year. It was not the most inspiring sales pitch, but it was accompanied by the recognition that offloading of traffic to Wi-Fi could have “profound effects” on telco revenues and hurt expenditure. Since the first quarter of 2024, Ericsson has dropped any mention of traffic whatsoever.

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