5G Skeptics are Not Wrong, Tactically

Dire warnings about 5G cost, and therefore the 5G business model, are not hard to find. Though it is easy to find broad suggestions of how new revenue streams will develop, there is no certainty, beyond the fact that, in the consumer market, 5G will displace 4G for current phone access use cases.

The stock answer for 5G use cases includes “enhanced” consumer mobile broadband, internet of things and mission-critical, ultra-low-latency applications.

Enhanced mobile broadband is mostly a matter of product substitution--5G in place of 4G--and might provide some momentary revenue lift.

The problem is that will boost revenues only for a short time, if 4G provides any guidance. But any potential revenue benefit (higher average revenue per user) is likely to be short-lived, if arguably still meaningful. Whether that is because of unique 5G capabilities, or mostly higher usage (on usage-based plans) or higher fees for unlimited or high-usage plans is unclear.

Also, higher initial revenue tends to be driven by initial adoption by power users, who are willing to pay more. Over time, with universal adoption by mainstream and lighter users, who tend to be willing to spend less than power users, ARPU might naturally tend to drop.

source: Strategy Analytics

IoT and other now-exotic use cases (VR, AR, ultra-low latency use case) are reasonable new use cases coming with new revenues, but are likely to take some time to develop at scale. Indeed, it is conceivable scale is not reached until near the end of the 5G life cycle, or, in some cases, not until afterwards.

Many new revenue-generating new use cases envisioned for 3G did not develop until 4G, and some 3G possibilities never developed to any significant degree. As the big revenue drivers for 3G might well have been mobile email access, while 4G enabled the mobile internet, 5G could well be driven by somewhat prosaic use cases. Substitution for fixed network internet access and mobile video consumption are likely examples.

Nor is it hard to find arguments that few mobile operators actually will benefit substantially from the new use cases and value created by 5G networks supporting internet of things, smart cities, connected cars, augmented and virtual reality apps and services, as those use cases might well require huge scale.

And most telecom operators will never have the requisite scale to participate elsewhere in the value chain, beyond connectivity.

It is somewhat likely that neutral host indoor connectivity, supplied by third parties or service providers, could emerge as among the bigger near-term trends, much as third parties often supply big venue mobile access or Wi-Fi.

Among the other oft-missed implications is that the ultra-low-latency 5G apps will be enabled by edge computing facilities. In its support of  immersive video apps tested during the Olympics, KT was able to support roundtrip latency of seven to eight milliseconds, required for such apps, but only by using edge computing.  

Edge computing is also likely to required to support autonomous vehicle services.

The point is that big revenue-generating new use cases will have to be discovered and developed. They are not inevitable. Almost nobody believes the 5G business model can be driven mainly by consumer phone use cases.