Home / Blogs

Will Telcos Be Able to Harness the New Business Opportunities of 5G?

Paul Budde

The industry would like to project 5G as a divergence from previous mobile technology evolution lines (1G-2G-3G-4G). They claim that this is a whole new ballgame, with completely new opportunities. But the big question will be whether this time round the telcos will be able to harness this new technology to create new business opportunities for themselves.

5G is only one element of a larger ecosystem that includes broadband access, IoT, M2M, cloud computing, data centres and data analytics; and only when 5G is deployed within that broader ecosystem will operators be able to reap the benefits of this new technology.

Nevertheless, apart from these new aspects, 5G is at the same time just another step in the mobile evolution. With 4½G already in the middle (LTE-A) there is no escape from the evolutionary element of the technology. The real danger is that the mobile operators will fall into the usual trap and treat it simply as an evolutionary process and as a consequence will fail to embrace the new and different business opportunities that would arise if they were able to take the broader opportunities into account. In the past, the telecoms industry has tended to see these new technologies simply as network upgrades, and this has resulted in the operators slowly being pushed into the role of simple pipe operators — with potential new revenue streams disappearing one after the other, accompanied by their complaints that companies such as the OTT players are starting to eat their lunch.

Will they be able to break the cycle this time?

So what are some of these new 5G opportunities that could save operators from becoming further commoditised?

Aside from network evolution elements such as, faster downloads and lower latencies, 5G will certainly facilitate the emerging IoT and M2M developments. However the reality here is that new services based on these new technologies will be operated by the enterprises that will be using the new level of infrastructure. So in reality 5G-based services will be enterprise-based services in which the telcos can be partners, but in general telcos won't be able to operate these services on a retail level.

We are talking about smart grids, smart buildings, smart cities, smart transport, smart government, e-health and so on. While current technologies are not stopping any of these developments, 5G will make these projects easier and cheaper to realise. We are talking about literally hundreds of billions of new telecoms connections (sensors, devices) being installed around the globe — it may be that the telcos will be enormously busy with just the engineering part of this job.

For the telcos to participate in the broader opportunities, they will need to make significant changes to their business models; and in particular they will have to make changes to their underlying cost models. The telcos carry with them enormously high costs based on their inherited vertically-integrated systems and companies that don't have such high levels of incumbency can often operate services at a fraction of the cost. For those 'smart opportunities' to take off, the underlying infrastructure needs to be made available at utilities-based prices, with new revenues coming from the services that are offered on top of that infrastructure.

So far most telcos have failed to move in that direction in any significant way; they have largely failed to make their money from the services, instead focusing their attention on protecting their incumbent business and profiting from providing (expensive) access to the infrastructure.

The recent deal that Google made with some of the mobile carriers in the USA is another indication that telcos will continue to make their money from access, while companies such as Google (and I am sure Apple and others) will continue to be the service operators.

Let me say again that there is nothing wrong with the telcos sticking to their infrastructure business model. However, as is already happening, these models are being pushed into the more traditional infrastructure business models, with ROIs more likely to be around the 6%-7% mark than 12%-15%. Obviously this is not something that the telcos would like to see happening and they are using all their dominant/monopolistic powers to fight against it.

So far they have been rather successful in this strategy in the fixed telecoms infrastructure business — preventing the development of FttH networks, which would only make OTT more successful.

Google tried to break through this vicious cycle with its Google Fibre projects, but changes there are just happening far too slowly, so they have now changed their focus to the mobile operators. There is more competition there but companies are being squeezed and market consolidation is inevitable.

Google is now offering these operators a lifeline by becoming the infrastructure provider to a whole new range of mobile services that they are going to operate as an MVNO. There is no doubt that 4½G and 5G (as well as WiFi) are high on their list to watch in for the future.

By Paul Budde, Managing Director of Paul Budde Communication Paul is also a contributor of the Paul Budde Communication blog located hereVisit Page
Follow CircleID on
SHARE THIS POST

If you are pressed for time ...

... this is for you. More and more professionals are choosing to publish critical posts on CircleID from all corners of the Internet industry. If you find it hard to keep up daily, consider subscribing to our weekly digest. We will provide you a convenient summary report once a week sent directly to your inbox. It's a quick and easy read.

I make a point of reading CircleID. There is no getting around the utility of knowing what thoughtful people are thinking and saying about our industry.

Vinton Cerf, Co-designer of the TCP/IP Protocols & the Architecture of the Internet

Share your comments

To post comments, please login or create an account.

Related

Topics

DNS Security

Sponsored byAfilias

Cybersecurity

Sponsored byVerisign

IP Addressing

Sponsored byAvenue4 LLC

Domain Names

Sponsored byVerisign

New TLDs

Sponsored byAfilias