Prepare Now for the 5G Monetization Opportunity
Yathish Nagavalli, Chief Enterprise Architect, Huawei Software
5G has been the latest buzz word in the Telecom industry as operators are looking forward to the next growth wave. Operators and vendors are under pressure to perform and are hoping that 5G will trigger new investments that put the industry back into growth trajectory over the next few years. The recent 3GPP standards body announcement of the approval of 5G SA (Standalone) standards and several countries auctioning spectrum for 5G indicates that the industry is positioning towards 5G commercialization. Leading operators such as AT&T, Verizon, China Mobile and SK Telecom are working with infrastructure partners to deploy 5G ready equipment and smartphones by the end of 2018. While China, United States, South Korea and Japan are taking the lead in 5G readiness and early deployments, other countries in Europe and South Asia are not too far behind as they plan to start rolling out 5G by 2020 and accelerate and scale deployments over the next three to five years.
5G creates new opportunities
With high bandwidth, ultra-low latency and dynamic network slicing capabilities, 5G enables operators to not just offer a variety of new services but also play different roles in the digital value chain. Operators have the opportunity to rethink their business model and how they want to participate and facilitate in the value creation, value distribution and value capture. Effective participation in the entire value lifecycle will determine the success of operators in the 5G enabled digital world. Operators can choose to play the role of connectivity provider, enhanced mobile broadband provider, network & infrastructure service provider, platform enabler and/or solution provider for vertical industries. Once decision is made on where to participate in the value chain, then it’s about building capabilities and efficiencies in relevant areas to support that decision.
B2B and IoT offer biggest market potential for 5G
The 5G use cases can be realized to provide solutions in the B2C, B2B, B2B2X and IoT market segments. In B2C market, operators offer the services such as high definition video (TV, movies, streaming live sports) or home security solutions directly to the end consumers. In B2B market, operators offer the services such as mobility solutions and Cloud services to the businesses (SMEs, large corporations) where the services are typically consumed by the employees of the business. In B2B2X market, the services such as ‘In stadium’ high definition video service are offered to businesses like stadium operators and they in turn offer the service to their premium customers. Here the premium customer, typically with premium tickets, gets to see the lost moments and referee decisions with VR/AR experience. In IoT market, operators can leverage the low latency, high reliability, high bandwidth and massive connections capabilities to offer several vertical industry use cases like connected cars, smart utilities and remote surgery types of applications by participating in the industry specific ecosystems and innovating new business models.
While the consumer market (B2C) accounts for maximum connections driven by home security and automation, the enterprise market (B2B) will account for over 90% of IoT services spend. So, greater market potential really lies in the B2B and IoT segments* (Gartner IoT forecasts, 2017).
5G Applications readiness and market potential
Some of the top 5G services with high market potential include ultra-high definition TV, IoT connected devices, smart utility, P2P transfers or mCommerce, remote patient management, Cloud computing & storage, Live streaming events and premium Cloud VR. However, these services are at various stages of maturity with respect to readiness for deployment as per the findings from Huawei XLabs and demonstrated in the picture below. For instance, services like ‘Premium cloud VR’ is still in early prototype stage. As a result, many of the short to midterm opportunities will not start to gain any mass within the next 2 – 3 years.
Source: Huawei XLabs
5G monetization is a critical success factor
5G is potentially more of the same in terms of coverage, indoor penetration, or residential and business reach – but provides more bandwidth and capacity. How much more the customers are willing to pay for faster networks or even their own private networks is limited as we have seen in the past with the dial up, ADSL, cable and Ethernet connections and their associated speed. The monetization potential is really more about how much more services and applications will be based on different ‘slices’ so they can be monetized (For example, digital channel over fiber). Apart from ‘slices’, operators may leverage other unique strengths to build effective monetization models. Some of the monetization models to consider are:
• Monetize network, infrastructure & business services: Leveraging the network and infrastructure capabilities:
o Operators can provide services such as Network as a Service, Information broadcasting, Cloud services with high QoS that attract premium in B2B segments.
o Operators could become platform providers for a variety of micro-services, assuring low latency where needed by providing them on the edge. With this model, application developers and vendors could simply define how they want their applications to perform and let the connectivity provider make it happen.
o Operators can enable the developers to monetize their applications that connect to millions or even billions of devices and in turn will be able to secure revenues from developers and the end users of these devices.
o Leveraging the infrastructure, vertical industrial solutions can be offered by establishing ecosystems with complex partnerships and revenue sharing models. Key for success is to make the economics work for both the operators and other participants in the ecosystem to bring useful solutions to the market quickly.
• Monetize value: 5G creates opportunity for operators to monetize the ‘value’ created by services with revenue sharing type of models rather than being simply the connectivity provider. Applications such as translation services, home automation can be monetized by putting compute functionality on the ultra-low latency edge networks and thus putting it on the Cloud without compromising on latency.
• Advertisements in the new digital services like high definition content offers new monetization opportunities for operators.
• Data monetization: Operators have access to customer data – customer priorities and interactions, network data – usage, pattern, massive number of device related data. This massive amount of data along with data analytics creates new opportunities for operators to monetize insights.
These monetization models must be supported by different pricing models such as one time charges, subscription charges (recurring revenue), usage based charges, API based charges, Pay as you go charges (pay only when the service is used), freemium charges (basics free but pay for advanced services) and sponsored data charges (third party sponsor pays for the basic service charges provided the customer uses third party services – such as Facebook).
Over the next 2 to 5 years, the pace of 5G rollout will accelerate and presents itself an opportunity for operators to expand their business scope and participate in the digital value chain. But, operators need to prepare now and be ready to take advantage of the new opportunities and reap the benefits.
Getting fit for 5G
5G is an opportunity for operators that want to be able to participate in various services, businesses or industries. They will need to look at their current state of readiness with respect to business agility and operational efficiency. There is much work to be done by the operators to address complexities related to virtualization across heterogeneous hybrid networks, legacy systems with complex architecture, inefficiencies in operations and ecosystems development.
Revenue management systems need to support slice charging, cross slice correlation, real time charging for ultra-low latency transactions, massive connections and usage events, ecosystem aggregate billing, and billing on the edge capabilities.
The platform must support building industry specific eco-systems and extract new value with support for new and complex business models in real time and on demand. Robust settlement and policy management systems are critical for enabling ecosystems and new business models. Analytics, intelligence, actionable insights and automation must be embedded into all layers of the business. Intelligence and automation underpin the efficient business operations for 5G.
Mirroring the cloud-native market evolution, operators need to transform themselves to support cloud-native architecture with micro-services and container based service design and deployment principles. The cloud native architecture is underpinned by agile, continuous integration / continuous delivery and DevOps design processes for effective digital service design and delivery to realize quick TTM. They can scale on demand in support of the changing activity levels with carrier grade reliability Powerful network capability when combined with flexible systems, agile operations and new digital mindset can leapfrog the operators to perform at a new level of efficiency and operational cost that underpins digital transformation of operator business. Therefore, 5G is acting as a catalyst to expedite the bigger agenda of digital transformation to realize the full potential of Telecom operators.
Operators are in a great position, but there is work to do in terms of networks, operations, services, ecosystems and architecture to be able to take on 5G promises and some of the early use cases. The industry needs to move forward with cautious optimism while taking immediate diligent steps to ‘get fit’ to be able to embrace the new monetization opportunities 5G has to offer.