How will operators afford to pay for 5G?

While 5G will undoubtedly be a massive benefit to society as a whole, how will telcos ensure that they achieve a decent return on the monumental investment that they will be required to make?

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Over the past few months there has been a noticeable increase in the levels of 5G fanfare. Whether it's Huawei showcasing their futuristic single seater drone taxi, or the flurry of proof of concept testings that have been announced by network operators, you could be forgiven for thinking that the roll out of 5G was just around the corner.

Amid the hysteria and hyperbole surrounding the next generation of mobile networks, a number of nagging questions persist - namely why do we need 5G and, perhaps more pertinently, can operators afford to pay for it?

At Huawei's Global Mobile Broadband Forum event in London this month, BT's CEO Gavin Patterson said that the industry needed to provide a compelling business case for 5G, whilst simultaneously driving down the associated costs of delivering the networks.  

How exactly telcos should go about this was a key theme at The Great Telco Debate, on Thursday.

Graham Wilde of BWCS likened the roll out of 5G to the introduction of the internet 25 years ago, and said that whilst that event had undoubtedly transformed society, the one group that hadn't directly benefitted from it was the telecommunication providers themselves.

"Their margins have collapsed quite significantly over the past 25 years. Many of the old services that were extremely profitable for them have completely disappeared and they have struggled to deal with this. Although we as a society will benefit enormously from 5G, it is the very people that we are asking to build it who are the least likely to benefit from it. They simply can't afford it," he said.

While Graham's speech was intended to be provocative, and perhaps even a little tongue in cheek, it raised a salient point and echoed calls throughout the day for operators to devise new strategies to monetise their networks.  

Undoubtedly, 5G will present opportunities for operators to do this. Speaking at the GTD event, Hossein Moiin, CTO at Nokia said that 5G would "open up an additional $300 billion of profit for operators rising to $1 trillion by 2028". The question is how do operators capitalise on this opportunity?

One option is to bring increasingly personalised, bespoke solutions and services to market for which customers would pay a hefty premium. This strategy would mark a change in direction for the telecoms sector, as Clive Carter, director of strategy at OFCOM was keen to point out.

"What we see in the industry at the minute is more and more focus on individual customer groups. The increasing personalisation of the services is not the business model that the telecoms industry has used in the past.  What they did in the past was to build large scale networks that did lots of things for lots of different people," he said.

"Making more money from a smaller set of customers makes very good business sense but it is fundamentally at odds with some people's visions of what telcos should be doing, namely supporting universal access for everyone."

Another option for telcos is to focus their attention on process automation and try to claw back some of the enormous revenues that this will generate.

With Average Revenue Per User (ARPU) flattening for mobile broadband customers, the new money for telcos is in automation, powered by data analytics, by ultra reliable low latency communications and mass connectivity, according to Rahim Tafazolli, founder and director of the 5G Innovation Centre at the University of Surrey. According to Tafazolli, 5G will be integral to the development of the Internet of Things, but if telcos are to reap the benefits of this, they will need to reorganise their playbook.

"5G will start with mobile broadband customers. They have been doing it for the last 20 years and they know the business model and the customers they are dealing with… For the bigger picture, the business models are not available yet. The telcos don't yet know how to work with the automotive industry or with the healthcare industry," he said.  

There is an adage about the roll out of new mobile network generations which says that only the even numbered Gs make money for the telcos, never the odd ones. The argument being that the odd numbered generations provide something truly revolutionary, whereas the even numbered ones tend to smooth out the kinks in performance. With 5G, operators have an opportunity to get ahead of the curve and deliver something truly revolutionary while simultaneously obtaining a healthy return on investment, so long as they are prepared to think outside the box.   

 

Friday Review - 01/12/2017