What if 5G Really Does Not Generate So Much New Value?

There can be no denying that connectivity providers would love to transform their business models in ways that represent more value and command higher market prices. It is natural that 5G would be seen as a tool in that process. But hopes often do not match reality.

“There is a strong consensus that 5G’s greatest commercial feature will shift away from acting purely as a  connectivity pipe, says Telecoms.com. Such beliefs can be both reasonable and inconsequential at the time. 

Ultra low latency performance might be both an important or key feature, and yet also have only slight impact on the ability of connectivity providers to escape their role. 

A survey of executives found industry insider belief that low-latency, sensor communications, network slicing and edge computing capabilities with most commercial significance. Again, that can be simultaneously true and yet very impactful in terms of revenue generation or ability to enhance value and role in the ecosystem. 

source: Telecoms.com

As with most other features and capabilities, 5G can be a source of competitive differentiation when other competitors cannot match a particular feature as well. At the same time, the amount of differentiation is inherently limited, as all competitors have access to the same platforms. 

Spectrum assets, on the other hand, provide a clearer case of differentiation, where ownership of licenses for various types of spectrum is disparate. T-Mobile, for example, has so far been able to leverage its greater mid-band spectrum resources against rivals whose positions still are developing. 

As always, much hinges on how customers and users behave. The values of ultra-low latency performance, for example, can be obtained in various ways, not always to the revenue benefit of mobile operators. Network slicing value can be replicated in some instances by enterprise edge computing. The same is true of ultra-low latency and predictability, which can be created by private networks as well as 5G public networks; edge computing or private 5G. 

It is understandable that industry executives hope for revenue and role outcomes that help service providers augment their connectivity role. Those hopes are likely to be hard to fulfill. 

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. 

5G Fixed Wireless Forecast
	2019	2020	2021	2022	2023	2024	2025
Revenue $ M @99% growth rate	389	774	1540	3066	6100	12140	24158
Revenue $ M @ 16% growth rate	1.16	451	898	1787	3556	7077	14082
source: IP Carrier estimate

Consider the U.S. market. By some estimates, U.S. home broadband generates $60 billion to more than $130 billion in annual revenues.

If the market is valued at $60 billion in 2021 and grows at four percent annually, then home broadband revenue could reach $73 billion by 2026. $24 billion would represent about 33 percent of total home broadband revenues. 

		2022	2023	2024	2025	2026
Home Broadband Revenue $B	60	62	65	67	70	73
Growth Rate 4%
Higher Revenue $B	110	114	119	124	129	134
source: IP Carrier estimate

If we use the higher revenue base and the lower growth rate, then 5G fixed wireless might represent about 10 percent of the installed base, which will seem more reasonable to many observers. 

Assuming $50 per month in revenue, with no price increases at all to 2026, 5G fixed wireless still would amount to about $10.6 billion in annual revenue by 2026 or so. That would have 5G fixed wireless representing about 14 percent of home broadband revenue, assuming a total 2026 market of $73 billion.

If the home broadband market were $134 billion in 2026, then 5G fixed wireless would represent about eight percent of home broadband revenue. 

Do you believe U.S. mobile operators will make more than $14 billion to $24 billion in revenues from edge computing, IoT or private networks?

Nor might private networks or edge computing revenues be especially important as components of total revenue. It is almost certain that global service provider revenues from multi-access edge computing, for example, will be in the single-digit billions ($ billion) range over the next few years. 

The same is true of forecasts of service provider internet of things revenue. The service provider 4G or 5G private networks revenue stream is likely to be small as well. 

All that implies that 5G fixed wireless might be the most-material--and largest--source of new service revenues for mobile operators.

Some estimates have total MEC revenues exceeding $25 billion by perhaps 2027 and close to $70 billion by 2032.  Other estimates suggest annual revenue of close to $17 billion by 2027.  

But those forecasts virtually always lump together revenues earned by hardware, software and services suppliers: infrastructure and platform plus computing as a service revenues. And computing as a service revenues will likely be dominated by hyperscalers, not mobile operators. 

Connectivity providers will profit from real estate support and some increase in connectivity revenues, but relatively rarely from the actual “edge computing as a service” revenues. 

For example, assume 2021 MEC revenues of $1.6 billion globally; a cumulative average growth rate of 33 percent per year; services share of 30 percent; telco share of service revenue at 10 percent. 

Multi-access Edge Computing Forecast
Year	2021	2022	2023	2024	2025	2026	2027	2028
Revenue $B	1.6	2.1	2.8	3.8	5.0	6.7	8.9	11.8
Services Share	0.3	0.6	0.8	1.1	1.5	2.0	2.7	3.5
Growth Rate	0.33
Telco Share	0.1
Telco Revenue	0.2	0.2	0.3	0.4	0.5	0.7	0.9	1.2
source: IP Carrier

The actual MEC revenue from MEC is quite small by 2028. In fact, too small to measure. Of course, all forecasts are about assumptions. 

One can assume higher or lower growth rates; different amounts of connectivity provider participation in the services business; different telco shares of the actual “computing as a service” revenue stream; greater or lesser contributions from mobile connectivity revenue from MEC. 

The point is that actual MEC revenues earned by mobile operators or other connectivity providers might actually be quite low. So value earned from all those infrastructure investments would have to come in other ways.

Higher subscription rates; higher profit margins; lower churn; higher average revenue per account are some of the ways MEC could provide a return on invested capital. Some service providers might actually provide the “computing as a service” function as well, in which case MEC revenues could be two to three times higher. 

But many observers are likely to be disappointed by the actual direct revenue MEC creates for a connectivity provider.

Central Bank Digital Currencies Would Have Winners and Losers

For every public policy, there are private interests that are helped or harmed. Central bank digital currencies seem to fall into that pattern. A central bank digital currency would hurt credit unions, a credit union trade group says. Others point out that CBDCs would help protect private banks from disintermediation. 

Central bank digital currencies are a digital form of central bank money that is widely available to the general public. A CBDC would differ from existing digital money available to the general public because a CBDC would be a liability of the Federal Reserve, not of a commercial bank.

source: Reserve Bank of Australia 

Unlike many other cryptocurrencies, CBDC tokens would be tied to a nation’s fiat currency. Some may dislike it for that reason: some cryptocurrency supporters value crypto precisely because it is not a centralized form of money and does not require clearing through the established banking s

Central bank digital currency is traditional money in digital form, issued and governed by a country’s central bank. It therefore would be influenced in supply and value by a country’s monetary policies, trade surpluses, and central bank.

Central bank digital currency is not “cryptocurrency” such as Bitcoin, governed by distributed autonomous communities. To a degree, CBDC value might not fluctuate as much as crypto does, as “value” has an external reference. 

CBDCs are supported by central banks because it preserves the role of central bank money. But even central bankers acknowledge pros and cons. 

CBDC offers the public broad access to digital money that is free from credit and liquidity risk. Also, CBDCs could reduce common barriers to financial inclusion and enable lower transaction costs helping low-income and underbanked individuals.

CBDC has the potential to streamline cross-border payments. 

But from a central banker perspective, CBDCs could fundamentally change the structure of the U.S. financial system, altering the roles and responsibilities of the private sector and the central bank, altering the supply of reserves in the banking system, and affecting monetary policy implementation.

That very attribute, though, is seen by some as an advantage of rival cryptocurrencies. 

As always, there are issues of privacy and transparency needed to ensure lawful use of money. 

From a central bank perspective, CBDCs are necessary to protect the integrity of the monetary system. In essence, CDDCs would be a form of “stablecoins," tokens whose value is pegged to some national currency. 

R.I.P. Abe Shinzo

Rest in peace, Abe Shinzo. 

source: Getty Images

PTC Academy Focuses on Business Implications of Technology

Training and certification for either connectivity (mobile or fixed ) or data center employees is not hard to find. It arguably is even easier to find data center training than connectivity service provider courses. Virtually all such courses focus on technology topics. 

PTC Academy is different in that it specializes in training for mid-career professionals with a business focus, not technology as such. The focus is the business implications of technology, not so much “how it works.”

Training credit is provided by the Submarine Telecoms Forum, an IACET-accredited continuing education provider. 

Home Broadband Costs--for the Plans People Actually Buy--Have Dropped Since 2015

According to US Telecom, U.S. home broadband prices continue to fall, when looking at the most popular service plans consumers actually buy. The BPI-Consumer Choice compares providers’ most popular speed tier of broadband service in a given year to its most comparable 2022 service.

The BPI-Speed compares providers’ fastest speed tier option in a given year to the comparable plan in 2022. 

source: US Telecom 

Using what is called the “Real Broadband Price IndexI-Consumer Choice method (looking at prices for the service plans most people actually buy),broadband prices dropped by 14.7 percent from 2021 to 2022, UST says. 

Over a longer time span, Real BPI-Consumer Choice tier prices dropped by 44.6 percent from 2015 to 2022, UST adds, while Real BPI-Speed tier prices dropped by 52.7 percent from 2015 to 2022. 

source: US Telecom 

Real BPI-Speed broadband prices dropped by 11.6 percent from 2021 to 2022, the group says. In contrast, the cost of overall goods and services rose by eight percent from 2021 to 2022, UST says. 

Other analyses support similar conclusions. Because of inflation, price levels rise over time. So virtually any product can be accused of “costing more” in 2022 than it cost in 1996. 

Some may intuitively feel this cannot be the full story where it comes to digital products, which keep getting better, while prices either stay the same or decline. Such hedonic change applies to  home broadband. 

Hedonic qualIty adjustment is a method used by economists to adjust prices whenever the characteristics of the products included in the consumer price index change because of innovation. Hedonic quality adjustment also is used when older products are improved and become new products. 

That often has been the case for computing products, televisions, consumer electronics and--dare we note--broadband internet access services. 

Hedonically adjusted price indices for broadband internet access in the U.S. market then looks like this:

source: Bureau of Labor Statistics 

 

Quality improvements also are seen globally. 

Adjusting for currency and living cost differentials, however, broadband access prices globally are remarkably uniform. 

The 2019 average price of a broadband internet access connection--globally--was $72..92, down $0.12 from 2017 levels, according to comparison site Cable. Other comparisons say the average global price for a fixed connection is $67 a month. 

Looking at 95 countries globally with internet access speeds of at least 60 Mbps, U.S. prices were $62.74 a month, with the highest price being $100.42 in the United Arab Emirates and the lowest price being $4.88 in the Ukraine. 

According to comparethemarket.com, the United States is not the most affordable of 50 countries analyzed. On the other hand, the United States ranks fifth among 50 for downstream speeds. 

Another study by Deutsche Bank, looking at cities in a number of countries, with a modest 8 Mbps rate, found  prices ranging between $50 to $52 a month. That still places prices for major U.S. cities such as New York, San Francisco and Boston at the top of the price range for cities studied, but do not seem to be adjusted for purchasing power parity, which attempts to adjust prices based on how much a particular unit of currency buys in each country. 

The other normalization technique used by the International Telecommunications Union is to attempt to normalize by comparing prices to gross national income per person. There are methodological issues when doing so, one can argue. Gross national income is not household income, and per-capita measures might not always be the best way to compare prices, income or other metrics. But at a high level, measuring prices as a percentage of income provides some relative measure of affordability. 

Looking at internet access prices using the PPP method, developed nation prices are around $35 to $40 a month. In absolute terms, developed nation prices are less than $30 a month. 

According to an analysis by NetCredit, which shows U.S. consumers spending about 0.16 percent of income on internet access, “making it the most affordable broadband in North America,” says NetCredit.

Looking at internet access prices using the purchasing power parity method, developed nation prices are around $35 to $40 a month. In absolute terms, developed nation prices are less than $30 a month.  

Methodology always matters. The average U.S. home broadband service  costs about $64 a month. In fact, U.S. home broadband inflation-adjusted costs have declined since the mid-1990s, according to an analysis  of U.S. Consumer Price Index data. 

That will often not be obvious when observers consider only “current” prices for home broadband, and compare them to past “retail” prices.  

Despite the oft-repeated claims that U.S. home broadband is “too expensive,” careful analysis suggests the answer is far from clear. In fact, using measures to normalize prices for different costs across countries; accounting for inflation; taking into account the actual plans people actually buy; including cost per gigabit per second of speed and also accounting for hedonic product change, the opposite conclusion might be reached.

In Perspective, Home Broadband Is Less a Problem Than it is Often Made Out to Be

One fact of discussions of home broadband availability in many countries is the amount of noise about inadequate coverage and service speeds compared to actual availability. To be sure, rural areas might always lag urban areas in many areas of life--economic or social--no matter what we do. 

But it also is helpful to keep perspective. In the United Kingdom, for example, almost every home location can get internet access at minimum speeds of 30 Mbps, which is roughly equivalent to the U.S. minimum definition of 25 Mbps. 

Comparing first half of 2022 to last half of 2021 figures, for example, current coverage at a minimum of 30 Mbps is more than 97 percent (compared to last half 2021 total of just shy of 97 percent for the U.K. as a whole. 

Gigabit speeds are available for purchase across 69 percent of U.K. homes. 

source: ISP Review

In the U.S. market, for all the complaints we hear, gigabit speeds now are available to more than 88 percent of all U.S. homes, according to the Federal Communications Commission. Even if one disagrees with that estimate, most consumers in the U.S. market actually buy services operating far faster than the minimum. 

Other estimates peg the percentage of homes with cable high-speed access at 90 percent. And reported uptake of gigabit speeds in rural areas is far higher than what most likely believe. 

Consider rural telco networks. “Respondents to this year’s survey report an average of 4,467 residential and 469 business fixed broadband connections in service,” NTCA says, with an  average of 7,581 serviceable locations. 

“On average, three-quarters (75 percent) of serviceable locations are served by fiber to the home (FTTH) in 2021; this is an increase of 5.1 percentage points from the prior year’s survey, the latest Broadband/Internet Availability report issued by NTCA says. 

An average of 15 percent of locations continue to be served via copper loops while fiber to the node (FTTN) is used to serve an average of six percent serviceable locations. Cable modems service 2.7 percent of locations, licensed fixed wireless 0.7 percent and unlicensed fixed wireless 0.6 percent of locations. 

source: NTCA 

As in urban areas, availability does not mean customers actually choose to buy the fastest tier of service. But they can do so if they choose. 

About half of U.S. internet access customers buy services running between 200 Mbps and 400 Mbps as of June 2022.  That is a shift. Until recently, about half of the customers purchased services running between 100 Mbps and 200 Mbps. 

Roughly 70 percent of fixed network broadband customers purchase service at speeds of 200 Mbps or higher. Customers who buy gigabit or faster service have reached 13 percent, while customers of services operating between 500 Mbps and 900 Mbps are six percent of total. 

source: Openvault 

There are problems, to be sure. If 98 percent of U.S. homes can buy internet access at the defined minimum, that still leaves two percent that cannot. Work has to be done there, of course. But it also is important to note the high and growing percentage of U.S. homes that can buy gigabit service, a figure that might range between 80 percent and 90 percent. 

Speeds and coverage will keep increasing. As electricity now is available to 100 percent of homes, but took decades to reach 70-percent coverage,  so broadband will get there as well, using a mix of platforms. The most isolated locations might always lag speeds available in the urban areas, to be sure. But coverage, as such, will cease to be a problem. 

The point is to maintain perspective. We all face many problems that must be solved, and we must work on all of them at the same time. Exaggeration does not help. Quality U.S. home broadband remains an issue, but is not the widespread problem it often is made out to be. 

There are issues and they are being addressed. But home broadband is hardly a crisis. In perspective, it might not even make a list of the “10 biggest problems” most households face.