Is Private 5G a Threat to Mobile Operator Revenue?

Some believe private 5G or private 4G networks are an elephant in the room, a big potential threat to public network revenue models. Others see an opportunity to supply enterprises with private networks. 

A couple of proven models might clarify the potential upside and downside. Generally speaking, private networks have not historically been a threat to service provider revenue models. The examples include both cabled local area networks and Wi-Fi. In each case, the public network terminates at the side of the building and the internal network is owned and operated by the occupants. 

The LAN business always has been separate from the telecommunications business, and has either stimulated or been neutral in terms of revenue. 

To be sure, an obvious potential business model might have a telco operating a services integration business, building, operating and maintaining either cabled LANs or Wi-Fi networks on behalf of enterprise clients. This has proven difficult, both for telcos and a few firms that have tried to build a business doing so. 

source: Netmanias

Boingo, arguably the largest third-party supplier of enterprise venue Wi-Fi and neutral host mobile access in the U.S. market, has total annual revenue in the range of $275 million. As significant as that might be for many firms, it indicates a total addressable market simply too small to support a tier-one telco effort. 

In fact, in recent years, Boingo revenue growth has shifted to supplying distributed antenna system access to venues for mobile service providers. Basically, Boingo supplied the indoor or premises radio network for mobile phone service. 

Another example is the business private branch exchange (enterprise telephony) business. Telcos historically have preferred not to operate in this segment of the business, as gross revenue and profit margins are close to non-existent. Instead, ecosystem partners including system integrators and interconnect firms have occupied this niche in the market. 

The enterprise PBX market has not been large enough, or profitable enough, for the typical telco to pursue. 

Network slicing provides a new wrinkle, however. In principle, a private 5G enterprise network could in turn use a network slice for WAN connectivity. That still leaves the issue of which entity owns and operates the premises network, however. In principle, a network slice is simply another way the enterprise buys a connectivity service, while maintaining its own private local network.

The big takeaway might be that private network markets are not large enough for most telcos to pursue. The costs of building and operating a Wi-Fi network, enterprise telephony or indoor mobile network are not prohibitive for enterprises. So the opportunity for managed services might not be so large for any would-be third party suppliers. 

It remains to be seen whether private 4G or private 5G networks could break from those prior models. But suppliers will have to explore the possibilities. So Ericsson and Capgemini have partnered to explore their opportunities in the private 4G and private 5G network area. 

Telia in Sweden os the first service provider to join Capgemini and Ericsson looking for commercial projects in the Scandinavian market. 

In terms of business models, Ericsson might hope to sell infrastructure and software. Capgemini might look to provide both consulting, implementation and operation. Telia might seek mostly to garner the access revenues. 

But note the possible roles: private 4G or private 5G can be undertaken directly by an enterprise, or might be outsourced to a third party. The issue is whether the third parties might include telcos operating in the system integrator role, or whether that function will, as past patterns suggest, mostly be an opportunity for third parties. 

Beyond that, there is the question of how big the market opportunity might be for third parties. History might suggest the opportunity for telcos is limited, while the upside for third party integrators ultimately also is somewhat limited. 

Most large enterprises ultimately find that the cost of using a managed service provider exceeds the cost of building and operating a private local network. At low volume, a managed service often is more affordable. Those advantages often disappear at volume, however. That is why many enterprises still find they save money by operating their own LANs and PBXes. 

The takeaway might be that private 4G and private 5G will ultimately not prove to be disruptive for mobile service providers, even if significant private network activity occurs.