Will Significant 5G Revenues Come from B2B? Maybe Not

The conventional industry wisdom is that incremental new 5G revenues will come from business customers, not consumers. The bad news is that, in some regions, those new business-related 5G revenues might be quite small, by 2025.

You would be hard pressed to find any observers who do not believe edge computing, private networks and network slicing will lift revenue for mobile operators over the next decade In the Asia-Pacific or any other region.

The only question is the magnitude of those increases. And that is where matters get tricky. Some forecasts suggest sharp drop offs in Asia-Pacific mobile revenue through 2025, compared to trends up to 2019. 

But most forecasts call for revenue in the range of $230 billion to $390 billion by about 2025, with total revenue--fixed and mobile--closer to $500 billion in the region. 

If 5G revenue earned by mobile operators in the Asia-Pacific region by about 2025 reach $24 billion, then 5G would represent between six percent and 10 percent of mobile operator revenues.

If one assumes that consumer mobile connections represent 90 percent of 5G revenue in 2025, and using the higher figures of $24 billion in 5G revenue, then edge computing, network slicing and private networks together would only represent perhaps $2.4 billion in revenue.

That is a small amount contributed by three new revenue sources. 

But some believe 5G might contribute less, perhaps contributing $14 billion in mobile revenues  by about 2025. In that case, 5G would represent between four percent and six percent of mobile operator revenues in 2025. 

In that case network slicing, private networks and edge computing would be negligible revenue contributors, generating perhaps 1.4 percent of mobile operator revenues. 

At such levels, the impact of changes in subscription volume, average revenue per account, increases in internet access revenues and market share changes will have far more impact on mobile operator revenues than network slicing, edge computing and private networks.

How High is Home Broadband Churn?

If we can assume a monthly churn rate for home broadband of about two percent a month, annual churn could reach nearly 25 percent of the installed base. As often is the case for consumer surveys, behavior might not match stated intentions. 

source: TiVo 

Those stated intentions seem out of line with actual monthly churn rates in developed markets, which seem to hover between 0.75 percent and 1.25 percent per month. That suggests annual churn in the range of 12 percent of the installed base. \

source: Analysys Mason 

Metaverse is a Decade Away

Some technology transformations are so prodigious that it takes decades for mass adoption to happen. We might point to artificial intelligence or virtual reality as prime examples. Now we probably can add Web 3.0 and metaverse to that list. 

At a practical level, we might also point to the delay of “new use cases” developing during the 3G and 4G eras. That is likely to happen with 5G as well. Some futuristic apps predicted for 3G did not happen until 4G. Some will not happen until 5G. Likely, many will not mature until 6G. 

The simple fact is that the digital infrastructure will not support metaverse immersive apps, as envisioned, for some time. Latency performance is not there; compute density is not there; bandwidth is not there. 

In fact, it is possible to argue that metaverse is itself digital infrastructure, as much as it might also be viewed as an application supported by a range of other elements and capabilities, including web 3.0, blockchain and decentralized autonomous organizations, artificial intelligence, edge computing, fast access networks and high-performance computing. 

source: Constellation Research 

Scaling persistent, immersive, real-time computing globally to support the metaverse will require computational efficiency 1,000 times greater than today’s state of the art can offer, Intel has argued. 

To reduce latency, computing will have to move to the edge and access networks will have to be upgraded. 

All of that takes time, lots of capital investment and an evolution of business models and company cultures. Metaverse is coming, but it is not here today, and will take a decade or more to fully demonstrate its value. Major technology transformations are like that.

Web 3.0 Will Not Prevent the Rise of Powerful New Platforms

Many would argue that since Web 3.0 is the future of the internet, and since blockchain is among the key enablers of Web 3.0, that blockchain is therefore the future of the internet. We might at least agree that blockchain is part of the foundation of the future internet, as we might argue for artificial intelligence, edge computing or the metaverse. 

One of the principles of Web 3.0 is that it is more distributed, in terms of ownership of data. That is inherently part of the design of blockchain, so there is a clear logic there. Some proponents of Web 3.0 also tout some other possible advantages, including user ownership of their own data. 

Many argue that decentralization will prevent the rise of new gatekeepers that have been a criticized feature of Web 2.0. And this is the tricky part. It remains unclear whether technology decentralization necessarily leads to dispersed power within the ecosystem, or not. 

Keep in mind that the internet is, by design, similarly disaggregated. Owners of apps and services do not have to own networks to reach their users or customers. Functions within the ecosystem similarly are disaggregated. The use of layers allows a modular approach to supplying and upgrading functions. 

At least in principle, any end user can reach any other end user, so long as that is lawful. But it does not seem likely that new platforms will be prevented from arising. Though any entity can use blockchain, that does not prevent the rise of new platforms, any more than leaders can be prevented from emerging in any industry.

The existence of a public road, rail, airline or other infrastructure does not prevent the emergence of auto, airline or electrical and energy leaders. Blockchain might, in some cases, eliminate “middle man” functions for commerce, content or application supply. 

But that disintermediation does not prevent new platforms from emerging. Suppliers will still exist. And some suppliers will gain leadership of markets. Efficiency is the benefit of blockchain: it allows disintermediation.  

source: WallStreetMojo 

But disintermediation in no way prevents the rise of powerful platforms. It simply allows greater supplier efficiency. So though some believe Web 3.0 necessarily prevents the rise of centralized power on the internet, some will disagree. In any market, for any product or service, leaders emerge. The databases, currencies and technologies we use do not seem to affect such processes.

Is Growth an Unsolvable Problem for Service Providers?

Virtually all observers praise AT&T's "return to connectivity" as the fundamental business strategy. Some hail a new era for the company. Others might point to aggressive marketing tactics that could be hard to sustain longer term, even if they work in the short term.  

But monopoly market dynamics are fundamentally different from those with competition. Slow growth is not a problem for a regulated monopoly that earns a guaranteed--if low--return from investments made with almost zero risk. 

But that same business is fraught with danger in a competitive situation, where profit margins are squeezed; bad investment choices have real consequences and new competitors reduce the effective size of the market any single firm can grab. 

The simplest analogy: in a monopoly market the theoretical share is nearly 100 percent. In a competitive market with two competent suppliers the theoretical market share is 50 percent, In a market with three competent suppliers theoretical market share is reduced to 33 percent of total. 

In practice, a stable competitive market often will have a 4:2:1 pattern of market share among the top-three firms.  

In a mature competitive market it is conceivable that one supplier gets 50 percent share; a second 25 percent; a third 12.5 percent and the rest is divided amongst scores to hundreds of suppliers. But the biggest three suppliers can have close to 90 percent share. 

Few--if any--national communications markets have reached that shape, which suggests the markets remain unstable. 

The access business (voice, internet access, messaging, mobility) has other problems, though. Competition has meant declining profit margins; a lower return on invested capital and, often, lower average revenue per account over time. Revenue growth also is a persistent issue.

And that is the fundamental conundrum big access companies (telcos, cable TV, other ISPs) face. Competitive access markets feature low rates of growth; ARPU pressures; profit pressures and low rates of financial return on invested capital. 

“Sticking to the basics” (connectivity services) was always a low-growth business in the monopoly era. In the competitive era it often is a “close-to-zero growth” or even “negative growth” sort of business. 

That remains a key issue for connectivity providers that “sticking to the core business” does not necessarily solve. Market share gains and losses will remain a key variable under conditions where big gains in ARPU are close to impossible.

Wireless Power Delivery: Kilowatts at a Kilometer

Yes, substantial amounts of electiical energy can be converted into microwave radio frequencies and delivered without wires. 

Monetization of Higher Data Consumption Remains a Key Issue for ISPs

Virtually all internet service providers worry to some degree about monetizing growing data consumption on the part of their customers. But monetization is a bigger problem in some markets than in others. 

If consumption and revenue were strictly linear, as once was the case for long-distance telephone communications, the highest usages would correlate with the highest revenue, all other things being equal. Looking at mobile ARPU, some markets including India and South Africa show the monetization issue.

soruce: Cisco, Kagan Research 

In most markets, though, monetization is sticky on the revenue side. Average revenue per user might not increase as usage grows. To remain viable under such circumstances, an ISP must reduce costs per delivered bit or find additional revenue sources with higher profit margins and stronger revenue growth profiles.