Inside the Hunt for New 5G Revenues (Hint: Forget Phones)

Companies, analysts and associations continue to try to suss out the revenue opportunities in 5G beyond phones. There are plenty of ideas but not much cohesion.

Mike Dano, Editorial Director, 5G & Mobile Strategies

November 19, 2019

7 Min Read
Inside the Hunt for New 5G Revenues (Hint: Forget Phones)

As new 5G networks continue to pop up around the world, players in the wireless industry are mostly unanimous in their belief that the real 5G revenue opportunity does not lie in the most obvious place: the phone.

That represents a significant departure from the global wireless industry's trajectory over the past four decades or so, considering the mobile phone -- from carphone to smartphone -- has played a central, commanding role in generating revenues from 1G, 2G, 3G and 4G.

But 5G will be different, according to those in the industry. 5G will connect devices ranging from manufacturing robots to VR glasses, and phones will represent just one slice of a much bigger pie. At least, that's how the argument goes.

The big question now, here in the very early stages of the global wireless industry's move toward 5G, is exactly where these "non phone" opportunities lie, and how equipment vendors, network operators and others might unlock them.

5G state of play today
While all eyes are on the 5G horizon, the reality of 2019 is that the initial opportunity sits squarely in the smartphone arena. And according to some analysts, this revenue opportunity can be summed up with a conclusive "meh."

"Our view is that 5G should be seen as profit-neutral at best," wrote the Wall Street analysts at New Street Research in a note to investors this week. "Even in South Korea, the incremental cost of 5G exceeds the extra revenue. Elsewhere 5G will be either negative for profits (China) or broadly neutral (USA, Europe, Japan) with other (non-5G) local dynamics driving profit trends."

Acknowledged the Wall Street analysts at research firm Raymond James in their own report to investors this week: "We cannot articulate clear business plans for operators that drive incremental profits."

The New Street analysts pointed out that South Korean mobile network operators are the only ones in the world that have priced 5G at a premium -- noteworthy considering South Korean operators have already amassed a world-leading 3.5 million 5G customers. Therefore, they're the only ones that will reap a qualitative gain from the launch of 5G during 2019, according to the analysts.

Elsewhere, US operators are mostly adding 5G into their existing service plans (with the exception of some tentative moves by Verizon) while Chinese operators are actually selling 5G at a discount.

Figure 1: (Source: New Street Research) (Source: New Street Research)

Nonetheless, there's still clear interest among operators and smartphone vendors around the world in launching 5G. According to the Global Mobile Suppliers Association (GSA), there are fully 50 commercial 5G networks up and running today, across 27 countries. Moreover, the association said there are now a total of 183 devices that support 5G connections from 72 different vendors. The association said that device figure has more than doubled over the past six months.

There are a range of factors driving this activity among operators and 5G device vendors, including the need to maintain competitive parity and, potentially, geopolitical forces around the "race to 5G."

Beyond phones
5G is "not just another handset upgrade cycle," said Qualcomm CEO Steve Mollenkopf today during the company's annual analyst day. "5G is a big deal," he added, pointing to figures from IHS Markit (an analyst firm owned by Light Reading's parent company Informa) that found that 5G will contribute $13.2 trillion in global economic output by 2035.

Mollenkopf said that the first three sectors that will embrace 5G outside of phones include the automobile industry, the manufacturing sector and cloud gaming companies.

Other industry areas specifically noted by Mollenkopf as ripe for 5G sales include retail, healthcare, energy and logistics.

Perhaps more importantly, Qualcomm CFO Akash Palkhiwala laid out exactly where the company expects to generate its 5G opportunities over the course of the next three years. Palkhiwala's figures are important considering Qualcomm is the world's leading supplier of 4G modems, and has been a driving force in the development of 5G technology as well as the leading supplier of 5G components for most of the market's initial 5G phones.

Palkhiwala explained that the bulk of Qualcomm's "serviceable addressable opportunity" (SAM) of $100 billion in 2022 will remain in selling silicon products to phone makers. But he said the three "adjacent" markets that Qualcomm currently sells into -- automotive, compute and IoT -- will also expand. Specifically, he said:

  • The "addressable market" opportunity in automotive (which spans telematics and infotainment products) will grow 12% to $4 billion in three years.

  • The market opportunity in compute (which includes Android tablets, Chromebooks and slim Windows laptops) will grow 2% to $8 billion.

  • And the market opportunity in IoT (which spans everything from robotics to VR to home automation) will grow 10% to $13 billion.

Finally, Palkhiwala said Qualcomm's "long-term growth opportunities" sit in two big areas:

  • The combination of cloud and edge computing with AI, which will total a $13 billion SAM by 2024.

  • And "Advanced Driver Assistance Systems" (ADAS), which encompass driverless cars, which will total $5 billion in SAM by 2024.

But Qualcomm isn't alone in attempting to forecast future 5G opportunities. For example, the 5G Americas trade association recently released a white paper outlining seven potential areas for 5G "services innovation." The group's selections are important because the board of 5G Americas includes many of the leading 5G players in the US wireless industry -- including AT&T, Ericsson, T-Mobile, Nokia and Qualcomm -- and its presentations often make their way into the messaging of its member companies.

So what are the leading 5G target areas in 5G Americas' latest paper?

  • Healthcare

  • Fixed wireless access

  • Unmanned aerial vehicles

  • Non-terrestrial networks with 5G, which include Low-Earth Orbit (LEO) satellites and High-Altitude Platform Station (HAPS) systems

  • XR, including virtual reality and augmented reality

  • Cloud gaming

  • Smart grid

"5G technology will expand the value of mobile networks to take on a much larger role than previous generations, empowering many new connected services across an array of world changing use cases," the association wrote.

The analysts at Raymond James offered a similarly hopeful outlook on the long-term opportunities around 5G. "A number of the industry participants have discussed a longer term vision for 5G use cases with an emphasis on enterprise oriented use cases," they wrote, pointing to predictions from Ericsson of $700 billion worth of 5G-related business-to-business revenue for service providers by 2030. "The conclusions indicate the evolution will take time, but the opportunities are substantial."

Figure 2: (Source: Ericsson, via Raymond James) (Source: Ericsson, via Raymond James)

But the analysts at New Street offered a more pessimistic take on the topic: "We have been, and remain, generally sceptical on the prospects for telcos in IoT," they wrote. "Note that we are not sceptical about the wider social and commercial prospects for IoT – just about telcos' ability to capture a material share of the value creation. We expect that vendors, integrators and 'citizen surplus' will be the main beneficiaries, even where telcos are carrying the IoT traffic."

Finally, the analysts at Raymond James noted that it's still early days, and that sussing out 5G opportunities in the coming years is like predicting the rise of Uber and Lyft before the introduction of the 4G networks and devices that made such services possible.

"Debate regarding the business case for operators' investing in 5G remain unsettled," they wrote. "Perhaps the strongest argument may lie in the suggestion that the best offense is a good defense. Operators that fail to invest in 5G face a competitive disadvantage. It often takes time for new technological capabilities and business cases to align and develop, so we do not consider this situation with 5G as alarming. With the massive build-out in China and the US operators launching even with unproven business cases, the market will have the scale to enable an evolution."

Mike Dano, Editorial Director, 5G & Mobile Strategies, Light Reading | @mikeddano

About the Author(s)

Mike Dano

Editorial Director, 5G & Mobile Strategies, Light Reading

Mike Dano is Light Reading's Editorial Director, 5G & Mobile Strategies. Mike can be reached at [email protected], @mikeddano or on LinkedIn.

Based in Denver, Mike has covered the wireless industry as a journalist for almost two decades, first at RCR Wireless News and then at FierceWireless and recalls once writing a story about the transition from black and white to color screens on cell phones.

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