Is there a bright side to 5G revenues in Europe?

Recent comments from two leading European telcos are a change in tune on 5G. Deutsche Telekom and Finland’s Elisa have talked up their respective 5G business successes in rare rays of positivity that diverge from the narrative that the technology has so far been a disappointment. 

However, it will take more than positive thinking to turn around the 5G fortunes of communications service providers (CSPs), according to TM Forum’s new Benchmark report, Telco revenue growth: Is B2B a beacon of light?, which analyzes the financial results of 33 of the world’s largest operators. 

The report finds that CSP service revenue dipped to 2.4% in 2023, down from 2.9% in the previous year. But factoring in continued high inflation, which globally reached 6.8% last year, the “telecoms operator business has now definitively gone ex-growth.” 

Broadly, results from the consumer services segment were gloomier than in business-to-business activities. Consumer revenues declined by 0.64% in 2023 compared to 1.57% growth in 2022. Gains from fixed broadband services were generally offset by “stagnating” mobile service revenues. 

Regarding 5G, the report concluded that, “when it comes to creating new products, services and revenue streams, the impact of 5G continued to be a huge disappointment for the telecoms industry.” Furthermore, “there was little or no evidence that consumers were prepared to pay a premium over LTE for mobile broadband services.”

Overall, telcos are struggling to find ways to grow consumer revenues – whether through bundling services or adjacent new services – as the macroeconomic situation remains challenging with high inflation, market uncertainty and political instability.  

On a brighter note, the report found some operators are differentiating 5G services with bundled cloud and gaming services, along with higher data and speed tiers, noting that this is an opportunity “to encourage consumers to pay more.” 

DT gets passionate about the positive 

DT CEO Tim Höttges declared that he is changing the negative 5G narrative during the operator’s recent Capital Markets Day.  

As FierceNetwork reported, Höttges said: “Since we have deployed 5G, we have grown our market share in Germany on an annual basis by three to four percentage points. The customers are willing to pay us more. Our ARPU is not shrinking anymore with the speed as it did before. The profitability of that is positive and the NPV is already positive on the 5G investments which we have taken… We made 5G, for all the markets, a winning strategy. We are changing the narrative that 5G is a bad thing. For us, it’s a great thing, and we will pursue everything to accelerate our 5G services.”

He said this mindset change came about when DT majority-owned T-Mobile USA expressed dismay that European telcos were so downbeat about 5G when the technology has been key to its success across the pond. 

According to TelecomTV,  Höttges further made the case for 5G. “This is [generating] revenue and the revenue is bringing profitability. And if you look at the overall cost… we are already earning our capital cost, or above the capital cost, on services in the mobile network – it is a positive case already. We are changing the narrative… for us, we made 5G a winning strategy,” he said.

However, according to Light Reading’s analysis of Höttges’s comments, the claimed successes of DT and T-Mobile are not necessarily the result of deploying 5G technology. 

Elisa’s 5G gains grounded in automation

Meanwhile, Elisa claims its 5G successes can be traced back to its network operations automation strategy. 

The operator is “quite unusual” compared to other European network operators because it has had “ten years of steady profitable growth” and “5G has been a very good success for us from a monetization perspective”, said Jukka-Pekka Salmenkaita, Vice President, AI and special projects at Elisa Distributed Energy Storage (DES), speaking during Mobile Europe’s Telco to Techco event. 

It is “even more unusual” that the operator has achieved these business outcomes with a capex-to-sales ratio of 12%, which is low compared to typical telco spending ranges, he claimed. 

Elisa’s “secret sauce” is the investments it has made in automation and artificial intelligence, which has enabled it to operate networks more effectively than is typical for telcos, he explained. 

“It is possible to package 5G services in such a way that they can be shown to be generating a higher ARPU than LTE. For example, some operators only offer their biggest data plans or highest speeds with 5G. But this is not the same as saying that customers are getting a better network experience and are prepared to pay more for 5G connectivity than for LTE. There is little evidence that consumers recognise the benefits of 5G and are prepared to pay more for 5G per se.”

The catalyst for Elisa’s automation push goes back to when it introduced unlimited, speed-based pricing tiers for 4G services. “This [pricing model] has been serving us really well in the 4G and 5G eras…The business decision was a good one and it has allowed us to have profitable growth,” he said. 

However, the model was panned by analysts when Elisa proposed the pricing changes around 2009. The operator was told at the time that it would have to invest so heavily in radio access network capacity to deliver unlimited data to everyone that it would be “totally mismanaging” its business. 

“So we started to rethink how we operate the infrastructure,” said Salmenkaita. 

Elisa’s 5G network covers 95% of the population in Finland and 78% in Estonia. The operator’s third quarter results show resilient mobile service revenues in a difficult economic climate. Although Elisa’s total revenue declined 1.6% in the third quarter, mobile service revenue increased 4.8%, partly due to 5G upselling. Mobile average revenue per user was €21.8 per month in Q3, up from €20.7 in the previous year.

The operator said that 5G upgrades result in customer bills increasing by more than €3 on average. It also noted that its “differentiating” 5G standalone service, 5G+, that is embedded in subscription plans is helping to drive take-up. 

Nonetheless, Mark Newman, Chief Analyst, TM Forum, questions the extent to which consumers are willing to pay for 5G services.

“It is possible to package 5G services in such a way that they can be shown to be generating a higher ARPU than LTE. For example, some operators only offer their biggest data plans or highest speeds with 5G. But this is not the same as saying that customers are getting a better network experience and are prepared to pay more for 5G connectivity than for LTE. There is little evidence that consumers recognise the benefits of 5G and are prepared to pay more for 5G per se.”