Carrier Wi-Fi, Shared Spectrum Change Use Cases, Business Models

Carrier-grade Wi-Fi and spectrum sharing provide different value to actors within the ecosystem, changing the boundaries between private and public networks in new ways.

For mobile service providers, carrier-grade Wi-Fi mostly will be a way to incorporate unlicensed local networks as a core part of mobility infrastructure. Best-effort Wi-Fi mostly will remain a way to offload traffic from the mobile network.

For cable TV operators, carrier-grade Wi-Fi is a way to reduce the costs of entering the mobility business.

For business, government and other organizations, spectrum sharing will create new options for supporting private mobile networks that essentially compete with Wi-Fi as a local and private network platform.

Some entrepreneurs will see ways to create new wholesale venue communications businesses, offering indoor coverage to mobile service providers.

Fixed wireless internet service providers will see spectrum sharing as a way to remain relevant as bandwidth demands rise far above the traditional capabilities possible with legacy spectrum.

And a few large and well-heeled application and transaction providers might see new opportunities to build new access networks that better support their advertising, subscription or transaction business models.

Since the advent of the competitive era in telecom, and the rise of computing as a core use case, a distinction between “public” and “private” networks was created. In the consumer space, the “private” network is house wiring. In the business and enterprise space, private means the indoor or campus local area network.

In the 5G era, there will be additional changes. For the first time, enterprises and organizations will be able to create private mobile networks using 4G or other air interfaces. Such private networks might be used to support sensor networks or improve indoor coverage.

Speculation about the ultimate roles of private and public networks--especially the possibility that private networks might one day challenge public network roles--has bubbled up periodically over the past two decades.

Current practice suggests private networks increasingly act as extensions of the public network, though. That has been the case for mobile traffic offload (smartphones using Wi-Fi, as the best case).

With the rise of carrier-grade Wi-Fi and sharing mechanisms (the ability to aggregate mobile and Wi-Fi or other unlicensed spectrum), there is an important but slight shift of Wi-Fi roles. Essentially, Wi-Fi becomes core mobile network infrastructure, even if not owned or operated by any specific mobile service provider.

source: PwC

The ownership of assets might remain, but the use cases shift. There are some new revenue implications. If most of the value provided has an indirect revenue driver, there are some new direct revenue options.

source: PwC

Some venues might be able to provide wholesale access to any commercial mobile service provider, on the model of multi-tenant distributed antenna systems.

But one aspect of each use case does not change too much: private networks tend to be non-revenue-generating; public networks have to generate revenue. In common parlance, private networks provide valuable features at no incremental cost; public networks provide revenue-generating services.

Private networks always have indirect revenue or value models. The private networks are business infrastructure, not direct revenue sources in themselves.

That is true no matter what part of the network we discuss: in-home or premises “local” networks; access networks; metro facilities or long-haul assets.

Google and Facebook own and operate their own undersea networks because it provides more value, and is cheaper, than buying access on public networks. Consumers, organizations and businesses run their own Wi-Fi networks to connect users and devices to public networks.

In some cases, app providers and others also run their own access networks, generally as a complement to public facilities (providing access in high-traffic areas that boost use of their apps), but sometimes also to prod public carriers into boosting investment in access capabilities.

Most metro networks focused on business customers try, when possible, to build their own facilities. Sometimes organizations, governments or businesses also create and operate their “own” metro transport networks as well, for internal use.

In the long-distance undersea and terrestrial networks, perhaps half of all internet traffic actually runs over private networks, not public networks.

Carrier Wi-Fi represents a different business model than traditional “best-effort” Wi-Fi. One also can argue that carrier-grade consumer internet access represents a different business model, as well, a fact well understood by partisans on both sides of the network neutrality debate.

Broadly speaking, best-effort Wi-Fi is a mobile offload use case. Carrier-grade Wi-Fi is an “extend the network indoors” use case.

source: PwC

Why T-Mobile has the Easier Route to Profitable 5G Revenue than AT&T or Verizon

In any market, attackers often have strategy options that incumbents do not have. In the 5G-related revenue growth areas, for example, incumbents are looking at internet of things, edge computing and private networks.

Attackers can choose to look elsewhere, as T-Mobile is doing in the areas of home broadband and business services. In the former market T-Mobile has zero market share, and only has to take a couple of share points to build a substantial new revenue stream. In the latter market, T-Mobile has been under-represented, compared to its two main rivals.

And it is almost always easier to take market share than to create brand new markets. To take share, an attacker does not have to guess about the market size, the value proposition, the distribution channels or pricing.

To create or enter a new market, a firm must make guesses about all those matters.

One of the issues for connectivity providers trying to create new revenue streams--aside from a reputation for not being good at innovation--is the challenge of finding innovations that represent enough incremental revenue to justify the cost of developing them. 

It is one thing to see projections of the new revenue from private 5G networks; something else to figure out how much of that opportunity realistically can be addressed by connectivity providers. 

We face the same problem when trying to estimate the value of edge computing or internet of things markets as well. How much of that opportunity realistically could be converted into revenue for connectivity providers?

Since estimates of edge computing, unified communications, IoT and private 5G always involve a mix of infrastructure sold to create the networks; management solutions of some type; design, installation and operating support and some connectivity revenues, the issue is how to estimate realistic connectivity service provider roles and therefore revenues. 

History suggests connectivity providers might have a role earning up to five percent of any of those proposed new areas of business, based on past experience with local area networks in general, or business services such as enterprise voice, conferencing and collaboration.

The global unified communications  and collaboration market might have reached about $47.2 billion in 2020, IDC says. But most of that revenue was earned by entities other than connectivity providers. 

For example, revenue booked by Microsoft, Cisco, Zoom, Avaya and RingCentral totaled about $26 billion for the year. Those five firms represent 55 percent of total UCC revenues for the year, IDC figures suggest. 

Relatively little UCC market revenue is earned by connectivity service providers. 

Direct connectivity provider revenue from local area networks is almost completely related to broadband access bandwidth sold to enterprises, smaller businesses and consumers. Almost all the rest of the revenue is earned by hardware and software suppliers, third party design, installation and maintenance firms, chip and device vendors.  

The point is that the traditional demarcation point between cabled public networks and private networks--wide area and local networks--happens at the side of a building or in the basement. WAN and connectivity service providers make their revenue.

The demarcation point between mobile customers and the public networks is the device. The capacity services supplier owns everything from spectrum to tower, then tower to switches and other controllers, then the core network. The consumer owns the phone. 

Traditionally, the “private network” has been the province of different firms than public networks, which is why interconnect firms and system integrators or LAN specialists exist. 

Even in some “core” WAN areas--including virtual private networks--third party specialists and infrastructure suppliers dominate the revenue production. Software-defined WANs, for example, can be created at the edge using gear owned by the enterprises who set up the SD-WANs. 

SD-WANs can also be created by managed services firms, which includes connectivity providers. But most of the revenue is earned by infrastructure suppliers or managed services specialists, not connectivity providers. 

Much the same can be said for internet of things revenue upside. Most of the revenue will be earned by LAN hardware and software suppliers, sensor and devices suppliers and app providers. WAN connectivity will be a contest between specialized WAN providers using unlicensed spectrum and mobile operators using licensed spectrum. 

But all WAN connectivity collectively will be a small part of the IoT revenue opportunity. 

 

source: IoT Analytics 

In edge computing, most of the actual “computing” will be done by hyperscalers and others, even when mobile and fixed network operators supply real estate or access connections. It already seems clear that most telcos are not going to try and challenge hyperscalers for the actual “edge computing” function.  

Private 5G is mostly going to create revenue for infrastructure sales (hardware and software), as private 5G or 4G are local area networks, like Wi-Fi. The enterprise or the consumer “owns” that network.  

All of which raises an interesting question. “Everybody” seems to concur that businesses and enterprises will drive most of the incremental new revenue from 5G. What if that expectation is wrong? And it could be wrong, in the early days.            

Consider private 5G or edge computing or IoT opportunities. How much enterprise or business revenue do you actually believe connectivity providers in any single country can generate, compared to any other initiative in consumer segments?

Consider fixed wireless, for example, in the U.S. market. 

You can get a robust debate pretty quickly when asking “how important will 5G fixed wireless be?” in the consumer home broadband market. Will it matter? 

Keep in mind that the fixed network home broadband market presently generates $195 billion worth of annual revenue. Comcast and Charter Communications alone book $150 billion annually from internet access services that largely are generated by home broadband customers. 

Mobile service providers have close to zero--and in some cases actually zero--market share. 

Taking just two percent means new revenues of perhaps $4 billion annually, within a couple of years. How long do you think it will take T-Mobile to earn that much money from IoT, edge computing or 5G private networks? T-Mobile’s effective answer is “too long,” as it is not pursuing those lines of businesses in an active sense. 

T-Mobile is launching new initiatives for consumer home broadband and business mobility services, though. 

And the growth path for T-Mobile is clear. Instead of supplying new customers, with new needs, with new products, T-Mobile in its home broadband push only has to take a few points of market share in an established market. 

So it is possible that early incremental new revenue will be found by at least some mobile operators not in the sexy IoT, edge computing or private networks but in the less-sexy business of home broadband. 

Not to mention profits. The cost of creating a $1 billion revenue stream in IoT, edge computing or private networks--within a few years--will be somewhat daunting. The cost of creating $4 billion in home broadband revenues in the same time frame might be a simpler matter of applying marketing effort.

Edge Computing, Private Networks, APIs Won't Drive Net Revenue Growth for Telcos by 2030

Respondents from eight telcos believe their revenue prospects are highest in such new areas as edge computing, private networks and wholesale access, such as allowing third parties access to network features. 

While logical beliefs, and while revenue might be a positive number in all these cases, service providers, on the whole, are likely to find disappointment in these sources as a way of moving the revenue needle. 

Put simply, there is not enough revenue in those areas to offset the huge reliance on traditional subscriptions. 

source: STL Partners

Using estimated revenue from a variety of sources, including IDC, International Telecommunication Union, GSMA and ABI Research, for example, global service revenue might grow an additional $250 billion from 2023 to 2030. 

Revenue from new sources including edge computing, private networks and other horizontal services might add about $300 billion. But revenue from the mainstay subscription revenues might decline $250 billion as well. 

Revenue Source	2023 ($ billions)	2030 ($ billions)
Mobile subscription revenue	1,200	1,400
Fixed network subscription revenue	300	250
New revenue sources	100	400

 In other words, new revenue sources will be welcome, but might only offset declines in the legacy drivers of revenue. 

Revenue Source	2023	2030
Mobile subscription revenue	$1.5 trillion	$1.2 trillion
Fixed network subscription revenue	$0.5 trillion	$0.4 trillion
Edge computing	$0.3 billion	$3.2 billion
Private networks	$0.2 billion	$2.72 billion
IoT connections	$0.1 billion	$1.42 billion
Total

Of course, if one were to compile a list of forecasts for new revenue put together by suppliers, one would see a different set of numbers. New sources such as private networks might add $2.5 trillion in new revenue, for example, by 2030. Does that seem credible for an industry that only grows about two percent a year, and generates about $2 trillion a year in annual revenues?

Likewise, edge computing is thought by some proponents to represent $2.9 trillion in new revenue, in an industry generating only about $2 trillion in total revenue in 2023. 

Revenue Source $ Trillion	2023	2030
Mobile subscription revenue	1.50	1.20
Fixed network subscription revenue	0.50	0.40
Edge computing	0.30	3.20
Private networks	0.20	2.70
IoT connections	0.10	1.40
Total	2.60	8.90

The point is that revenue growth of such magnitudes represents a cumulative annual growth rate in excess of 23 percent. That is an order of magnitude higher than analysts expect the global service provider business to grow, overall. 

The only real issue is how far short the predictions of new revenue from edge computing, IoT, private networks and all other sources will fall short of the aggressive predictions. 

5G Leaky Bucket Problems

What happens with legacy services is arguably more important, near term, than what happens with new services created by 5G networks. The reasons are obvious: the new services represent smallish revenues while the legacy services represent most of the total revenue.

Small percentage declines in core legacy services have more revenue and profit margin impact than all the new services put together. The image of a hamster running on a wheel might not be appetizing, but that is the situation connectivity providers face.

Or, if you like, a leaky water bucket where new water is poured into the bucket as water continues to leak from holes.

Most connectivity service providers serving well-served and nearly-saturated mass markets would be happy if annual revenue growth chugged along at about a two-percent rate. Service providers in some markets can expect higher growth rates, but the global average will probably be in the two-percent range. 

Given some deterioration in legacy lines of business (negative growth rates), growth rates in one or more new areas might have to happen at higher-than-two-percent rates to maintain an overall growth rate of two percent. 

And that is the problem for new 5G services in the edge computing, private networks or internet of things areas, for example. The new revenue streams will be small in magnitude, while even a modest decline in a legacy service can--because of the larger size of the existing revenue streams--can pose big problems. 

Many service providers, for example, expect big opportunities in business services, which underpins hopes for private networks, edge computing and IoT. But revenue magnitudes matter. 

Consumer revenue always drives the bulk of mobile operator service revenues. And revenue growth is the key issue.  

But it will be hard for new 5G services for enterprises and business to move the revenue needle. 

Edge computing possibly can grow to generate a minimum of $1 billion in annual new revenues for some tier-one service providers. The same might be said for service-provider-delivered and operated  private networks, internet of things services or virtual private networks. 

But none of those services seem capable of driving the next big wave of revenue growth for connectivity providers, as their total revenue contribution does not seem capable of driving 80 percent of total revenue growth or representing half of the total installed base of revenue. 

In other words, it does not appear that edge computing, IoT, private networks or network slicing can rival the revenue magnitude of voice, texting, video subscriptions, home broadband or mobile subscription revenue. 

It is not clear whether any of those new revenue streams will be as important as MPLS or SD-WAN, dedicated internet access or Ethernet transport services, for example. All of those can be created by enterprises directly, on a do-it-yourself basis, from the network edge. 

source: STL, KBV Research 

In the forecast shown above, for example, services includes system integration and consulting, certain to be a bigger revenue opportunity than new sales of connectivity services. 

And though it might seem far fetched, the lead service sold by at least some connectivity providers might not yet have been invented.  

At least so far, 5G fixed wireless is the only new 5G service that is meaningful and material as a revenue source for at least some mobile operators. Even if network slicing, edge computing, private networks and sensor network support generate some incremental revenues, the volume of incremental revenue will not be as large as many hope to gain.

It is conceivable that mobile operators globally will make more money providing home broadband using fixed wireless than they will earn from the flashier, trendy new revenue sources such as private networks, edge computing and internet of things. 

source: Ericsson 

Wells Fargo telecom and media analysts Eric Luebchow and Steven Cahall predict fixed wireless access will grow from 7.1 million total subscribers at the end of 2021 to 17.6 million in 2027, growth that largely will come at the expense of cable operators. 

source: Polaris Market Research 

If 5G fixed wireless accounts and revenue grow as fast as some envision, $14 billion to $24 billion in fixed wireless home broadband revenue would be created in 2025. 

The point is that the actual amount of new revenue mobile service providers can earn from new services sold to enterprises is more limited than many suspect.