I wrote a few articles last year on 5G pricing but have since noticed a couple of recent trends which seem surprising. First, 5G is being pushed as just another access type bundled together with 3G and 4G. Second, unlimited plans are being offered which, although obviously very popular with consumers, limit the revenue potential for service providers.
Treating 5G as nothing really new reminds me of the famous comment reportedly made in 1889 by Charles Duell, then Commissioner of the US Patent Office. He was widely quoted as stating that everything that can be invented has been invented. Of course, he couldn’t have been further from the truth and even today, 130 years later, the pace of change seems to be still accelerating. New technology is requiring more and more bandwidth and 5G is a big part of this constant innovation.
Service providers are all investing heavily into licensed spectrum, new radio networks and completely new network core systems in order to deliver the 5G experience. There is a major investment cycle approximately every decade, but how will they get this investment back? With 5G, a single MB of data will undoubtedly be cheaper than 4G. However, customers will be able to consume vast amounts in reduced times so their overall data usage will increase, causing additional loads on networks.
According to one survey, mobile data usage will be close to 20Gb/month by 2021, seven times more than current rates. This is in line with the Cisco global traffic forecast that states mobile data is growing at a CAGR of 46%.
Calculating the investment case for 5G is not so easy. Amidst glitzy launches with self-driving cars and virtual reality, what are the short-term revenue opportunities for service providers? Taking Three UK as an example, they have stated that they are investing over £2B in 5G spread over their 10M customer base with a cost of £200 per customer to cover the capital investment required. Of course, this is just table stakes. Investors and shareholders will be demanding far more in terms of ROI from this next-generation technology.
However, going back to Charles Duell, what will cause this big increase in data usage given that mobile technology is already advanced? Lots of operators I speak to seem to be struggling to identify the killer everyday 5G use cases that can be monetized. Ignoring, for now, things like fixed wireless access or connected cars, here are a few examples from an everyday business consumer context that I’m personally waiting for technology to catch up and deliver:
All of these scenarios share the same traits. The base technology exists today but has struggled to hit the main consumer market. They need to transfer a large amount of data and they need to operate with extremely low latency, otherwise, the customer experience is impacted. Of course, the list above is a personal wish list, but I bet that everyone has their own wish list of use cases that just don’t quite work properly today.
An emerging trend in developed countries is following the US tradition of offering unlimited plans with additional speed restrictions being the only price lever. The danger, of course, is that this severely limits the ability of a business to respond if market conditions change as there are no other pricing levers to adjust.
Not valuing the network asset and pricing everything (3/4/5G) all the same brings to mind the talking heads song “Road to Nowhere.” It’s a single pricing strategy that becomes cheaper and cheaper with no options to upsell. In the meantime, new companies spring up to take full advantage of creating new innovative apps and become the principal players in the market. If this sounds farfetched, think back a decade to when Facebook, Apple and Google began to dominate and the service providers became commodity data network providers.
The success of 5G is ultimately determined by the innovation across multiple segments, including consumer, enterprise and IoT. So, rather than just charge everyone the same amount which is a very blunt “one size fits all” approach (considered bad for your share price) what can be done?
5G enables an operator to set up a number of different network environments or slices, each with their own characteristics. The current standards allow a mobile device to connect to up to eight different slices. Applications can request to use one of these slices in order to use, for example, a premium ultra-low latency network configuration. Providing premium slices for applications to use is an ideal way to layer additional charging on top of a base plan.
Another advantage of 5G is that the standards make it much easier to open the network to third parties to build upon. Rather than the operator being a commodity data pipe, charging models can be built spanning the entire value chain from the supply of premium data to subscription and usage models offered by application and content companies in a B2B2C model. In the future, an operator will not be managing just voice, text and data bundles, but a whole host of balances in a customer wallet, for example, facial recognition credits, translation minutes, conference time, etc. The operator has the opportunity to become an integral part of a customer’s digital lifestyle through these extended B2B relationships.
As an example, consider music and video services being charged by the service provider directly with inclusive bundles of data at various levels of quality (HD, 4K, etc.). The benefit for third parties is that the operator is generally trusted and already has a charging relationship with the customer, so opening this up provides an easy way for external companies to take full advantage of the new emerging network capabilities.
This move away from a closed network with proprietary interfaces provides a massive opportunity for service providers to rethink how they engage and support a whole host of new services and use cases. Therefore, stopping them from becoming a data provider utility but rather an important contributor in an increasingly complex value chain.
So, is 5G important? Does it offer a new opportunity? The answer to both questions is, of course, YES. And, as soon as it comes, we will all be screaming for 6G to support a whole new list of use cases. It’s human nature to keep evolving and innovating despite Charles Duell’s comments. The important thing for service providers is to make sure they are part of the 5G value chain.
Read more about 5G in part one (New 5G Services & Last Mile Access to Broadband) and part two (Variable Pricing & the Foundation of Future 5G Services) of this blog series.