ShortCut: Monetizing Investments in 5G

SHORT CUT FROM SUPPLIER TO STAKEHOLDER: Monetizing high investments for 5G 5G is almost upon us. Like previous generational changes to telecoms networks, it will bring more mobile data, travelling faster. But more importantly, an abundance of new and improved services. The breadth and potential of these services is almost unlimited and will impact every sector. Possible applications range from live VR news broadcasts in the media sector, to remote surgery in medicine, to educators being able to create virtual classrooms in remote areas. Ultra-reliable communication based on low latency will also propel the automotive industry, enabling selfdriving cars and public transport vehicles. Meeting the challenge The challenge for the telecoms industry is monetizing this 5G opportunity. Despite accelerating levels of demand for data, and the many opportunities for new and innovative services, that these will bring significant commercial benefit to operators is far from a certainty. Existing commercial conditions are tough for operators: markets are saturated and highly competitive; and OTT providers have been busy creating freemium alternatives to existing operator services. This has made customers intolerant of charged services from telecoms providers, and more than happy to switch to the many alternatives they now have. Meanwhile, existing services for data have become commodified and indistinguishable. Evolving telecoms infrastructure to meet 5G requirements will also require considerable capital investment, up to several trillions USD. Not least, the number of base stations will need to increase considerably, since, despite all its advantages, 5G signals have a much shorter reception range than 4G. In urban areas, the requirement may be as much as 500 times the existing provision. Together, these challenges mean that successfully creating and selling 5G services is a critical development for operators. This goes far beyond creating the conditions in which 5G signals can be sent and received which, on their own, might only provide slender revenues. Rather, it means securing a fundamental position in the resulting ecosystem of services. These will require new business models beyond those currently employed by more traditional operators. New business: new models The business application layer – where new services, currently in their infancy, are surfaced to their users – is only one part of the story, though an extremely important one: this is where most customers will be spending money. That projected spend will justify the investment required to power the development of everything required for 5G to exist. The second layer is beneath the surface, where operators and other MNOs will create the business enablement layer of libraries of network functions and APIs, which can be selected to provide specific service elements for different applications. Beneath that is the physical infrastructure of the network – the base stations, servers, fibre-optic cables, access nodes and customer-premises equipment. If operators position themselves as among the providers and enablers of these advanced new services, then there is enormous potential for growth. DR. ALEXANDER HENSCHEL Managing Director, goetzpartners ACCELERATING DEMAND FOR DATA Overall monthly data traffic is expected to reach 35 exabytes in 2020: 7 times current volumes GLOBAL MOBILE DATA TRAFFIC, EXABYTES PER MONTH FOR 2016-2020 1) 7 11 CAGR +50% 17 24 35 2016 2017 2018 2019 2020 Meanwhile, IoT devices will become the second largest type of connected device, after smartphones 150 100 50 0 GLOBAL DEVICES AND CONNECTIONS GROWTH, BLN 2) 115 13 62 2015 118 2016 +3% 120 123 127 131 2017 2018 2019 2020 Desktop PC Portable PC Tablet IoT Smartphone 24 60 1) Cisco VNI Mobile, 2017 2) IDC, March 2015