Market Report:
Internet Market Forecasts: Global Internet Growth
1998 – 2005 December 1998
Extract from a report by Ovum, by Daniel Bieler, Iain Stevenson
The statistics included here are not endorsed by Intel and are given for informational purposes only. Intel does not endorse any forecast herein.
A number of key findings have emerged:
- the US market will saturate after 2002 and most continuing growth will derive from developed Asia and Western Europe. Aggregate traffic will grow to over 6Tbit/s by the year 2005
- there will be major capacity growth but no redistribution of traffic patterns. The most important routes in 1998 will still be the most important in 2005
- the international Internet backbone is on the point of collapse. If new fibre build across the Atlantic does not progress to plan there will be a chronic shortage of capacity to the US. This will result in poor service that could threaten the development of the Internet on a global basis
- the Japanese market will dominate the Internet in Asia because it has a large number of highly educated users. Although China and India will become major markets as infrastructure and their economies develop they will not be significant in the period to 2005
- value added service provision is key to long term survival online. Internet access revenues from dial up connections will start to decline in per-capita and real terms despite significant growth in subscriber numbers. Revenues from permanent connections will rise initially, but will also encounter a decline in per-capita revenues around 2004.
Ovum’s forecasts are based on a detailed forecasting model that reflects the complex nature of corporate and residential Internet developments. All countries and regions are dealt with separately and technological, socio-economic and regulatory developments are central to the forecasting methodology. The forecasts cover all key aspects of international Internet markets. These forecasts bring order into the chaos of ill-defined and incomplete information that is flooding the Internet market today.
Internet connections
The number of Internet connections will increase by at least a factor of four over the next seven years (figure 1). Whilst several developing countries will see the strongest growth rates of Internet connections, North America, Western Europe and Japan will see the largest increase in absolute numbers. Dial-up connections will remain the single most important form of accessing the Internet over the next seven years. Permanent connections will become business critical for large companies and businesses that depend on fast transmission of large data files, in particular in the media sector.
Figure 1 - Growth of global dial-up and permanent connections 1998-2005
Internet subscribers and users
It is important to treat the market for Internet subscribers separately from the market for Internet users. Since revenues flow from subscriptions, the number of subscribers is the key determinant of Internet access revenues.
The rate of growth of the Internet in any country is related to whether or not a user has Internet access at all - not whether he or she has his/her own subscription. There are many more Internet users than subscribers since people may use the Internet at work but not at home. In developed Internet markets a home may have several Internet users. Figure 2 is our projection of the number of Internet subscribers and Internet users.
Figure 2 - Internet global subscribers and Internet users 1998-2005
Internet penetration rates
These figures can be related to the numbers of households, the workforce and the total population in each country. As figure 3 shows, the penetration of the Internet to households is greater than the penetration of the Internet within the workforce. More people are getting access at home than are being provided with access at work. This is in part due to a relatively slow progression of Internet to the desktop.
Figure 3 – Global Internet penetration rates 1998-2005
Internet access revenues
Value-added services are the key for long term survival online. Figure 4 demonstrates that although Internet access revenues will increase, the Internet access providers face a difficult future, as earnings per-subscriber from mere Internet access provision will decline for dial-up customers. Revenues from permanent connections will experience a rapid rise after the millennium, as the corporate demand for network reliability and high-speed connectivity will cause many businesses to opt for permanent connections with defined Service Level Agreements.
Figure 4 - Trend of global Internet access revenues 1998-2005 ($m)
Private Internet hosts
Many major organisations have their own server systems. The growth in the numbers of private Internet hosts, machines that are owned by Internet users and which support externally viewable or retrievable material, gives an indication of the interest in online marketing and sales within the business sector. North America and Western Europe will account for the majority of these devices (figure 5). Western Europe will actually see the most dramatic increase in private Internet hosts between 1998 and 2005.
Figure 5 - Trend of private Internet hosts 1998-2005
Domain names
The number of domain names points to the level of acceptance of the Internet as a general PR and marketing tool. The dramatic rise in domain names over the next seven years will put pressure on domain name registration authorities to act to secure the availability of semantically sensible domain names in the future. A relatively modest uptake of domain names among residential users would have a dramatic impact in comparison to the number of corporate domain names in any given market. The uptake of domain names among individuals is the logical progression of a society with high Internet penetration.
Intranets
We predict that the Intranet market will be smaller than suggested in the past, but it remains one of the most lucrative markets for value-added service providers (figure 6). Large companies are the first to adopt Intranets, but in industrialised countries medium sized companies will follow suit in order to continue to be able to fulfil their role as suppliers for larger companies. In this respect they point to the level of preparation of businesses to use the Internet as a tool for business-to-business transactions.
Figure 6 - Trend of Intranets 1998-2005
Bandwidth
An ability to judge the amount of future corporate bandwidth is of extreme importance for the long-term success of the Internet as a viable business tool. Network providers must be able to supply enough capacity to meet the growing amount of IP-based traffic in corporate networks. Figure 7 indicates that bandwidth requirements will increase by a factor of 50 to 100 times over the next seven years. Initially the largest increase will come from corporate usage. Business-to-business Internet usage will be responsible for about 55% of all bandwidth requirements in the developed world and 66% in the developing world until 2000. But the deployment of ever-faster access devices for consumers will lead to a rapid increase in residential demand for capacity after the millennium. High dial-up subscriber numbers will put enormous pressure on the network.
Figure 7 - Distribution of global daytime and evening backbone load 1998-2005
International backbone traffic
The amount of traffic flowing between regions is a key concern for telcos. Our projections indicate that the demand for capacity will intensify significantly on the current routes. Figure 8 shows that the US to Europe route continues to dominate because of the large growth in residential and corporate users. The US to Latin America route will grow in importance because of the economic significance of the US and the continuing deployment of new infrastructure. The importance of other regions declines as a result of continuing weak economic performance and a slow growth in infrastructure.
Figure 8 - Relative demand for capacity to the US
North America, Western Europe and developed Asia will remain the main Internet markets in the next seven years. The markets with highest growth rates will be Eastern Europe and Latin America, mainly because of the need to catch up with developed Internet markets. These countries will see high growth rates in percentage terms, but low growth in terms of absolute numbers compared to developed markets. The numbers for Asian Internet growth are relatively low due to the large number of developing countries in the region. The economies of Japan, Singapore, Hong Kong and Australia are much more developed than the rest of Asian economies and experience high Internet growth.
Corporate and residential users
The world will be divided into regions with high numbers of Internet users (North America, Western Europe and developed Asia), and regions with much lower Internet user numbers.
Figures 9 and 10 indicate that there will be little shift in the worldwide distribution of Internet users between the regions. Europe will overtake North America by 2005 as the region with the most residential Internet users. North American companies will continue to be the heaviest users of the Internet. Internet literacy will be greatest in the countries with the highest number of Internet users, and these users will be ready targets for Internet value-added services.
Figure 9 Number of corporate and consumer users, 1998
Figure 10 Number of corporate and consumer users, 2005
Internet penetration
Just as Figures 9 and 10 indicate, Figure 11 shows that the world will be sharply divided into regions with high Internet access rates, and those where Internet usage is limited. The lines follow the demarcations of economic development, which means that the majority of the world’s population will have no access to the Internet. North America will continue to have the highest Internet penetration over the next seven years – despite slower growth rates than in most other regions. Africa (with the exception of South Africa), Eastern Europe and developing Asia will be the least connected areas in the world.
North America will continue to experience increases in Internet usage. The region has and will maintain the largest market share for corporate and consumer Internet markets in the world. The US accounts for over 90% of both the business and consumer Internet subscriber market and this ratio will not shift dramatically over the next five years. The high PC replacement rates and the arrival of interactive television are securing high penetration rates for the Internet in most North American homes.
Figure 11 Internet penetration of North American society (1998 and 2005)
In Western Europe Germany will account for the largest number of business Internet subscribers and France will have the third largest number of consumer Internet subscribers in 2005 as more French people migrate from Minitel to the Internet. Internet usage will grow rapidly in Western Europe from currently 23 million to about 150 million by 2005. This rise is the result of a combination of increased Internet usage at the workplace and the spread of the Internet among home users. The overall growth pattern will be evenly distributed across Western Europe.
However, there will be significant differences in penetration rates (figure 12). The Scandinavian countries will continue to have the highest penetration of Internet use in society and countries like the UK, where digital television will be maturing, will also have high penetration rates.
Figure 12 Internet penetration of western European society (1998 and 2005)
In Asia the Internet will grow significantly, in particular in the more developed ones (figure 13). Japan will remain the most dominant Internet force in the region, both for business and consumer markets. Developing countries in Asia will only account for a small fraction of the overall Internet usage, although they will experience significant growth in terms of numbers. Moreover, in developing Internet countries growth will be largely restricted to urban areas. In addition to a poor network infrastructure the necessary technology (phone, PC and modem) is still not affordable for most sections of society. Many users will use the same connection. These countries will have very low Internet penetration rates whereas highly developed Internet countries like Japan and Australia will experience increasing Internet penetration across the entire population.
The depressing effects of the Asian crisis will have a positive effect on the Internet market, as more users will shift their telecom needs to cheaper Internet services for data transfer and value-added services like IP telephony, IP fax and electronic data exchange. Most governments in the region are encouraging Internet usage among the population and make it available in educational institutions. Japan, Singapore and Hong Kong have also started offering public Internet access points.
Figure 13 Internet penetration in Asian society (1998–2005)
