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5G

5G monetization: The promise and the reality of customer willingness to pay

Theoretically, 5G affords several opportunities for revenue generation to recoup operators' massive investment of $57 billion. Massive machine-type communications, ultra-reliable and low-latency communications, network slicing for customized services, new applications like XReality, besides high bandwidth, create space to craft new business models, offer premium services and generate new sources of revenue from new services. The reality often is that customers want more for the same or less money unless service providers offer services positioned to fulfill unmet needs, and that are compelling enough for customers to be willing to pay for them. Are 5G operators able to realize 5G's promise of higher-revenue earnings?

Differentiation through 5G-rich media and content

A report by Ericsson Consumer Lab concluded that pricing and bundling will play a key role in reaping the benefits of 5G networks. Higher margins will be realized from new services such as AR gaming which is currently the most popular. The report found that service providers are already earning 20% premiums which dropped to 10% during COVID-19. What is striking is that only 17 out of the 77 operators surveyed offer value-added services like 3D AR shopping.

Additionally, companies in China, Hong Kong and South Korea offer new applications. Hong Kong-based SmarTone reports that 5G accounts for 10% of its mobile base and earns a premium of $6.45-12.89 per customer. One of its novel services is AI-enabled safety monitoring driving across the city's longest Tai Lam tunnel. Another service, Smart Mall, helps shoppers find their stores.

So, what prevents others from pursuing the same path? Verizon initially planned to charge an extra ten dollars but dropped the idea. While Verizon is keeping its 4G price structure intact, it is incentivizing more of its customers to upgrade to premium plans which provide 5G at no extra cost. The plan is attracting new customers to the premium plans – 58% of its new customers selected them in the third quarter of 2020. To be sure, it charges an additional $50 for its 5G smart home plan.

Some operators are bundling their services and third-party content and services including new use cases built around AR & VR and cloud gaming to build a differentiated 5G offering. O2 (UK) has signed a partnership with Oculus from Facebook and MelodyVR to provide customers exclusive VR music experiences. Users pay 8 GBP for a 12-month subscription to MelodyVR and an Oculus Go virtual reality headset. KT Corporation has launched a subscription-based gaming service "GameBox" offering 100 games at launch. Switzerland's Sunrise offers its cloud gaming service, Sunrise Gaming, for a package of 80 console games for EUR9.99 per month after the expiry of a month's promotion. All South Korean operators offer consumer 5G packages offering AR/VR applications that come bundled with VR devices.

South Korean companies have arrested the decline in revenues that preceded the launch of 5G in the country from drops of 10% year-on-year to a flat curve since then. SK Telecom, the leader increased ARPU by 1.9% year-on-year at the end of the first quarter 2020 with the addition of 5G mobile subscribers. Its package included a video streaming service, UHD video and VR/AR services.

Targeting users with just more data and speed

Some operators have chosen not to differentiate their plans by including data rich services but by operating attributes such as data allowances and speed.

Australian operator Telstra raised its prices for 5G services proportionate to the data allowances. In June 2020, Telstra increased the prices of all its mobile plans by AU$5 and AU$15 but also added extra data allowance to the plans (10, 20 and 30 GB, depending on the plan size). The move meant that a user must pay a minimum of AU$65 instead of the earlier AU$50 to access 5G – which amounts to a 30% premium.

Many operators are also using speed tiers (usually with unlimited data) to monetize their 5G investments – Finnish operator Elisa was one of the first to offer 5G pricing based on speed tiers instead of volume in 2019; users who pay more get higher speeds. Another interesting example of 5G speed monetization is the Verizon Ultrawideband plan – which offers faster speed and a premium of $10.

Generating new revenue streams

5G fixed wireless access (FWA) is emerging as a significant new revenue opportunity for operators and helping them gain new customers in locations where fiber or cable is not available or too expensive to provide. In the COVID-19 era, operators have been able to rapidly deploy 5G FWA which saves them the hassle of laying fiber optic cables in homes. Zain in Saudi Arabia increased its ARPU to a whopping $90 for 5G from $19 for non-5G. Operators like SmarTone in Taiwan and Optus in Australia are using FWA as a complement to fiber or triple play offerings and bringing home style broadband access to new customers in new locations. Similarly, in fiber-deprived countries like the Philippines, operators like Globe and Smart are using 5G FWA to reach locations and new customers who otherwise go unserved. In more developed markets like Norway and Finland, operators like Telia and Telenor are using 5G FWA to replace thousands of aging DSL lines.

Looking ahead

Operators will need to consider their pricing and bundling options for individual segments of customers in the future. Value-added services will likely resonate with tech-savvy customers. Some clusters of customers will prefer to have more of the basics like speed, access and low latency. Finally, some will pay for mobile access. One size fit all will not work in the future.

— Ashish Jain, CEO & Co-Founder, KAIROS Pulse

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