CSPs will deploy 5G in at least two phases according to research by TM Forum, an industry association representing over 850 member companies. The first, which is already underway following launches of mobile broadband services in countries including the US, South Korea, Switzerland, the UK and Finland, essentially is an enhancement of LTE. In this case, 5G provides significantly greater capacity to improve the end user’s experience, but the types of services are largely unchanged from LTE – indeed, 5G services use the same core network as LTE.
It is the second phase of 5G deployment that will deliver widely anticipated new capabilities that rely on network slicing, edge computing and software-defined services (for example, self-driving vehicles which require low latency and high reliability).
5G’s revenue potential
TM Forum recently polled CXOs to ask them to forecast growth in CSP revenue underpinned by 5G over a five-year period from 2020 to 2025. The largest percentage of respondents (35%) said they believe it’s possible for revenue growth to be greater than 10%.
The executives recognize that this growth is much more likely to come from the enterprise market than from consumer services. Operators around the world are launching 5G mobile broadband services and in some cases fixed wireless access services, but there is no real conviction that this will drive revenue, at least in the short term. Operators are pinning their hopes on capabilities enabled by a new core network.
Some participants questioned whether it’s really possible to answer the revenue growth question. Said the CTO of a large European CSP, “We need to prove if [revenue growth] is going to be more than 10%, but do we know now? I think it’s quite premature to say what will happen with 5G because it is a fact that we failed to monetize 4G.”
The key focus of the second phase of 5G rollout will be on enabling business-to-business (B2B) and B2B2X ecosystems. This is where much-touted opportunities to sell into vertical markets such as automotive, healthcare and utilities will kick in.
To realize these opportunities CSPs must deploy not only 5G network elements but also support systems to help them monetize services and engage with customers and partners. While some operators said they are deploying IT support capabilities simultaneously with the deployment of network capabilities, others acknowledge that their organizations are prioritizing the network over operations software.
One of the strongest responses from the survey said that IT leaders should take a proactive approach to enabling business units within the organization to leverage new 5G capabilities by implementing new platform-based capabilities and Agile, DevOps working practices.
CTIOs must be proactive
To do this they will need to deploy teams within different business units and make a case for participating in senior decision-making functions. They will also need to develop the necessary business skills to put together return on investment-based business cases for new ways of working and technology platforms.
In practice, however, technology organizations cannot always be proactive. In our survey of CXOs, one in five respondents said IT teams lack the resources to be proactive, while one in 10 said they are not empowered to be proactive. Another 20% said that business divisions don’t believe IT teams have the right skills to engage proactively with them. If the IT function remains siloed, the risk is that it will remain a support function rather than transitioning into an enabler for new business.
There is no quick fix for this. Until IT is better able to demonstrate the value of new digital skills and capabilities – either in the form of cost savings or revenue gains – it will be extremely difficult.
The importance of IT
Consumers have been the primary market for mobile operators, but 5G changes that. Most of the CIOs we surveyed expressed extreme confidence in the ability of network and IT teams to support enterprise customers’ 5G needs.
So far mobile operators have sold the same services to enterprises and consumers (although in some cases at different prices). With 5G, network slicing gives operators the ability to offer private network-like services.
For example, operators may enable enterprises to manage the characteristics of their service (speed, bandwidth, latency, security, location, time) dynamically. Some CSPs also are seeking to cocreate new services and capabilities with large enterprise users. This is mainly happening on the fixed network now, but the flexibility enabled by cloud-native 5G networks gives operators the ability to extend this approach into mobile.
All these scenarios necessarily mean that IT capabilities must be more customer-facing than has been the case with previous generations of mobile technology.
Most respondents were from large CSPs with operating units that offer triple- or quad-play services and have large, established enterprise lines of business, but operators that are mobile-only and consumer-centric will need to build enterprise capabilities from scratch.
More than half of respondents said that their companies’ enterprise teams increasingly are looking to build their own IT capabilities and work directly with vendors. There is nothing new about shadow IT functions, but there is clearly a risk that as enterprise lines of business seek to offer new ICT services and capabilities, they will bypass the central IT organization, which is often viewed as slow and lacking new digital, software-based skills and capabilities.
How to monetize?
The big question mark over the potential for 5G relates to how operators will monetize new services. In live polling during the summit, business models were cited as the biggest challenge.
Developing business models that are beneficial to all partners involved is difficult because until now mobile communications have relied on a simple approach based on average revenue per subscriber (ARPU). This has applied as much to business users as to the consumer market, with services generally priced on a per-SIM basis. There is no suggestion that the ARPU business model will change in the consumer market, but when it comes to the enterprise market, operators must address many uncertainties and variables to be successful:
- There is little or no visibility of (or precedent for) the prices that can be charged for many of the advanced applications that will be enabled by 5G. Furthermore, end users will most likely buy the application that embeds connectivity rather than buying connectivity on a standalone basis.
- Services that embed 5G will have many components including the application itself, connectivity, connectivity platform, hardware (device) and systems integration. The only certainty is that CSPs will provide the connectivity component, but many will endeavor to provide end-to-end services, either by developing their own capabilities or packaging third party products and services.
- There has been much discussion about use cases, particularly in vertical markets, but it is still too early to have a clear picture of which will become commercially viable, and on what timeline.
- Innovation is not only about being able to create new products and services; it is also about reducing the time it takes to go “from concept to cash”. Right now, it takes about 18 months because of the legacy systems and processes that are in place, while cloud-native competitors can deliver new services in hours.
To learn more about how CSPs are addressing issues around organization and culture to increase the likelihood of 5G success, download TM Forum’s full “CTIO Outlook 2020: Transforming operations to monetize 5G” report here.