The Challenge of Making 5G Profitable
The 5G is on everyone’s lips and is getting closer to becoming a reality and transporting us to a new scenario in which, thanks to the new technology, we will live with autonomous cars; a surgeon can operate on appendicitis miles away; Downloading a movie will be a matter of 3.7 seconds or the Internet of Things (IoT) will give us a theoretically more comfortable world. This is how the operators sell it to us, which do not yet know well how to benefit economically from the great investment effort underway. That is your challenge for the next few years i.e, making 5G profitable.
What figures are we talking about? It is estimated that the telecom will spend 5,000 million euros on the frequencies and deployment of Spanish 5G Network, but the truth is that the actual bill is an unknown. “It is difficult to specify a figure since this launch is the result of many years of work and, of course, a large number of investments in innovation and infrastructure deployment have been necessary. It’s somewhat difficult to making 5G profitable. To this we must add strong sums in equipment, radio and all the services developed on the Network, ”admits Julia Velasco, network director of Vodafone Spain, who recalls that the company has been the first to launch commercial 5G in the country.
What is clear is that, learned the lesson of 4G, technology whose development left shaking the coffers of the telecoms, this time they are determined not to waste and even reduce costs through unthinkable alliances only a few years ago : in the Kingdom United, Telefónica and Vodafone share mobile towers; in Italy, TIM and Vodafone, radio equipment and facilities. Also in Spain, Orange and Vodafone extended in April the agreement for the deployment and distribution of mobile and fixed networks, including new technologies such as 5G. “It is estimated that in Europe, and thanks to sharing, operators could save up to 200,000 million of a total cost of 500,000 million, although we are still talking about a very high investment effort,” they say from Orange.
But beyond that the operators look for mechanisms to save costs in the investment phase, they must be able to monetize the new standard. How? It is still somewhat diffuse. The operators are aware that the billing for the services provided to consumers will grow less than the construction costs of the new infrastructure. And there is a clear precedent: according to the calculations of the Strategy Analytics consultancy, 4G mobile phone subscriptions grew in the world from 4% to 61% between 2012 – date of the actual launch of the fourth generation – and 2018, while billing for these services 4G increased less than 1% per year in the same period.
“The 4G meant the appearance of new online platforms and the growth of content providers, exponentially increasing the IP traffic that circulates through the networks of the operators,” recalls Carlos Javier Moreno, director of the Telecommunications Consulting area at Deloitte. “On this occasion, the business is in offering ad hoc connectivity services for other economic sectors. Technologies such as the cloud, big data and edge computing will be enhanced by the characteristics of 5G, helping operators to provide increasingly higher value-added services and be fundamental agents for the digitalization of society ”.
Offer and demand
In short, with a view to the final consumer, the challenge of operators in the coming years will be to be able to offer services for which it is worth paying much more. It seems easier to bet on a new type of client, things, to which they will be able to offer services through IoT devices based on fifth-generation networks. However, according to Vanesa González, the partner responsible for Telecommunications of PwC, and José Moreno, director of Strategy &, the strategic consultant of the same group, in telecommunications, the new services that will benefit from the higher transmission speeds do not yet exist. In his opinion, “the deployment of the 5G infrastructure and the monetization are expected to be slow leveraging in the previous networks” since this is still far from being able to replace the fibre due to the lack of coverage and investments required to change the network mobile.
“It is too early to talk about profitability strategy when several of the investments have to be defined. However, there is something clear, and that is that the capabilities of 5G are different and, therefore, we are working on new use cases, ”admits Mercedes Fernández Gutiérrez, Innovation Manager at Telefónica España. “It is clear that current services such as video streaming will work even better, but there are other verticals where an immediate interest in this new technology is being seen, such as education, tourism, the digitization of the industry, the evolution of the connected car and autonomous, construction processes and supervision and maintenance of infrastructure, among others ”.
In Orange, they also believe that “the opportunities and making 5G profitable are promising since it represents a paradigm shift in connectivity that will undoubtedly bring strong benefits to operators that will compensate for the heavy investments planned.” In this regard, they mention a recent report by the technology consultancy Gartner that expects revenues from the infrastructure used in the global scope of new mobile technology to grow 89% in 2020. The above all are the challenges to face in the process of making 5G profitable.