IoT, Private Networks, Edge Computing Will Get the Headlines, Fixed Wireless Will Generate the Cash

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. And that might be true even if those other new revenue sources represent vastly more connections, sites or contracts.

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?

In fact, do you believe 5G mobility services will drive much revenue increase? The issue is opaque. U.S. mobile operators increasingly are taking the marketing tack of moving customers to higher-priced accounts featuring unlimited usage and then enabling 5G access as a feature of that upgrade.

So is it 5G driving the increase in revenue per account, or is it the upselling of service plans? Some of us would argue it is the latter, not the former. 

The GSMA has argued that fixed wireless would be a key driver of 5G value. 

By way of comparison, low average revenue per device might well mean that even high numbers of sensor connections do not drive especially notable connection revenues for mobile operators. 

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. 

No 5G New Revenue Source Matches Fixed Wireless

It is virtually impossible to argue with the proposition that the first new revenue stream of any significance enabled by 5G is fixed wireless internet access. Revenue from fixed wireless far exceeds revenues from other potential new revenue sources. 

Revenues from 5G fixed wireless, in the near term, will dwarf internet of things, private networks, network slicing  and edge computing, for example. 5G fixed wireless might, in some markets, represent as much as eight percent of home broadband revenues, for example. 

None of the other potential revenue sources--network slicing, edge computing, internet of things, private networks--is likely to hit as much as one percent of total service provider or mobile service provider revenues in the near term. 

As important as edge computing might be, as a revenue growth driver for mobile operators, revenue contributions might be relatively slight for some time. The same might be said for the revenue contributions made by internet of things services as well.

In 2024, it is conceivable that IoT connectivity revenues for mobile operators globally could  be in the low millions to tens of millions of dollars, according to Machina Research. Millions, not billions. 

In 2026 the global multi-access edge computing market might generate $1.72 billion. Even if one assumes all that revenue is connectivity revenue booked by mobile operators, it still is a far smaller new revenue stream than fixed wireless represents. 

If the home broadband market If the home broadband market generates $134 billion in service provider revenue in 2026, then 5G fixed wireless would represent perhaps 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. 

Though a growing number of home broadband subscribers should have access to gigabit speed fixed wireless service eventually, present coverage is relatively nil. 

T-Mobile and Verizon are expected to have 11 to 13 million total fixed wireless customers by the end of 2025. If total U.S. internet  accounts are somewhere on the order of 111 milliion accounts, and if small business users account for 11 million of those accounts, then home users might amount to about 100 million accounts. 

source: Ooma, Independence Research 

If Verizon and T-Mobile hit those targets, their share of the home broadband market--counting only fixed wireless accounts-- would be about 10 percent. Significantly, most of those accounts will be gained “outside of region” for Verizon. That is significant as Verizon’s fixed network only reaches about 20 percent of U.S. households. Fixed wireless allows Verizon to grow its account base among the 80 percent of U.S. home locations that cannot buy Verizon fixed network service. 

For T-Mobile, which in the past has had zero percent market share in home broadband, all of the growth is incremental new revenue. If those accounts add $600 per year in added revenue, then the 11 percent share of home broadband supplied by fixed wireless represents perhaps $6.6 billion in new revenue for the two firms. 

That is a big deal, considering how hard it is for either firm to create a brand-new line of business that generates at least $1 billion in new revenue. 

The other apparent takeaway is the size of the market segment that cares more about price than performance. 

Segments exist in the home broadband business, as they do in many parts of the digital infrastructure and digital services businesses. In other words, even if some customers want faster speeds at the higher end of commercial availability, up to 20 percent of the market cares more about affordable service that is “good enough.”

The center of gravity of demand for 5G fixed wireless is households In the U.S. market who will not buy speeds above 300 Mbps, or pay much more than $50 a month, at least in the early going. T-Mobile targets speeds up to 200 Mbps. 

During the third quarter, about 22 percent of U.S. customers bought service at speeds of 200 Mbps or below. In other words, perhaps a fifth of the home broadband market is willing to buy service at speeds supported by fixed wireless. 

source: Openvault  

The other takeaway is that home broadband net account additions over the past year have disproportionately come on the fixed wireless platform, representing about 78 percent of all net new accounts. 

source: T-Mobile 

To hang on to those accounts, Verizon and T-Mobile will have to scale speeds upwards, as the whole market moves to gigabit and multi-gigabit speeds. Some percentage of those upgraded accounts could come on some fiber-to-home platform. Even out of region, both firms could strike deals for use of wholesale assets. 

But the bigger part of the retention battle is going to center on ways of increasing fixed wireless speeds to keep pace with the ever-faster “average” speed purchased in the home broadband market. 

And that almost certainly means using millimeter wave spectrum to a greater degree. In the end, even using small cell architectures, there is only so much capacity one can wring out of low-band or mid-band spectrum. 

As a practical matter, almost all the future bandwidth to support mobility services or fixed wireless is to be found in the millimeter wave regions. 

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.

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.