CSPs are dipping a toe into consumer 5G monetization – so why are only a few offering the kind of rich content services likely to deliver high returns?
The world of consumer 5G services has begun – but more with a whimper than a bang.
More than 160 communication service providers (CSPs) have started connecting consumers to their 5G networks, according to Ookla. So does that mean the era of increasingly richer AR location-based gaming and 3D hologram calls is finally here?
Not so much.
While a handful of CSPs are offering next-generation 5G services, most seem hesitant to think too far outside the 4G/LTE box – putting them at risk of losing out to those with a bolder approach.
David Banjo, Head of 5G Solution Architecture, Nokia Mobile Networks, explains: “In analyzing the strategies of over 100 mobile operators, we’ve observed four broad approaches to monetization. While some operators are combining different approaches into a multi-layered strategy, others have been more reluctant to innovate, essentially sticking to what they know.”
So what are the four approaches, and how effective are they for revenue generation?
'Just another G'
Same pricing and plans as 4G/LTE
The easiest way to price and package 5G is to present it as “just another G”. 79 percent of CSPs that we studied offer 5G as an option built upon existing 4G/LTE plans. In some cases, 5G is only available with the highest-tier plans, creating a certain amount of upsell potential. But in general, this approach sees 5G being given away as a perk to 4G subscribers.
Given that 5G represents a huge leap forward in performance – and that CSPs need to recoup their investments in 5G spectrum and infrastructure – what’s the thinking behind this reticence to charge for it?
One is the patchiness of early 5G coverage, which leaves CSPs reluctant to charge a premium for a service that’s only available in some locations. As 5G rollouts continue – and standalone 5G is introduced – CSPs should be more comfortable adopting bolder monetization strategies.
Secondly, it’s seen as a way to grab 5G market share early – with the assumption being that if it costs nothing to move to 5G, more subscribers will make the jump.
On its own, ‘just another G’ won’t deliver much additional revenue
While “just another G” makes it easy to onboard subscribers fast (especially as it requires minimal changes to billing, marketing and sales), it’s not a big driver of additional revenue.
CSPs that rely on it to gain market share may even be missing a trick. When Nokia surveyed 3,000 consumers in 2020, around two-thirds said they’d pay up to five percent more for 5G, and just over half said they’d be willing to pay up to 10 percent more for new services that 5G can bring.
Importantly, “just another G” isn’t a hugely exciting message for customers, either. It could even backfire, if tech-savvy subscribers see other CSPs offering more appealing 5G bundles and services.
Differentiating 5G from 4G will deliver greater revenue uplift
“It’s understandable that most CSPs have reused 4G price plans for 5G, as a means to easily transition their subscriber base to the new technology,” says David Banjo.
However, the real returns will come when CSPs start playing up the differences between 5G and 4G, rather than playing them down. “Dedicated 5G price plans can provide a direct means to steer revenue uplift over 4G revenues,” Banjo says. “But that will require CSPs to invest strongly in marketing and incentives to persuade customers to make the switch.”
That will involve identifying market segments that understand and value the 5G difference and are prepared to pay more for it. These subscribers may be fewer in number – especially in very niche segments – but the potential for revenue uplift is much higher.
The remaining three monetization approaches fall into this “differentiated” category, with escalating levels of market segmentation, business model adaptation and focus on 5G’s technological capabilities.
'All you can eat'
Unlimited 5G data
The simplest – and most common – of the differentiated monetization approaches is unlimited 5G data plans, offered by 70 percent of CSPs.
These premium-priced plans are designed to attract any subscriber who’s knowingly a heavy user of mobile data: whether it’s for video calling, video streaming, cloud gaming, or emerging services like augmented reality (AR) or virtual reality (VR).
By targeting subscribers who are avid users of data-intensive applications, CSPs can confidently apply a higher price tag in the knowledge they’re offering something of real value. What’s more, subscribers who choose this option are likely to be tech aficionados who may be early adopters of new 5G devices and applications. Getting them on board with an unlimited data plan now could pave the way for a later upsell to the kind of services offered in approaches #3 and #4.
However, there’s also a risk that moving subscribers to an unlimited 5G data plan could be the end of the road in terms of monetization potential. “Unlimited data plans are a good fit in the sense that they encourage subscribers to explore new 5G services without fear,” says David Banjo. “But the challenge for operators will be how to generate revenue beyond that.”
'Fast and furious'
One way of generating additional revenue is to offer tiered plans based on different 5G network speeds.
A freerunner who likes to livestream their parkour in HD video, for example, may be more attracted to a high-speed plan than an executive who occasionally makes video calls on the go. And a cloud gamer who wants to play glitch-free from any device, anywhere, may be very willing to pay a premium for that kind of performance.
It’s an approach adopted by just 18 percent of CSPs, usually as a way to provide different value tiers across unlimited data plans.
David Banjo cites Finland’s Elisa as a successful pioneer of the approach. “Elisa has proved over the years that speed-based pricing can generate revenue uplift even with unlimited data plans,” he says. “Now, 5G has introduced a new ‘technology bump’ to incentivise Elisa customers to move up to a higher price tier.”
Research firm Strategy Analytics also points to Finland as a leader in this area. In a report from April 2021, it notes that “speed-based tiered unlimited data plans in Finland have helped lift average revenue per user (ARPU) 17% over the last five years, compared with a 15% decline across Western Europe.”
Vodafone too credits speed-based pricing with boosting revenues. In its H1 2021 earnings statement it reported a €2-€5 uplift in ARPU from its unlimited data plans, which offer unlimited data in three different speed tiers (for both 4G and 5G). It says that revenue from these plans rose from €1.8m in Q1 2020 to €6m in Q2 2021.
One reason so few CSPs offer speed-based pricing today is the need to ensure that consumers will actually experience the levels of speed they’re paying for. That will require more fine-grained control over the network, likely through greater automation. In a 2020 report, consultancy Arthur D. Little noted that “operators need to invest in upgrading network management and provisioning tools to ensure that such differentiated quality of service is delivered in reality to 5G subscribers.”
'5G augmented lifestyle'
Personalized service bundles
The most advanced monetization approach – and the one that takes CSPs farthest from their 4G comfort zone – is to offer services that target specific hobbies, activities or lifestyle preferences.
This approach requires deep insight into the subscriber base in order to craft service bundles that appeal to specific demographics: players of VR games, for example, or sports fans looking for an enhanced match day experience.
By identifying what matters to each niche audience, CSPs can offer rich content services – such as AR overlays with real-time player stats – that provide real added value on top of the 5G connectivity itself. Over time, as CSPs gather more data about customer preferences, they can move towards a flexible consumption model, with personalized offers for each subscriber.
Just 16 percent of the CSPs offer these kinds of services today. That’s an indication that moving to this model isn’t trivial: it not only requires deep audience insight, but also close partnerships (and often technology integrations) with third-party content providers.
While some European operators are testing the water with just one or two “lifestyle” services, it’s South Korean operators like SK Telecom, KT and LG Uplus who are the most advanced.
“The South Korean operators have to take a lot of credit here,” says David Banjo. “They were not only 5G first-movers, but they’ve also done it at the same time as developing a wide range of exciting 5G services and content. By bundling these within innovative 5G pricing plans, they’ve both incentivized the switch to 5G and upsold subscribers to the higher value tiers.”
When it comes to 5G monetization, fortune may favor the brave
For some CSPs, the need to build an ecosystem of partners, adapt sales and marketing approaches, and embed new billing and charging models may be too much to contemplate. But for those bold enough to offer rich content services and flexible consumption models to niche consumer markets, the returns could be very attractive.
As Marc Einstein, chief analyst at ITR, told Mobile World Live in February 2021, “increased data use and premium pricing is not going to be enough to generate revenue from the new networks.”
To realize the full monetization potential of 5G, the focus should be on wowing consumers with value-added services that are more “bang” than “whimper”. By offering cloud gaming subscriptions to VR theatre experiences and more, CSPs that cater to customers’ passions and lifestyles will be the true winners.