5G: Show me the money!
MWC-A showed that the industry is moving beyond hype and beginning to look at the complex trade-offs that are inherent in 5G deployment and economics.
Brass tacks: who will pay? Will revenues cover costs? What deployment scenarios will drive and control costs? Can we capture incremental revenues? And do revenues for each niche accrue to the public network or is it an orthogonal, stand-alone opportunity as is much of the opportunity in industrial automation? Several vendors weighed in on this. Below we outline a few where we had in-depth discussions. We will address the Industrial opportunity in a following blog (and an upcoming Market Outlook report).
5G presents some technical and economic conundrums . . .
NOKIA notes that the added technology cost of 5G in low and mid-bands is vastly smaller than the cost of new site acquisition – the only densification alternative for many LTE regions today. This means that 5G’s biggest near-term driver may be capacity growth and spectrum exhaust, in both new and existing radio bands. Nokia also showed early market data that indicates that 5G users consume roughly 3X more data than 4G users, while at the same time expecting similar monthly prices (ARPU). A classic scissor that challenges profitability and demands automation and both operational and capital cost reductions per GB delivered.
Sprint and Verizon showed rollout maps (but had little data on how they would turn these into incremental money), and sexy demos and presentations on Industrial and VR/AR services. So where will the revenues for new, high performance services come from? How do we change consumer expectations and trends? What sort of plans might segregate “evolutionary” use from “revolutionary” use? We get the desire, we get the financial imperative, just not the consumer market mechanics. Which leads us to . . .
Charging for new business models?
Do we even know what to charge for?
If not, is that any reason not to be prepared?
Amdocs, introduced its 5G-capable, agile and micro-services based RevenueOne charging solution in anticipation of 5G’s new business models. RevenueOne has some laudable qualities – it’s flexible, allowing for agile charging/service innovation, and modern and micro-services based, for scaling, cost and lower maintenance costs. Good job there. But what will those new revenues and business models be? Some may be premium consumer offers, but EE (in the UK) has thrown water on that fire, and Nokia, above questioned some optimism, implicitly anyway. Many seem to be saying that consumers expect this to be a technology upgrade, within roughly the same ARPU envelope we have been at for decades; change from this consumer expectations inertia must be justified, not merely wished for.
Another promising source of new revenue looks to be industrial enterprise commercial models, but those look like large, SLA-bound, outsourcing/NaaS/SI deals, not the sort of thing that goes into the traditional billing and charging systems – and legal documents are rarely agile (with apologies to any lawyers reading this). In Appledore’s opinion we don’t yet know the killer apps – but as with things like SMS in the past, the killer app will raise its head, and we need to be ready. This may be the greatest argument for new offers like Amdocs’ (and to be fair, others who have made similar introductions).
Take-aways
- 5G really is happening, but it will be a slower burn than the 4G swap out
- The industry must look to individual use cases in order to do meaningful planning
- 5G deployment will be varied and heterogeneous, with low tier, small (millimeter) cells, private 5G, and Fixed Wireless variants. Revenues are unlikely to comingle except across cell size tiers
- 5G will coexist with LTE for many, many years (which suggests one commercialization / differentiation path…)
- Traffic and usage are likely to rise significantly, yet it is unclear how this will generate proportional increases in revenue
- Which means costs must fall, and automation increase
- Given than “killer apps” and the final commercial models are unknown, we need agile charging and service innovation infrastructure to quickly capitalize on opportunities
5G is exciting, and promises paradigm-shifting performance, but at a cost in terms of business model impact, cost, and deployment complexity. As an industry, we need to look hard at those cost and practicality tradeoffs if we wish to avoid expensive mistakes and fully capitalize on the opportunity. Even then, Appledore predict it will take many years for most of the new business opportunities to mature.