How operators can make 5G pay

Photograph The next generation of cellular mobile communications technology has arrived: Major U.S., European, and Asian operators have launched commercial 5G networks. 5G, which is set to succeed the current standard over the next few years, offers an exponential improvement in functionality over 4G. The results will be mobile networks that offer far higher capacity and reliability, much lower latency, reduced energy usage, and massive connectivity for devices. Research firm IDC projects that mobile service providers will collectively spend nearly US$57 billion on the rollout of 5G through 2022.

5G will provide a far superior experience for customers in the areas of video calling, video streaming, gaming, interactions with devices in the connected home, and more. And the unit cost per gigaBut operators won’t be able to recoup their investments in 5G simply To achieve returns sufficient to justify their 5G investments (pdf), operators will need to look beyond existing business models and target the three families of use cases that are specifically enabled Extreme mobile broadband and fixed wireless access: Applications might include faster video streaming, interactive multiplayer gaming, virtual reality (VR) and augmented reality (AR) games and experiences, and connecting patients with remote healthcare services.

Critical real-time communication: Applications might include the operation of precision production lines, automated mining, enhanced responsiveness in autonomous cars, and medical applications such as remote surgery.

Massive machine-type communication: Applications might include industrial applications (e.g., predictive remote maintenance), management of smart grids, city applications (e.g., real-time traffic management), drones, and integrated services and devices in connected homes.

Why focus on B2B2X?

Under the classic model, commonly used for 4G services, the operator sells voice and data connectivity directly to end-users, who simultaneously contract separately with their chosen third parties to access services over that connection. For example, a user might buy a 10-gigaThis pattern is now evolving: Some operators have started to partner with over-the-top (OTT) service providers to bundle their offerings with connectivity subscriptions, sometimes with an explicit charge and sometimes without (for example, In the 5G world, in which the network technology allows a far greater range of functionality that can be monetized, telecom companies have many more opportunities to develop collaborations with a variety of businesses and public agencies. We see four main options for how operators could monetize this greater functionality.

Connectivity provider (operator-led B2B or B2C): The telecom company extrapolates the typical 4G pricing and bundling model Solution enabler (third party–led B2B2X): A third party such as a cloud provider or video-streaming service incorporates 5G connectivity sourced from the operator as part of its own offering. The third party markets the bundled offering to its customers, receiving revenue through direct payment or another monetization model, while paying the telecom company for the network usage and variable functionality in the form of either a network charge or a revenue share. The third party effectively buys a “slice” of the operator’s 5G network capacity for its own use, and the interface between them is managed and enabled through application programming interfaces (APIs).

Solution creator (operator-led B2B2X): An operator creates new digital propositions Ecosystem enabler (collaborative B2B2X): Although similar to the solution enabler and solution creator models, in this instance the operator focuses on creating an ecosystem of innovators to target changing customer needs and wants. Under this model, the operator works with third parties to identify and tailor experiential products and services, which can be delivered to the marketplace quickly. A customer-focused ecosystem model allows directed collaboration, not just with the operator, but between third parties as well, and positions the operator as a key player in driving 5G innovation. For example, one ecosystem member may identify a high-potential use case, find a hardware maker to build a prototype, and test on the operator’s network. This model encourages the operator to participate more directly in the value creation process and the commercial innovation that goes with it.

The availability of these widely varying business and monetization models will enable operators to benefit from greater choice and flexibility in terms of their services and pricing, and will spread value around more evenly into different areas of the ecosystem. Across all the models, operators and their partners will tailor their service offerings to capitalize on emerging technology trends such as the Internet of Things, AI, edge computing, drones, robotics, smart cities, and Industry 4.0.

Selecting the optimal business model

To help operators and other participants in the quickly expanding 5G ecosystem identify the most suitable business model — connectivity provider, solution enabler, solution creator, or ecosystem enabler — for each specific use case, Strategy, PwC’s strategy consulting business, has developed a matrix of five criteria for scoring potential use cases.

Third-party brand strength. When the operator’s third-party partner in a potential business model has a very strong brand in relation to the target use case, the third party has an advantage in owning the customer relationship. For example, game-streaming service Twitch would have stronger brand strength among the serious gamer customer segment for an enhanced 4K gaming service than a telecom operator.

Third-party market penetration. If the prospective third-party collaborator already has a high market penetration in the relevant sector, the situation also points to that third party owning the customer relationship. For example, a specialist engineering solutions provider with strong penetration among transit authorities would be better placed than an operator to roll out a dynamic traffic control system.

Alignment with the operator’s internal capabilities. If the use case is closely aligned with its existing capabilities, the telecom company has a greater ability to own the customer relationship and secure a higher proportion of revenue share. For instance, an operator’s existing strengths in distribution, service delivery, billing capabilities, and physical presence may mean it’s well placed to sell AR and VR experiences over 5G to consumers and businesses. This points to the solution creator option for the business model.

Operator brand relevance. The higher the relevance of the telecom operator’s brand to the use case, the greater the operator’s ability to own the customer relationship and claim a bigger share of revenues. And the lower the relevance, the less it makes sense to do so. For example, an industrial original equipment manufacturer (OEM) may have a stronger brand than a telecom operator for selling an automated, real-time controlled production solution to manufacturers. In this case, the telecom company should probably aim to partner with and support the OEM as a solution enabler, rather than expecting to take the lead itself.

Associated usage intensity or dependence on 5G. When a use case has a high intensity of 5G usage or is critically enabled In some instances, it’s possible that multiple business models might work for a given use case. In that situation, operators’ capabilities and brand perception are likely to be the deciding factors.

The case for action

As 5G services are launched, the most immediate use cases in the short to medium term will likely be in fixed wireless access broadband and extreme mobile broadband — for example, for outside broadcast, as well as connected ambulances, manufacturing, and support of emergency services. But these will just be the start, as new experiences and applications enabled Recent PwC research shows that just one-third of Internet users would pay more for 5G technology — 33 percent would do so for 5G in the home, while 31 percent would do so on mobile.

To monetize 5G efficiently and effectively, we believe operators will need to ramp up and excel in the use of B2B2X business models applied to the right use cases. Having defined their way to play, operators should build or strengthen four key capabilities: the right 5G network, commercial innovation, vertical industry engagement, and a culture of mass collaboration. 5G is clearly not the answer on its own. For full monetization, 5G needs to be coupled with other technological capabilities such as edge computing, cloud computing, AI, and automation — and it will demand real insight generation, rather than just data collection and transmission from A to B.

Whatever way to play they choose for a 5G world, few operators looking to take these steps will have all the required capabilities readily available to them internally — they will likely need partners, including entrepreneurs with the ambition to invent new commercial models using 5G.

It is from this mutual dependency that the possibility for operators to fully monetize 5G will arise.