5G and Beyond

Customer spend will keep dropping in 5G era, says Omdia

Career changes are hard in later life, as telcos have frequently discovered. Orange tried moonlighting as a banker but now reportedly wants to sell its banking outfit after racking up operating losses of more than €800 million (US$800 million) in the last four and a half years. It is chump change next to the gazillions that AT&T and Verizon spent on media assets before retreating ignominiously to the comfort zone of connectivity. Other failed ventures include the public cloud and the smart home, where telcos have been muscled out by Internet giants.

Telcos are starting to look like the Frank Spencer of the business world. Played by Michael Crawford in British sitcom Some Mothers Do 'Ave 'Em, Spencer was a lovable loser whose attempts to find gainful employment typically ended in hilarious disaster. Nobody would care if the average customer were spending more on connectivity. But they are not, as the latest research from Omdia (a sister company to Light Reading) shows, and the five-year forecast is no laughing matter.

Omdia's latest prediction is that average revenue per user (ARPU) across fixed and mobile services will drop from €7.65 last year to €7.16 in 2027. It might not sound like the most vertiginous slope, but it wipes more than 6% off the ARPU figure over this period and comes after it ticked up from €7.63 in 2020. It also coincides with the ongoing rollout of 5G and industry transition to "standalone," a ballyhooed variant of the technology that has been marketed as "real 5G" at some industry events.

Telecom services revenue forecast by service type (€)
(Source: Omdia)
(Source: Omdia)

Declining ARPU is a familiar trend for telcos but its possible continuation into the late 2020s is a worry for an industry already in all sorts of trouble. First, it would show (as if telcos needed any more proof) that souped-up networks and new generations of telecom technology do not bring growth per se. Your average consumer will pay more for a laptop with a speedier processor or a TV with a higher-definition picture than they will shell out on a slower machine or fuzzier flatscreen. But the availability of faster and more reliable connections has not brought a similar increase in spending.

"People don't buy technology; they buy fun new experiences," said Ronan de Renesse, Omdia's research director, in a statement about the latest research. "There is a misconception that operators should be reselling the technology they buy directly to customers, and it doesn't work."

Fiber frenzy, Big Tech bashing

Worse still, Omdia spots a significant ARPU drop in countries that have already invested heavily in fiber broadband, including China, France and Spain. Broadband competition in these countries appears to have intensified post rollout and there has not been what Omdia calls "a clear monetization path" for customers once they have made the jump from older, copper-based services.

This is a very scary thought for countries such as the UK, where dozens of "altnets" (alternative operators) are currently knee deep in fiber deployment and desperate to sign up customers. BT, the incumbent, faces not only price-based competition but surging costs – unlike its younger rivals, it must continue to maintain old systems for customers unwilling to budge alongside its new infrastructure. Meanwhile, billions of pounds are being invested in overlapping networks that will never be used. One fiber stakeholder who did not wish to be named envisages a very messy 2023 for some companies.

The telco pricing model is probably not about to change, as well. When they first plunged into the dangerous world of kilobytes and megabytes, operators tried to sell based on what people consumed, much as a ludicrously profitable energy company does now. Nobody bit, partly because 3G connectivity, devices and applications were naff. The later 3G and early 4G eras brought generous bundles of data for a set fee. More recently, the industry has lurched into offering so many gigabytes for these predictable rates that a customer would have to be continuously streaming the metaverse in ultra-high definition to incur any extra charges at all.

Want to know more about 5G? Check out our dedicated 5G content channel here on Light Reading.

While nobody forced telcos to do this, it largely explains why costs are rising when sales are flat and is why operators are now blaming Big Tech for their financial malaise – the argument being that Amazon et al built most of the applications customers are running so carelessly on telco networks. Persuading regulators of the need for a tax on Big Tech is undoubtedly easier than introducing usage-based data fees.

For all the focus in Omdia's research on ARPU, overall service revenues are expected to increase during the forecast period, growing from just over €1 trillion last year to about €1.2 trillion in 2027, as technology subscriptions rise. By 2027, 5G will account for about 5.9 billion mobile subscriptions and fiber-to-the-home will support more than 1 billion residential ones, notes the market research company. Sales growth is obviously better than revenue decline, but it is probably not at the rate the industry needs.

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— Iain Morris, International Editor, Light Reading

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