Asking whether mobile operators can earn more from 5G than 4G, though a logical question, turns out to be the wrong question. The question logically gets asked for a few reasons, but still misses the point.
The real question is whether mobile operators can grow revenues faster than they have been in recent years, raise the perceived value of their services, sell at higher profit margins, while investing in new service capabilities with capital investment no higher than it has been, on average, with lower unit costs and operating costs overall.
5G, by itself, does not have to be the sole driver--and probably cannot be--for those desired business goals.
The global evidence so far is a bit mixed. Some service providers do not charge a price premium for 5G, over 4G, as such. Any revenue differences would come from subscriber volume, higher usage overall or other details of service plans. Others may try to do so.
But history suggests the period of premium pricing will last only in the early days of 5G availability.
Still, Verizon in the U.S. market does seem to see revenue lift in recent days, though not directly because of 5G. Instead, Verizon is driving revenue growth by switching customers from lower-priced metered usage plans to higher-priced unlimited usage plans.
“We are monetizing the move to unlimited” usage plans, said Ronan Dunne, Verizon Wireless president. There are several angles here. First, the unlimited plan, which offers 5G access as a feature, costs more than the metered plans.
By the end of the second quarter of 2021, about 69 percent of Verizon’s mobile account base was on unlimited plans, according to Matt Ellis, Verizon CFO. Nearly 27 percent of the account base bought premium unlimited plans, Ellis noted.
Also, some 60 percent of new accounts sign up for the unlimited usage plan, according to reports.
But there are other ways to enhance yields. The unlimited plans provide incentives for accounts to add additional devices. “In an unlimited world, what we see is the propensity of people to add an additional connection, whether that be a smart device, whether that be a tablet is significantly higher,” says Dunne.
In other words, unlimited plans drive device connection growth.
The point is that 5G--in and of itself--does not necessarily have to drive higher average revenue per user. In Verizon’s case, the revenue gains come from shifting customers to higher-priced unlimited usage plans. In T-Mobile’s case the revenue gains come from adding new accounts and taking market share, not from any 5G price premium.
The point is that 5G era mobile revenue, profit margins or revenue growth might well be higher, for a variety of other reasons than the cost of 5G access.
Parenthetically, we might note that core pricing strategies change over time in the connectivity industry.
One of the key differences between mobile and fixed segment pricing practices is that the former is based on usage (consumption of network resources) while the latter has been differentiated on speed of the connection, aside from any flat-rate charges for “access” (the right to use) to the network.
In other words, mobile users are charged more for using more data; fixed network users are charged differently based on the top potential speed of their internet connections.
In the past, when the only network was fixed, and the only service was voice, charges were based on usage or distance or both. “Long distance calls” were rated based on how far the calls had to be transported, a concept that has no meaning in the internet era.
These days, connections in the core network are priced based on bandwidth of the connection, not distance.
In retail markets, a variety of other values can contribute to end user price: bundling of content; volume purchasing; multi-user plans; equipment fees and regulatory fees and taxes.
The point is that average revenue per account might grow in the 5G era for any number of reasons not directly related to better 5G speed or latency performance. Verizon’s strategy shows one example of that.
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