June 20

3 hidden messages for telcos in the Cisco VNI 2014 traffic forecast



Cisco‘s industry-reference Visual Networking Index (VNI) report came out this month. In my previous post I examined how expectations for Internet traffic growth have changed over the last year.

cisco vni 2014 device forecast

The question for today is: what are the important messages that telecoms players need to know? Here are three that I unearthed.

#1. Without a Wi-Fi strategy, telcos risk being the network of last resort

Pretty much every device will be mobile and untethered (wireless) in 2018. And 80% of devices will be “designed for mobility”:  smartphones, tablets, M2M devices and other portable devices.  Overall, 57% of global IP traffic will be delivered wirelessly.

However, traditional mobile networks (3G/4G etc.) will only capture 12% of global traffic (up from 3% today), whereas Wi-Fi will account for 45%.  In other words, Wi-Fi will still represent 80% of wireless in 2018.

Telecoms operators who don’t have a strategy to be relevant in Wi-Fi are voluntarily excluding themselves from being their customer’s go-to provider for most of their wireless needs. This seems a dangerous strategy to take.

#2. New value propositions are needed to drive value growth

Cisco VNI 2014 is predicting a 21% annual growth rate of IP traffic over the next five years.  That growth, however, is unlikely to result in additional market value.  If we assume that underlying unit costs (and, in a competitive market, prices) decline at – say – 20% per year, then this would imply that overall connectivity market would shrink at about 3% per year.

Now this might be overstated, as busy-hour traffic drives costs, and that actually increased 32 percent in 2013.  However, the message is clear: traffic growth is not going to drive massive market expansion. Instead, service providers will have to work (very) hard if they want to deliver increasing value around connectivity, such as authentication and identity, enhanced security and service prioritisation.

cisco vni 2014 traffic forecast

#3 Most current telco M2M strategies will be a financial irrelevance

M2M devices represent 35% of connections in 2018 but not even 3% of traffic.  Many telcos still have fairly unambitious, connectivity-orientated M2M strategies. Even at a premium price, connectivity-oriented M2M will not be a major financial lever. Operators need to start to talk business outcomes with their customers: pure transport will not make the financial difference that operators need.  This conclusion aligns with recent findings from Machina Research, suggesting that connectivity is at best a few percent of the total business value opportunity from M2M.

Have you read the 2014 Cisco Visual Networking Index (VNI) report?  Please leave a comment with your perspectives!

Source: Cisco Visual Networking Index Global IP Traffic Forecast and Service Adoption, 2013-2018

Disclosure: I work at Cisco. However, like anything on this blog, all analysis is my own personal interpretation and not necessarily that of Cisco. Furthermore this analysis is based entirely on publicly availably information.


About the author 

Richard Medcalf

Strategist, consultant and business leader with 15 years experience in helping companies thrive in an Internet world. Formerly a partner in strategy consultancy Analysys Mason; now at Cisco Systems, developing new strategic partnerships with leading telecoms players.

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    1. Ken, thanks for this link: it reinforces the point exactly and shows why “business as usual” (i.e. connectivity-focused) expansion into M2M is not going to move the needle in the way telcos would like. Thanks again.

  1. Richard,

    there is another – potentially conflicting message in VNI: when you look at the sources of traffic in 2018 then it is

    44% Fixed/WiFi from WiFi-only devices
    17% Fixed/WiFi from mobile devices
    24% Fixed/wired
    15% mobile data

    This means that 85% of the traffic will still come through the fixed network. I don’t exactly know how much of the Fixed/WiFi traffic will actually come through the SP-owned access point, and which ones are rather private ones in homes, shops, enterprises, …

    In any case, the fact that the wireline access network will play such an important role going forward is a very important message, in particular to policy makers. Many of them still believe that the world will become more and more wireless, and therefore, wireline networks will become obsolete over time. Nothing could be further from the truth 🙂

    Best regards


    1. Wolfgang – good point. All telecoms is moving to a wireless “last X” (where X can be a metre or a mile or more!) connecting to a fixed network. As traffic density increases, X decreases and the fixed network gets closer to the user.

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