5G Continues the Pattern: Unexpected Use Cases, Revenue Streams from Next-Generation Mobile Networks

The mobile and telecom industries have rarely been good at predicting the actual "new product" value of each next-generation mobile network. The switch to 2G, the first digital platform, was seen as increasing the efficiency of spectrum use; improving voice reliability; enhancing security and increasing capacity.

The use of Signaling System 7 also allowed sending of control data “out of band” (separately from the voice channel) to manage the network. Aside from security advantages, that also provided faster call set up and tear down. 

SS7 supports a wide range of then-advanced telecommunication services, such as call forwarding, caller ID, call waiting, and short message service (SMS or text messages). It is reasonable to say that telco executives primarily expected operating efficiencies from SS7, as well as the ability to embed voice handling features in the network. 

To be sure, some “new products and capabilities” were anticipated for 3G and 4G, ranging from mobile internet access in 3G to video entertainment and video conferencing (3G and 4G). But many more-exotic use cases failed to develop. In fact, many would attribute the one-time leadership of smartphones by BlackBerry devices and Research in Motion as an example of the role of email value. 

In fact, some might argue that mobile e-mail was a more salient outcome of 3G than “web access,” which remained painfully slow on 3G networks. Likewise, some might argue that “turn by turn” navigation apps were a clearer “new use case” for 4G, early on, than video conferencing or video entertainment. 

Later 4G development of ride sharing apps is an example of a new use case not envisioned by 4G architects. 

The point is that we are not very good at predicting what new use cases, revenue drivers and value users will see in each next-generation network, beyond an order of magnitude increase in bandwidth and a similar improvement in latency performance (which most users will not be able to identify). 

Likewise, virtually nobody predicted that fixed wireless would be the first “at scale” new revenue opportunity 5G enabled.

Despite the fact that fixed wireless was hardly ever mentioned as among the new features and capabilities 5G would bring, it has, so far, proven to be the best example of a new use case that generates significant new revenue for mobile service providers selling it. Over the past few years fixed wireless has generated virtually all the net new home broadband connections in the U.S. market, for example. 

Some might point to consumer dissatisfaction with cable-provided home broadband as one reason for the growing adoption of fixed wireless, where the value proposition might well turn on lower prices rather than an increase in speeds, in some cases, while being based on higher speeds and lower prices in other cases. 

The former might be the driver in urban areas where fixed wireless provides lower prices; the latter the driver in rural areas, where fixed wireless might actually be faster than DSL but also less costly than cable. 

The point is that the value proposition in urban areas is “good enough” speed and lower price; while in rural areas the value proposition might be “faster speed, lower price.”

J.D. Power surveys actually suggest that fixed wireless consumer satisfaction are comparable to optical fiber and cable home broadband, and actually higher than satisfaction with fiber-to-home services. By definition, that means the value proposition for fixed wireless is based on price and speed, as FTTH always is much faster. 

2023 U.S. Residential Internet Service Provider Satisfaction Study	J.D. Power	Fixed wireless, especially 5G FWA, leads in customer satisfaction scores compared to fiber optic and cable. FWA outperforms fiberoptic by over 20 points on a 1,000-point satisfaction scale.	October 2022 - August 2023
2023 HSI Customer Satisfaction Survey	HighSpeedInternet.com	Fixed wireless customers gave the highest overall satisfaction ratings, particularly in pricing and customer service.	September 8, 2023
CableTV Survey	CableTV	Fixed wireless and fiber providers scored highest in overall satisfaction, with cable providers lagging, especially in price satisfaction.	2023
S&P Global Market Intelligence	S&P Global Market Intelligence	Fixed wireless is particularly popular and satisfying among rural customers, where it often represents the most reliable option.	2023

Price seems important. “T-Mobile’s current FWA (fixed wireless access) plan retails for $50/month, but that falls to $30/month for customers subscribing to its Magenta MAX mobile plan,” analysts at Ookla say. “Verizon prices at a slight premium to T-Mobile, with its FWA service currently retailing for $60/month, but falling to $35/month with select 5G mobile plans.”

Speed might be less important in urban areas, but perhaps more important in rural areas. The median download speed across the United States for all fixed providers combined in the third quarter of  2023 was 207.42 Mbps, Ookla says. The median speeds for Verizon and T-Mobile fixed wireless was 122 Mbps, Ookla notes. 

  

source: Ookla 

And though fixed wireless has traditionally been viewed as an attractive platform in rural areas, 5G home broadband gains are driven by consumers in urban markets. Both T-Mobile and Verizon are getting 80 percent of their gross additions in urban locations, Ookla says. 

Among the key takeaways from 5G home broadband is that the value proposition--as always--is a mix of drivers, including both speed and price. Consumers seem willing to accept less of the former to get more of the latter. 

If the success of 5G home broadband shows anything, it is that the consumer estimation of home broadband value can change when a new value proposition is available (faster speed and lower price).

Also, we continue to be poor predictors of actual "new product" benefits of each next-generation mobile network.

Some Generative AI Disillusionment is Inevitable

Though chief opera;ting officers surveyed by Pymts believe the single greatest outcome from generative artificial intelligence is cost reduction--cited by 92 percent of survey respondents--they also believe there will be increased profits as well.

At this point, it is worth noting that those are expectations and beliefs, not statements about achieved outcomes. History suggests it is inevitable that some amount of disillusionment with generative AI will hit relatively soon. 

source: Pymts  

What the survey does not indicate is the magnitude of cost savings, profit margin or profit benefits. Also keep in mind that most respondents believed the greatest impact would come in areas including planning; risk management and customer satisfaction, not production management, for example. 

source: Pymts 

Such fuzziness is to be expected, this early into generative AI deployment. And we are likely to see both some amount of overinvestment and failed projects, as would be typical for any information technology project. 

Source	Key Points
Andrew Binns, Forbes	- Warns against overinvesting in generative AI too quickly
	- Emphasizes the importance of aligning learning pace with investment
	- Cites historical examples like GE's "big data" misstep
	- Recommends targeted business experiments before full-scale implementation
Goldman Sachs	- Executives expect enormous impact from generative AI
	- Most say they are unprepared for the technology
McKinsey	- 40% of respondents say their organizations will increase AI investment due to generative AI
	- Less than half of respondents say their organizations are mitigating even the most relevant risks
	- Suggests rapid adoption without adequate risk assessment

Some research suggests company big data investments often failed to generate observable and quantifiable outcomes. “In fact, six in 10 executives surveyed by Deloitte say it’s difficult to quantify the benefits of individual tech investments,” say Deloitte consultants. 

It would not be imprudent to suggest that much generative AI investment will fail to show measurable positive outcomes. As a rule of thumb, up to 70 percent of IT projects will fail. Studies have suggested that 74 percent of digital transformation projects have failed. 

In fact, most big information technology projects fail. BCG research suggests that 70 percent of digital transformations fall short of their objectives. 

From 2003 to 2012, only 6.4 percent of federal IT  projects with $10 million or more in labor costs were successful, according to a study by Standish, noted by Brookings.

source: BCG 

IT project success rates range between 28 percent and 30 percent, Standish also notes. The World Bank has estimated that large-scale information and communication projects (each worth over U.S. $6 million) fail or partially fail at a rate of 71 percent. 

So, expectations aside, most firm executives will probably be disappointed with their generative AI investments. 

Ofcom Moves to Reduce Uncertainty for Consumers, Increase It for ISPs and Mobile Service Providers

The Ofcom ban on inflation-linked price increases by suppliers of home broadband and mobile services is an example of a well-intentioned government policy that could have unintended consequences for consumers the rule is meant to protect. 

In principle, the new rule only seeks to protect consumers from uncertainty and sudden, unexpected price changes.  Ofcom believes that using metrics such as consumer price indexes as a means of setting future prices is not transparent or predictable enough for consumers.

“With household budgets squeezed, people need to have certainty about their monthly outgoings,” Ofcom says. “But that’s impossible if you’re tied into a contract where the price could change based on something as hard to predict as future inflation.”

But ISPs face the same dilemmas when inflation is high and unpredictable. 

So the rule essentially shifts uncertainty from consumers to providers, who now must make definitive decisions about the level of future inflation. 

On the other hand, perhaps the new rules also will enforce a higher level of managerial prudence, creating incentives for cost controls that better protect firms from uncertain inflation levels. 

The new rules do not restrict provider ability to set the level of their prices. Providers may increase their prices during the contract period. However, the rules prohibit providers from including inflation-linked, or percentage-based, price rise terms, and require that the price increases be identified at time of contract signing. 

In other words, ISPs and mobile service providers can specify that price changes are possible, but only in currency terms, not percentages, and only at set times. As a practical matter, that means ISPs and mobile providers will have to gamble on the level of future inflation increases. 

source: Ofcom 

The real issue for ISPs and mobile service providers is greater uncertainty, even as consumer uncertainty is reduced. 

By definition, “inflation” means a general rise in prices. In other words, the price of “everything” goes up. To the extent that suppliers of home broadband and mobile services face higher prices, adjustments have to be made. But the new Ofcom rules create high incentives for guessing right about future inflation rates. 

If firms guess wrong about future inflation rates (their scheduled price increases are insufficient to match inflation), they either will raise consumer costs elsewhere; suffer reduced profits and revenue (which imperils firm survival) or push such pain onto their suppliers, when possible. 

Suppliers might cope by restructuring service plans as well, offering products with fewer features that cost less, plus fuller-featured plans that can be priced higher. Providers might bundle additional products that produce more revenue and profits without changing subscription prices. 

If no other options are feasible, then service quality has to be cut in some way, as cost is taken out of the business.

Such pro-consumer policies happen because policymakers can claim to be protecting the consumer, much as lawmakers pass laws to be seen as “doing something” about problems. 

“Doing something,” even without a solid understanding of causal relationships, seems to happen all the time, even when it is not clear the solution will “solve” the problem, or actually creates new problems.

Sometimes policies that are equally well-intentioned cause other problems, such as reducing living standards for citizens. As much as we might support “clean energy” policies, those programs drive up energy costs for citizens, affecting the least well off the most. 

Policy	Problem Exacerbated	Impact
Federal Sugar Program limits imports	High food prices	Artificially increases sugar prices, costing consumers up to $3.7 billion annually and disproportionately affecting the poor
Energy and Environmental Policies	High energy costs	Drives up energy prices, which disproportionately impacts low-income households
Occupational Licensing	Job market barriers	Creates unnecessary obstacles for the poor in obtaining jobs that could lift them out of poverty
Restrictive Land Use Regulations	Housing affordability	Increases housing costs, making it more difficult for low-income individuals to afford housing
Minimum Wage Laws	Job opportunities	May reduce job opportunities for low-skilled workers

Most observers could agree that occupational licensing exists at least partly for reasons of consumer protection. But those same laws also create obstacles for people who cannot afford the time or money to obtain their licenses. 

Likewise, minimum wage laws--however much we like them--also can eliminate jobs, while increasing wages for those who continue to be employed. It’s often a trade-off. Would you prefer more jobs with less-certain wage rates, or fewer jobs with higher wages? 

It is not so much a choice of “good versus bad” but which outcome one prefers. 

The point is that the Ofcom policy, intended as a consumer protection measure, will, in the face of inflation, force suppliers to find other ways of recovering higher costs. 

Often, with well-intentioned policies, it is the externalities (unintended consequences) that are the bigger issue. There, it is not so much that the particular policies failed, but that new problems were created by policy “success.”

Policy	Intended Outcome	Unintended Consequences
Prohibition (1920-1933)	Eliminate alcohol consumption	Rise of organized crime, increased corruption, black markets, and potential increase in alcohol-related health issues due to unregulated production.
War on Drugs	Reduce drug use and trafficking	Increased incarceration rates, disproportionate impact on minority communities, rise of drug cartels, and potential increase in drug-related violence.
Suburbanization Policies (Post-WWII)	Promote homeownership, economic growth	Urban decay, increased reliance on automobiles, sprawl, environmental degradation, and social isolation.
Agricultural Subsidies	Support farmers, ensure food security	Overproduction, market distortions, environmental damage, and increased food prices for consumers.
Minimum Wage Laws	Increase income for low-wage workers	Potential job losses, increased unemployment, especially among young and unskilled workers.
Price Controls (Rent Control, Price Ceilings)	Protect consumers from high prices	Shortages, decreased quality of goods and services, black markets, and disincentives for investment in housing.
Tariff and Quotas	Protect domestic industries	Higher prices for consumers, reduced consumer choice, retaliation from other countries, and potential job losses in export-oriented industries.
Welfare Programs	Provide safety net for the poor	Dependency culture, disincentive to work, increased government spending, and potential for fraud.

The new Ofcom rule might work well in times of stable and predictable inflation, as much as it will cause issues when inflation is high and unpredictable. When ISP and mobile execs plan incorrectly, business stress will result. 

As much as consumers get better price certainty, ISPs will face higher uncertainty. In an industry with little margin for error, that might be quite consequential.