Home Blog The Revenue Case for 5G is a Little Unclear
Dec 4, 2017

In Search of a 5G Business Need

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“I talk to other CEOs around the world in this space, and we’ve all been struggling a little bit making the business case work,” said Gavin Patterson, CEO of the UK’s BT Group, when discussing the need for 5G at a recent conference. And he’s right to be concerned. For each previous leap in mobile technology, there was a clear-cut business use that would drive additional revenue, but with the current price wars going on, there is less of a clear revenue case for 5G.

Consider the earlier models: 1G gave us voice, 2G meant we could send text messages, and 3G gave us access to basic web-based content. 4G, including LTE, gave us the major leap forward, allowing for video content and has really nailed that need. Thanks to leaps in compression technology, as well as a faster network, we can all stream video with little to no buffering. Each iteration allowed for a new revenue model (charging for texts, and later for data). But now we already pay for data – and typically, for unlimited data – so the revenue case for an even faster speed gets a little tricky. Potentially, the carriers could charge for a faster speed, in the same way that fixed broadband services charge for faster pipes, but the need may not be there.

Take for example, the home broadband model. Faster speeds are necessary as the consumer adds more devices to the network, looking to share the bandwidth across multiple TVs (and more bandwidth-demanding TVs with the advent of 4K), as well as the usual mix of PCs, smartphones, and home automation devices. But the smartphone is a singular device, and the bandwidth requirements are limited to a single user’s needs on a single device. Further, there is little need for full 4K streaming since the device in use is a six-inch screen. And so, compression works wonders in making everything work smoothly, and with unlimited data for a relatively low price to boot.

This is great news for consumers, but it isn’t so great for the carriers who are facing yet another major CAPEX investment without a clear way of recouping the money from the traditional customer base. That’s not to say there isn’t a good case for 5G (there’s always a need for bigger, faster networks!), but it’s a less clear-cut revenue model.

The two areas that come to mind are both somewhat of a gamble, as they are emerging use cases, while previous iterations of the mobile infrastructure have been built on a pre-existing need (think video). Firstly, there’s the whole connected car concept. While the car itself requires relatively small amounts of data, as we move towards self-driving cars (or more realistically in the nearer term, assisted driving models) they will become both more data hungry, and require lower latency. Both of these needs are addressed with 5G. But, this model is really just emerging, and the number of cars that need this higher level of data are still few and far between. The demand will need to build up before this area can help to pay for 5G infrastructure. Additionally, there is still a pricing issue: the wireless service needs to be relatively cheap, at least for the telematics component of the car communications. Sure, the carrier can charge more for low-latency, high-performance video services to the car, but the underlying communications, feeding sensor information to the car, is a built-in part of the next generation car and cannot come with a high monthly price tag. 

An easier target for bigger, faster networks will be virtual and augmented reality (VR and AR), which should require faster data in order to offer a seamless experience. The benefit here is that the consumer will see the logic of an AR/VR “premium” service level of data, but of course, this still depends on the consumer demand for mobile-based AR solutions. There’s one catch: outside of Pokémon Go and the upcoming Harry Potter-themed game, there are few compelling consumer AR solutions right now… and even less suitable hardware. That again makes the solution a long-shot gamble for the carriers right now, but it’s no coincidence that the recent Mobile World Congress show in San Francisco had VR demos with data streaming over 5G networks.

So it’s a bit of a shot in the dark for the carriers. They have to build the new networks in order to remain competitive, as well as to meet the needs of an IoT-centric world moving forward. But if IoT is the reason to build, it’s unlikely to deliver enough revenue to pay back the investment. “If you build it, they will come” is not necessarily a bad business model (it has worked for wireless so far), but typically in such a scenario the “they” is a known entity. For 5G, we’re still looking for that.

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