Way too much is made of near-term potential revenue gains for mobile service providers because of 5G. Keep in mind that nearly every 5G account replaces an existing 4G account.
When a 5G account generates more revenue for a mobile service provider, it might sometimes be for a mix of reasons, such a customer switching from an account with a consumption allowance to an unlimited usatge account that costs more, as often as a revenue boost coming from a higher price for 5G, compared to 4G.
So revenue impact must be evaluated on a number of perhaps indirect metrics, including better new customer acquisition, lower churn and upsell prospects, on the revenue side of the ledger. Across the industry, “flat to declining ARPUs, despite upgrading subscribers to 5G,” are the likely outcome, ABI Research predicts.
There are other benefits, however, on the cost side of the ledger. Mobile operators must supply ever-increasing amounts of capacity across the whole network, but also most immediately at perhaps 20 percent of cell locations. 5G provides a more-efficient way of supplying lots of new capacity at a lower cost per bit than 4G, even when 4G capacity continues to improve, up to a point.
Some might therefore conclude that the whole 5G project is some sort of mistake.
“In the most advanced 5G market, South Korea, 5G has managed to stop the declining ARPU trend, but it is now clear that it cannot generate new consumer revenue” ABI Research notes.
New technology sometimes is important most crucially for suppliers, when they can reduce the underlying cost of consumer products supplier sell to consumers, while improving performance characteristics. That is not to underestimate the longer term value of new technology in enabling new products and better end user experience.
It is to note that 5G is important right away because it allows suppliers to position themselves for ever-increasing customer expectations, and not because dramatically-new and different experiences are the result of deployment. That will come, simply not at first.
In consumer markets, at first, the value of 5G accrues mostly to service providers, who can use 5G to alleviate congestion on urban cell sites. Only later will additional applications, use cases and end user experience benefits be created.
The new use cases are virtually universally expected to come in the enterprise customer segments of the business. But many might disagree with the assertion that 5G success in enterprise verticals will be determined in 2020.
To be sure, ABI Research believes 2020 will be crucial because Release 16 from the 3GPP will be released in 2020. But that speaks only to standards, not commercial application. It is true that mass deployment awaits the finalized standard, as suppliers will be able to build actual products compliant with the standard.
But many could argue that almost nothing about the future success of 5G in enterprise verticals can be determined in 2020, since long-term value will require parallel developments in edge computing, applied artificial intelligence and broad developments in the internet of things, in addition to finalized standards that allow suppliers to build actual products.
ABI Research also says “private cellular will threaten the domain of mobile operators,” a contention that seems both plausible in some ways and yet nuanced. To be sure, mobile service always has promised connectivity “wherever” a customer is, indoors and outside. But the reality is that the enduring value of mobility continues to reside in outdoor spaces.
Most mobile customers are quite used to switching their mobile device internet connectivity to Wi-Fi when indoors. So the unique value of a mobile network remains outdoors coverage. Private networks often are a primary, perhaps exclusive domain for indoor mobility, often for public network voice, messaging and internet access.
In that sense, private indoor 5G networks are akin to private local area networks long used to support PC and premises networks, using cables in the 1980s and now Wi-Fi. We might well consider private 5G to be a similar sort of development, in which case private 5G networks are complementary to public wide area 5G and mobility, not a replacement or substitute.
In some cases enterprises might use private 5G where they once used private Wi-Fi or cabled networks. In other cases private 5G will simply allow users mobile device connectivity indoors.
Even if one assumes some use cases where private 5G is a substitute for public network 5G, as when sensor connections do not rely on mobile accounts but are relayed over a private network to a public network WAN connection, it is unclear whether that subtracts from a mobile network operator’s revenue potential.
Public networks always have terminated at a demarcation point at the side of a house or building. Inside the building long has been the domain for private networks, the salient exception being indoor mobile phone reception.
And even there, a case can be made that offloading the cost of mobile access to private 5G provides capex and operations savings that have a non-zero value for mobile operators, offsetting some potential non-zero account “losses.”
The point is that 5G does not necessarily have to drive near-term consumer revenue upside. Nor does private indoor coverage necessarily diminish in any way diminish the value of mobile service.
The value of private 5G for a mobile service provider includes the total cost of ownership. Capital investment and operating cost savings provide value even if some amount of account substitution could occur in some instances.
So private 5G might not prove an unwelcome trend for mobile service providers.
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