5G: Evolutionary Platform; Revolutionary Business Model

Even if 5G will--if successful--be a revolution in mobile business models, its technological foundations will be an evolution from 4G. That is one of the paradoxes of 5G: it will, in many ways, be a technological evolution from 4G, but its success as a platform will be quite revolutionary.

The “5G is an evolution from 4G” trend is obvious, such as the improvement in 4G network performance. Perhaps the most-obvious developments are faster speeds, as channels are aggregated (across licensed bands as well as using unlicensed spectrum).

Where once 4G LTE speeds topped out around 75 Mbps, for example, speeds now are heading for a gigabit.

The latest advance comes in the latency area. Working with Nokia, SK Telecom has demonstrated reduced latency between an LTE handset and base station from 25 milliseconds to 2 ms.

The latency improvements illustrate another trend, namely the evolution of advanced 4G technologies to underpin 5G. Latency performance, spectrum aggregation, use of small cells and multiple input multiple output (MIMO) radios, as well as ways to use the 4G signaling network to support 5G air interfaces are examples.

The latency between the handset and base station in the existing LTE environment is around 25 ms, SK Telecom notes. Lower latency matters for some internet of things applications, especially autonomous vehicles and telemedicine.

Skeptics might argue that the ability to support 5G levels of lower latency means 5G is not needed. Optimists will say the test proves 5G latency goals can be hit, removing one more development obstacle.

At 25 ms latency, a self-driving vehicle running at 150 kilometers per hour (okay, most of us are never in vehicles moving that fast), the vehicle travels about one meter after receiving a “decelerate” message, before it actually begins to decelerate.

At 2 ms latency, the vehicle moves only 8 centimeters before it begins to slow down.

which will significantly enhance the overall safety in autonomous driving.

Where 5G--if it proves successful financially--will be quite different from 1G, 2G, 3G and 4G is its business model. All prior generations achieved success as platforms for human communications and apps.

To the extent 5G succeeds, it will be as a platform for non-human applications (internet of things).

	Speed	Latency(Handset-Base station)
2G	14.4kbps ~ 64kbps	300 ~ 1000ms
3G	144kbps ~ 14.4Mbps	50 ~ 100ms
4G	75Mbps ~	25ms or lower
5G	20Gbps ~	1ms or lower

Source: Nokia

How Much Can Bundling Boost Demand for Fixed Network Voice?

It is hard to argue with the notion that landline voice service is a clear “legacy” technology that half of consumers--or more--have decided they no longer need to buy.

A Bank of America survey of U.S. consumers found “landline” phone service was used by just 36 percent of those surveyed.

The issue is the trend: how much further can purchases fall? To be sure, many would point out that analog accounts are a declining portion of total fixed network voice lines, while market share also is shifting from traditional suppliers to competitors.

Some, such as the Telecommunications Industry Association, are optimistic, essentially arguing that voice over Internet Protocol lines will grow enough to ensure that the total number of fixed network voice lines will not decline.

It is not an impossible outcome, but likely rests on a couple key assumptions. If voice lines are bundled with other more-desired services, such as internet access, and the price is low enough, it is possible that demand can be propped up.

That often is the case for triple play bundles, where it is impossible to discern a specific price for any of the constituent products.

At a low enough price, even a product with lower usage can make sense. In other markets, including the United Kingdom, consumer use of voice or all types actually is dropping, so the “value” of voice is a problem not only for fixed network providers, but also mobile service providers.

source: Ofsted

Some telcos offer discounts on internet access service if a voice line is purchased with that service. That often is the case in markets where retailers use wholesale access, for example, and the wholesaler requires that retailers buy voice service as a prerequisite for access to rights to buy broadband services.

source: Bloomberg, TIA

That seems not to square with other data, though, even if some forecasts of decline might have been too aggressive. A recent survey by Convergys found that only 36 percent of respondents buy fixed network voice service.

source: bankofamerica.com

Recent studies by the U.S. Centers for Disease Control have found households buying fixed network voice service represent about half of U.S. homes in 2014. By 2017, the percentage of mobile-only households had climbed to 51 percent, while homes buying fixed network voice represented about 46 percent of locations.

The government’s survey found that more than 70 percent of adults between 25 and 34 were mobile only, suggesting that in some demographics, fewer than 30 percent of households buy a fixed network telephone service.

In the developing world, most people already are mobile-only.

source: CDC

Voice Is Not Yet "Just a Feature," But it Now Drives Less Revenue

Even if “voice” is a vital feature of a mobile phone service, it is driving less revenue and profit for mobile and fixed network operators in the U.S. market. Still, despite declining demand, service providers are using bundling to sustain some amount of demand for a product that, as a standalone product, would arguably have far less demand.

Recent studies by the U.S. Centers for Disease Control have found households buying fixed network voice service represent about half of U.S. homes in 2014. By 2017, the percentage of mobile-only households had climbed to 51 percent, while homes buying fixed network voice represented about 46 percent of locations.

The government’s survey found that more than 70 percent of adults between 25 and 34 were mobile only, suggesting that in some demographics, fewer than 30 percent of households buy a fixed network telephone service.

Without triple play bundling, generally purchased by perhaps 30 percent to 37 percent of U.S. cable TV households, voice take rates would be even lower than they presently are.

Voice, for example, represented in 2015 something on the order of eight percent or so of Comcast’s service provider revenue. In the second quarter of 2017, voice represented about 6.5 percent of Comcast cable communications segment revenue. About 37 percent of Comcast consumer accounts bought a triple play, in the second quarter of 2017.

It is a reasonable bet that nearly all the voice accounts come from triple-play accounts.

Consider current pricing of mobile “voice and messaging” by some leading U.S. mobile operators, which tends to price unlimited domestic usage for voice and messaging at about $20 a month. By some estimates, fixed network voice represented $22 to $30 a month in revenue per line, half a decade ago.

The value of fixed voice arguably is less than that in 2017, but an attribution of $15 a month might be reasonable, in a fixed network context, if $20 is the retail value of a mobile voice-plus text-messaging capability, per line.

Though the value of triple play bundles long has been that it reduces account churn, in the current environment, the triple play also sustains demand for voice services that--absent the bundle--would be significantly lower.

Triple play bundles also increases profits, some studies find. In the U.S. market, single play accounts tend to run between 30 percent and 37 percent, as a rule. Bundles (dual play or triple play) represent up to 70 percent of accounts.

source: indiantelevision.com

Only 36% of U.S. Consumers Still Buy Landline Phone Service

Legacy technologies can remain in use for quite some time, as a Bank of America survey of U.S. consumers suggests. For communications service providers, the salient example is “landline” phone service, used by just 36 percent of those surveyed.

The very inclusion of landline voice service with outmoded platforms such as compact discs, physical calculators, VCRs and records indicates something about the likely future of landline voice services.

It would not be unrealistic to predict that, at some point, buying of such services--absent other bundling--would fall to low double digits. The countervailing trend is bundling, where consumers are offered discounts for buying phone service with video and internet access, “artificially” inflating demand for landline voice.

The survey, conducted by Convergys, included 1,000 respondents throughout the United States, of  adults 18 or older with a current banking relationship (checking or savings), and who own a smartphone.

source: bankofamerica.com

Winner Take All in Mobile Apps

Facebook and Google hold the top-six spots for usage among U.S. mobile users,  and eight of the top-10 slots. That matters because, in a winner take all market, only the few leading firms reap the returns.

U.S. consumers spend 90 percent  of their mobile app time in their top five apps, making up 51 percent of total digital time spent overall, comScore reports.

source: Business Insider

5G Might Generate $3.5 Trillion in 2035

In 2035, when 5G’s full economic benefit should be realized across the globe, a broad range of industries – from retail to education, transportation to entertainment, and everything in between – could produce up to $12.3 trillion worth of goods and services enabled by 5G, a study conducted by Berkeley Research Group forecasts. 

The 5G value chain itself is seen as generating up to $3.5 trillion in revenue in 2035, supporting as many as 22 million jobs. 

Over time, 5G will boost real global GDP growth by $3 trillion dollars cumulatively from 2020 to 2035, roughly the equivalent of adding an economy the size of India to the world in today’s dollars, the researchers predict.

Value Shifts in Auto Industry are an Opportunity for Telecom

Shifts of value within the ecosystem are happening in virtually every industry touched by the internet and software. In the telecom industry, value has shifted from “access and transport” to “applications.” That is happening in the automobile industry as well, with a difference. In the communications business, access providers struggle to maintain relevance.

In the automobile industry, as in other industries, access providers have a chance to gain relevance.

In the automobile industry, shared of ecosystem revenue are shifting from “vehicle sales” to applications and services. More important, shares of profit are shifting even faster, away from vehicle sales and aftermarket, and towards mobility and apps.

If you want to know why 5G matters, a chance to earn new revenues, from new customers, using new applications, is among the key reasons.

source: strategy&

source: strategy&

source: strategy&