Is 5G a Paradigm Shift?

Some observers use the term “paradigm shift” to describe 5G. Without getting overly picky, “paradigm shift” is a term of art, coined in 1962 by Professor Thomas Kuhn to explain the way science advances. In a nutshell, he argued that science progresses in a non-linear way.

The given consensus begins to encounter greater and greater anomalies, until finally the old consensus abruptly breaks, and a new interpretation arises. Precisely how that applies to industries and business models is never straightforward, especially since marketing grandiosity gets in the way.

But consider one way of looking at scientific paradigm shifts:

• The transition in cosmology from a Ptolemaic cosmology to a Copernican one.
• The transition in mechanics from Aristotelian mechanics to classical mechanics (motion).
• The acceptance of the theory of biogenesis, that all life comes from life, as opposed to the theory of spontaneous generation.
• The transition between the Maxwellian Electromagnetic worldview and the Einsteinian Relativistic worldview.
• The transition between the worldview of Newtonian physics and the Einsteinian Relativistic worldview.
• The development of quantum mechanics, which replaced classical mechanics at microscopic scales.
• The acceptance of Lavoisir's theory of chemical reactions and combustion in place of phlogiston theory known as the Chemical Revolution.
• The acceptance of Mendelian inheritance, as opposed to pangenesis in the early 20th century

The notion here is way beyond “big change.” Such paradigm shifts imply quantum changes (fundamental changes of state) that are “sudden, dramatic, and enduring.” Much of the emphasis here is on sudden.

It might help to look back at industry changes that could qualify as a paradigm shift, when old assumptions about the business model were broken, and were reconstituted in a new way, globally.

It is likely reasonable to require that any proposed paradigm shift affects the whole global industry, not a single industry segment or country.

A bit harder are platform changes within the industry: analog to digital switching; fixed to mobile; copper to optical access; monopoly to competitive regulation; state-owned to private ownership of firms.

Of those important changes, only the regulatory change from monopoly to competition--and government-owned to privatized firms--might universally be considered a paradigm change.

And that is a key facet for understanding when a development really is a “paradigm shift.”

Though quantum change and paradigm change often result from a long, slow period of quantitative changes, the shift of paradigm is quite sudden. As big a change as the change from “copper to optics” and “analog to digital” have been, some might not consider them quantum or paradigm changes.

The shift from fixed to mobile arguably was a paradigm change. The shift of revenue models (voice to internet access; fixed to mobile) might also qualify, but is more debatable.

In the addition to the end of monopoly, and the shift from fixed to mobile, the internet is probably the only other clear candidate most would agree was a paradigm shift.

Many firms now can use the internet to compete directly with telecom services or displace them entirely. At the same time, internet apps and services allow consumers to change their behavior, reducing aggregate demand for telecom versions of communications and entertainment products.

So Is 5G a paradigm shift? Some of us would have to conclude it probably is not. Is 5G a possible “revolution?” Yes. Even if not a paradigm shift, 5G could usher in an era where industry growth shifts from consumer to enterprise revenue sources. Will 5G pose a fundamental challenge to fixed network revenue models, on the older model of mobile substitution? Possibly, in some markets.

Failing that, 5G might still qualify as  “a big change.”

Claims that 5G is a paradigm shift are probably way overblown and hyperbolic.

Great White Shark

"We're going to need a bigger boat!"

Immediate 5G Value is Capacity, Irrespective of New Revenue Opportunities

In addition to brand-new revenue sources that should develop later in the 5G era, the immediate and practical value of 5G is to supply ever-growing capacity demands, even as 4G gets more efficient and other platforms come to commercial usage.

And 4G will continue to supply more bandwidth for the next five years, though at a declining incremental rate of increase after perhaps 2020, according to Michael Murphy, Nokia Networks CTO, North America.

source: Nokia Networks

source: Nokia Networks

The ability to aggregate Wi-Fi and unlicensed spectrum to mobile spectrum will add some bandwidth. So will 3.5 GHz spectrum, both licensed and unlicensed. But most of the new capacity will have to come from 5G, using a combination of techniques and new bandwidth.

Netflix Price Increase Illustrates Power of Powerful Brands

Consumers are price conscious, it is safe to say. So what requires explanation are instances where consumers--while seeking value--are willing to spend money for value. And perhaps nothing better illustrates the value of a valued brand.

Consider the coming increase in Netflix prices. One survey by The Diffusion Group suggests that a price increase of just $1 more per month, eight percent of Netflix subscribers are likely to cancel Netflix.

Netflix is raising the cost of its basic tier by a dollar, from $8 to $9 a month. The standard tier now will $2 more per month, up from $11 to $13, while the premium tier cost will rise from $14 to $16.

source: TDG

With the very-important caveat that consumers often say they will, or will not, do something, some of us would bet that Netflix now provides enough value that the overwhelming proportion of consumers will not desert. That did not happen the last time Netflix raised prices, for example.

Perhaps just as important, a recent price increase of similar magnitude by Amazon Prime--which some surveys suggested might have catastrophic results--did not slow growth, even if some customers might have departed.

Consider the impact when Amazon Prime raised it prices by 20 percent, from $99 annually to $119 annually, in 2018. According to one study, a whopping 45 percent of Amazon Prime customers indicated they would cancel their membership. Obviously that did not happen.

Undoubtedly there was some churn. But it appears the price increase did not have a devastating impact. According to one survey, perhaps six percent did cancel. But U.S. and global Amazon Prime memberships continued to climb.

source: Morgan Stanley

source: Consumer Intelligence Research Partners  

There are other likely impacts, as well. As Netflix raises the price umbrella, other valued streaming services will have more room to raise their own prices. That might include Amazon Prime itself, Hulu and possibly HBO Now.

On the other hand, higher prices for Netflix make harder the challenge for the scores of upstart and specialized services hoping to gain a foothold in the streaming market.

So Amazon Prime, Netflix and Apple provide key tests of the expected value of a brand, which is precisely that a valued brand allows a supplier to charge more. Valued brands can raise prices. Commodity suppliers generally have a hard time doing so.

source: eMarketer

Global Networks Now are Designed for Video

Nearly 80 percent of all global data traffic now consists of video, according to Cisco.

sources: The World Bank, Statista

By perhaps 2021, all traffic on global IP networks--save 18 percent--will consist of video, according to Cisco.

About 58 percent of downstream traffic on the global internet is video streaming content. Web traffic is about 17 percent of total, while gaming represents about eight percent of total downstream traffic.

Upstream traffic is dominated by video (especially user-generated video), web interactions and file sharing.

source: Sandvine

source: Sandvine

Also, net traffic growth is happening on private networks, rather than public networks.

source: TeleGeography

source: TeleGeography

Really "Off Road" Vehicle Concept

How Many "Mass Market" Service Opportunities Exist?

Skepticism about telco or cable involvement in the subscription video business is understandable: consumer demand is changing in ways that reduce the size of the market.

On the other hand, the consumer communications segment of the business is dominated by the four anchor services” mobile, fixed broadband, subscription video and fixed phone service, with little to no growth in each product line, at least in most developed markets.

It has long been a truism that consumer spending--in communications or entertainment--tracks growth of income (national gross domestic product, household income). The caveat is that demand for some products has declined markedly (fixed network voice), is declining (linear video subscriptions), or is growing slowly (fixed network internet and mobility).

source: Ofcom

Even in growing markets such as Asia, there simply are not that many products “most” consumers will buy, and most of what they do buy is related to mobile service.

source: Analysys Mason

The big point is that there are very few products “most” consumers will buy. And subscription video of all types (linear or on-demand; streaming or as a managed service; over the top or bundled) is among the few “mass market” services access providers can enter, once they have reached maturity in mobile voice and data; fixed network voice and data.