5G is a Big, and Risky, Bet on the Future

It is easy enough to point out that we are far removed from the days when telecom was a safe, slow-growing, low-innovation industry with little competition. Telecom used to be considered a "utility" industry. It retains some elements of that heritage, but now is anything but a "guaranteed rate of return" industry.

Today, nothing is guaranteed: not revenue, not profits, not customers, not the business model, nor continued existence. So pointing out that 5G will be risky is only to note that the whole industry now is far more risky than ever before.

Big bets have to be routinely placed, and 5G is no different.

Among the potential 5G business model challenges is a mismatch between the expected value of use cases and hoped-for revenue opportunities. Put simply, the gigabit speeds 5G will enable for “enhanced mobile broadband” are not generally needed, so value will be low. But operators making investments will be looking for a financial return, so there will be pressure to price faster 5G services at higher levels than 4G. But 4G still will work for most consumer applications.

How important will 4K or 8K video, virtual reality and augmented reality really prove to be, early on? And how much more will consumers pay to get such support?

At the same time, the greatest hope for incremental revenue growth might come from enterprise apps generated by various internet of things applications, even if those take longer to develop.

At least, those are reasonable inferences from what industry executives currently believe. A survey by GSMA Intelligence found 69 percent of respondents believed enterprise apps (for IoT) would be the most-important drivers of new revenues. Just 23 percent believed consumer apps would be the most-important new revenue source produced by 5G.

In fact, three of four very-important new drivers of revenue are in the enterprise space, not the consumer space. In other words, it is easily possible to argue that 5G is the first mobile network generation of greatest value for enterprise applications, not direct consumer use cases.

Still, big risks now are simply part of the industry context. My own rule is that service providers are going to need to replace at least half of all current revenue every decade, from now on.

Whether that can be done, consistently and sustainably, only on the strength of connectivity services is an open question. Moving up the stack (getting into new lines of business in other parts of the ecosystem with higher revenue, margins and value) is imperative, not optional.


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