A new report predicts flat revenue for 5G – so how will CSPs recoup their investment?

Mobile operators are racing to roll out 5G, but how much of a return on their investment can they really expect? Perhaps not much, according to new research, which makes it even more important for them to figure out how to cost effectively target and partner with enterprises. A panel at Digital Transformation World had some ideas about that.

According to a report released this week by Strategy Analytics’ Service Provider Strategy Group, 5G networks will generate 26% of wireless service revenue in 2024, but it won’t be enough to boost total revenue or profits – both are predicted to remain flat.

“While some markets have grown revenue with 4G services, the long-term picture globally has been one where the majority of countries have found that 4G, at best, acts as a modest brake on consumer expectations, fueled by competitive pressure between operators, to spend less each month on more and more data,” the firm stated in a press release. “Between 2012 and 2018, when 4G grew from 4% of all mobile subscriptions to 61% globally, service revenue increased by less than 1%. 5G’s impact will be equally disappointing.”

Phil Kendall, Director of Strategy Analytics’ Service Provider Group, commented, “There is little to suggest from early 5G launch plans that any willingness to pay a 5G premium can be attached to the service element, rather than device element, of the proposition. Once 5G device prices begin to fall in 2021, the challenge for operators will then be how to monetize the significant additional capacity that the more widely deployed 5G networks will bring. Success here will come if operators can successfully execute on a needs-based segmentation of their customers’ 5G motivations, rather than compete on who has the fastest network and biggest data plans.”

Targeting enterprises

While this report is new, the dilemma is not, and it was on the minds of attendees at TM Forum’s Digital Transformation World last month. During an interesting panel discussion featuring communications service providers (CSPs), suppliers and systems integrators, participants concluded that the remedy to potentially flat revenue on the heels of costly capital outlays to deploy 5G lies in enabling enterprise use cases. In some cases, the applications may be aimed at consumers, such as internet gaming, but the trick is for CSPs to partner with enterprises to deliver the services as part of a digital ecosystem or platform.

“This is the very first G where enterprises are getting the same attention or even more attention than consumer mobile customers,” said Jin Suk, Head of B2B/Enterprise Product Marketing, Amdocs. “This is the first time that mobile network operators have an opportunity to actually go beyond selling the price plan. This is where they have an opportunity to compete against the wireline provider for B2B business.”

To do this, he said, operators must create “a partner enablement system” which includes billing and rating functions. “You do need to start worrying about enabling that type of system, making sure that you are ready to securely monetize all those different use cases that you have.”

Pinpointing use cases

Deutsche Telekom has been undergoing digital transformation to develop a platform strategy for 5G. Erik Meijer, Board Area, Technology & Innovation, for Deutsche Telekom, and member of TM Forum’s Digital Ecosystems Advisory Board spoke on the panel.

“What we’re trying to do with 5G is pinpoint the use cases that work,” he said.

In DT’s case these are gaming, smart campuses and factories, and media and entertainment. For example, the company is partnering with Niantic, creator of Pokémon GO and Ingress PRIME, to bring Niantic’s Real World platform for augmented reality (AR) gaming to DT’s MobiledgeX Edge servers and 5G network.

“It’s about enabling smart factories in a very precise way, having slice networks, really deploying business cases that are useful for those companies,” Meijer added. “Because if we are just going to do ‘my products’ to ‘my customer’, it is not going to work. If you look at the top 2,000 companies at the moment, they’re all platform companies. We need to get our act together quickly.”

Martin Creaner, Digital Transformation & Corporate Strategy Advisor, ODG Technologies, and member of TM Forum’s Digital Ecosystems Advisory Board, agreed, saying, “In the past all you had to do if you were a telco is build the next G and wait long enough and you’d make money. 5G is not going to be like that.”

“We spent a lot of time and effort over the last year trying to build an understanding of the business case for 5G very centrally: How much is it going to cost? How much revenue is there from connectivity? – that’s both consumer connectivity and B2B connectivity. And what’s the gap,” he added. “The bottom line is connectivity doesn't cover the cost of 5G.”

Find the right partner

Ferry Grijpink, Senior Partner, McKinsey, who helps lead the consultancy’s digital and analytics work within the High Tech, Media & Entertainment, and Telecommunications Practices, said its important for CSPs to seek out partners in verticals where they have experience.

“You need to start collaborating and you need to get partners…but we need to release our inner Donald Trump, because we need to make deals. And that’s something we’re bad in the industry – making good deals.”

He added that operators must target verticals where they have leverage “because otherwise it is very hard to have a real role.”

“For example, there are certain verticals like healthcare, where privacy is very, very important to government,” Grijpink explained. “You can actually say, ‘If you use my platform, my data analytics, I’ll make sure it complies with local regulation; I’ll make sure that the data stays inside’. Then you’ve got to negotiate with your partners, and there you can make deals from strength.”

The graphic below from TM Forum’s recent report 5G: Evolution and revolution points to potentially lucrative use cases for specific verticals.

Two-pronged approach

Norway-based Telenor Group has taken an innovative approach to targeting some of these verticals through its Telenor Connexion division, which has been delivering IoT as a service since 2008. Telenor Connexion provides services to enterprises through a single platform that includes networking, cloud, storage, data analytics and billing and payment capabilities.

To learn more about Telenor Connexion, watch this interview:



Speaking on the panel, André Årnes, Chief Security Officer and Senior Vice President, Telenor Group, said that making 5G profitable requires a two-pronged approach that includes focusing on ecosystem development and technology deployment.

First, it’s what you refer to as the ecosystem and the fact that we know we need to become a hub for the creation, and really attracting a lot of partnerships with other operators, technology providers, OTTs and regulators…that’s a strength. The other element is the technological development. As our CEO said, 5G plus IoT plus AI, that’s the perfect storm of technology.”

Asked whether he thinks Telenor can be successful in monetizing 5G IoT use cases, Årnes said:

“We are a bit careful, a bit patient. I think the value in 5G itself is in the ecosystem and the services. So, I think it’s important for us to be really careful and invest very wisely and that we do it gradually – and, of course, leverage 4G to the next step because that’s also been an important investment for us.”