5G industry news

5G business models: The big picture

  • 3 minute read
  • Published by Arti Mehta on 30 Sep 2019
  • Last modified 21 Oct 2019

Communications service providers (CSPs) worldwide are under considerable competitive and financial pressure. This necessitates discussions about future business models, and for many operators talk quickly turns to the potential role for 5G in tapping new sources of revenue.

Consider the tough challenges operators are facing:

  • Revenues are stagnant
  • Digital-native companies continue to disrupt the market for communications services
  • Despite fierce competition, regulators are not always willing to allow the market to consolidate
  • Cutting costs is difficult if not impossible because customers are constantly demanding better, faster networks and services

Is telecoms broken?

A research note published earlier this year by a leading European bank said that investors perceive the telecoms sector to be broken and that this perception is unlikely to shift so long as it continues to deliver poor returns.

The research note pointed to two potential scenarios that could help the sector improve. The first is network sharing, principally in the radio access network, to lower capital expenditure (CapEx). Although the authors of the research said they expect to see savings on operating expenditures (OpEx) through digitization, these gains will be offset by higher CapEx resulting from sustained investment in fiber and 5G. However, if multiple operators were to use the same infrastructure through sharing agreements, cost savings could be greater than expected.

Secondly, the research speculated on the possibility that the new European Commission might take a more lenient approach towards market rationalization and separation of CSPs’ networks and services businesses. In many European countries, regulators have prevented mergers and acquisitions between mobile operators because of concerns that prices would rise. Certainly, financial markets believe that market rationalization can lead to market recovery.

Can 5G help?

Interestingly, there was little focus in the research note on the potential for increasing revenues – and no reference at all to the potential of 5G. Given that most financial analysts take a strong steer from the operators themselves, this suggests that European CSPs have modest (some might say realistic or even pessimistic) aspirations for 5G. Our research finds that many executives working for CSPs and telecoms suppliers do not share this pessimism. This spring we conducted a survey about future telecoms business models. We received 143 responses from executives working for 64 different CSPs and 103 executives working for 47 suppliers.

A majority of CSP respondents said they are at least reasonably optimistic about their prospects for success in the short term (one to two years) and long term (two to five years). Indeed, about two thirds are optimistic about their companies’ prospects.

Unified approach

Part of the reason for respondents’ optimism likely correlates to their job – more than a third work in the IT department. IT staff are keenly aware of the power of software and cloud, both of which will feature prominently in the 5G core. However, they do not necessarily have insight into the commercial and financial aspects of delivering services.

This in itself is telling: At a time when the most successful companies are fusing expertise in technology and business, most CSPs retain clear divisions between the teams responsible for network, IT, products and sales (consumer and enterprise lines of business) and finance. To compete effectively and realize the promises of 5G, operators must adopt a unified approach.

Download the newly published report 5G future: Business models for monetization for the full insight.

Tweet