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5g requires new business models

5G will require
new business models
to make money

When it comes to making money from 5G, mobile operators need to think beyond the usual business models. But figuring out what new use cases will work with consumers and enterprises isn’t an easy proposition. According to a study conducted by Nokia and Technology Business Research (TBR), different markets will demand different types of services and operators will need to come up with a variety of cost structures if they want 5G to be profitable.

There are many big overarching variables that need to be factored into the ROI [return on investment] assessments,” says Chris Antlitz, principal analyst with TBR. In particular, Antlitz says that operators need to consider a country’s spectrum requirements as well as its regulatory environment. And they also need to look at the gross domestic product (GDP) of the country and the disposable income of its residents.

Antlitz points to two countries —the United States and South Korea — which are both aggressively deploying 5G and already realizing revenue from their 5G services. However, he noted that in the U.S. operators are currently selling 5G similar to how they sell 4G services – by offering unlimited data plans. In South Korea, operators are monetizing 5G by offering enhanced mobile broadband services and virtual reality.

But new services like virtual reality and fixed wireless access require additional costs that, once factored into the equation, could make the use case no longer profitable. “The problem is, you might be getting revenue from 5G but that does not mean you are making a profit,” he notes.

Enterprise disruption

operating machinery

Many communications service providers (CSPs) that are deploying 5G believe that the bigger 5G opportunity lies in delivering services to enterprises, but according to a recent survey conducted by Nokia and Omdia Research nearly 50 percent of CSPs said business models and go-to-market strategy are the biggest challenges they face. At the same time, in an upcoming Nokia report on 5G in enterprise, the company conducted a survey of IT leaders and found that nearly 50 percent are already planning for 5G today, and 4 in 5 professionals anticipate their organizations to invest in 5G within the next four years.

According to the survey, media and advertising, manufacturing and logistics, retail, and energy are the top four industries that found 5G most appealing. Jai Thattil, head of 5G service marketing at Nokia, believes manufacturing holds great promise for 5G because it will finally bring extreme automation to factories. “Any areas with high labor costs and a high density of manufacturing sites that contribute to the GDP will be good options” for 5G, he says, giving Germany as an example.

A large manufacturer, for instance, might invest in a private network dedicated to delivering 5G to its factories and therefore handles much of the costs of building that network. A smaller manufacturer, by contrast, might be more likely to work with the operator and purchase a dedicated portion of the 5G network. “A private network might not be feasible for them but they can buy a network slice that will let them digitize their factory,” Antlitz says.

Another area ripe for disruption is security. Enterprise security systems and home security systems offer an attractive profit margin for service providers, with cable companies like Comcast aggressively building home security businesses for some time now. 5G could offer video surveillance and that video could be monitored in real-time, making it attractive to public safety agencies and even the military.

Using partners to defray costs

Autonomous cars are also a popular use case that is often discussed for 5G. Countries with a high density of people and traffic congestion —such as Singapore — find this use case compelling because it could alleviate the country’s traffic problems. However, for autonomous or connected cars to become a viable option, operators will need to have a robust edge computing infrastructure. Otherwise, they risk issues with network latency and security.

Operators can deploy edge computing infrastructure themselves or rely on partnerships with webscale companies like Amazon or Google or firms like Equinix or Digital Realty that provide connectivity through their data centers and colocation services.

“Operators that don’t do edge computing will not be able to support these advanced use cases,” says Antlitz. But by using partners, operators can defray some of their costs.

In some markets, such as China, the government actually is involved in the 5G deployment and subsidizing some of its costs. Will other countries follow suit?

Are government subsidies an option?

Interestingly, Antlitz also says that 5G, with its massive multiple-input multiple-output (MIMO) antennas and its need for more small cells to densify the network, will require a lot more electricity than 3G or 4G networks. That means operators need to factor in additional energy costs.

In some markets, such as China, the government actually is involved in the 5G deployment and subsidizing some of its costs. Will other countries follow suit? Antlitz says that it is possible that other countries besides China will consider the subsidization model because operators are going to need to defray some of the costs of building a 5G network. “The path to ROI could take several years at a minimum before an operator realizes profits and growth so government involvement is important to consider.”

One use case where government subsidies might be possible is with enhanced mobile broadband, particularly if operators are able to bring this service to rural areas. In countries such as the U.S. and Canada, there are many consumers that still don’t have access to mobile broadband.

In the Federal Communications Commission’s 2018 Broadband Deployment Report, it found that approximately 14 million rural Americans still don’t have access to mobile broadband at speeds of at least 10 Mbps and Americans living on tribal lands do not have access to mobile broadband at speeds of just 3 Mbps.

Revenue sharing

Back when 4G networks were launched more than a decade ago, there were great expectations that operators would be able to institute revenue sharing with 4G. One example of revenue sharing was content bundled with mobile services, so when a consumer downloaded a movie or television show over a mobile connection the cost of the mobile service would be included in the price of the content.

A high-profile example of this model is the cellular-enabled Amazon Kindle e-reader. If you purchase a book and download it to the Kindle using the cellular network, the cost of using the network is bundled into the price of the book.

This  “outcome-based pricing” model holds promise for 5G. Antlitz gave an example where a car insurance company might want to bundle cellular connectivity into its safe driving package so that its customers driving data can be transmitted in real-time to the insurer.

Gaming may not be a big moneymaker

VR in art museum

Gaming is one use case that is very popular with mobile operators and 5G proponents but some analysts don't believe gaming will make operators much money. Instead, Antlitz thinks that cloud providers will be the big winners in the gaming area because they can provide global scale, and most users are interested in competing on a global platform. “Webscale companies can orchestrate this globally and use coordinated resources,” he says, adding that communications service providers can’t do that.

Instead, service providers should focus their efforts on more niche applications where they can provide users in a certain market with very strong experiences and then try to replicate that in other markets.

For example, an operator could offer an immersive experience in a museum using virtual reality and offering tours to people that aren’t able to travel there. 

5G is still in its infancy but service providers should already be conceptualizing the new use cases that will make 5G a profitable service.