Would a 5G Delay Really Be So Terrible for CSPs?

Controversy surrounds Huawei as countries -- including the US -- raise security questions over the use of Huawei in their 5G mobile networks. This has prompted the question: Will banning Huawei delay 5G's commercial launch?

Politics aside, the mobile industry's biggest concern about potential restrictions on Huawei is the impact on "time to 5G." But a delay might not be a problem -- in fact, it might be quite the opposite.

Delaying 5G is often presented as bad for consumers. But it's primarily a play in the enterprise market, where by some estimates two thirds of market demand will be. In January, AT&T announced that "businesses are leading the 5G revolution." AT&T Business CEO Thaddeus Arroyo echoed this sentiment at Mobile World Congress in March when he said: "5G will generate revenues in the enterprise first for AT&T... Services have already launched in the US." Helmut Reisinger, the CEO of Orange Business Services, took a similar position: "The enterprise segment will be where 5G can fulfill its promise."

However, most operators are not ready to sell 5G services to their enterprise customers. Equally important, many enterprises are not ready to buy 5G services, as they haven't yet created the new use cases that will demand 5G's low latency and super speeds.

5G's commercialization is dependent on communications service providers (CSPs) and their enterprise customers working more collaboratively to create these new industry use cases. This is new territory for all parties, and they'll need to bring together a powerful ecosystem of partners to come up with a range of new features and services. This multi-sided model based on a digital business platform needs to be CSPs' first choice for commercializing 5G.

The high price of 5G
5G networks are expensive: According to the GSM Association, 5G's cost is likely to be four times that of 4G per square mile. 5G is a premium service, and it needs to deliver an immediate return.

However, CSPs predict the retail opportunity to price 5G at a "premium” will last just six months, after which its novelty value will fade. CSPs will be left with 5G networks that cost four times as much to build but do not persuade consumers to pay higher subscription fees.

5G won't deliver 4G's numbers
5G's launch will be very different from that of 4G. After the disappointment of 3G, there was massive pent up demand for 4G's improved quality and performance, and CSPs had to do relatively little commercial innovation to sell 4G services. There was instant demand.

That is not the case with 5G. Some new consumer use cases, such as augmented and virtual reality, may need 5G -- but these products and services are several years away from being perfected.

Some CSPs have already announced plans to badge more advanced 4G services as 5G, and to launch the technology starting with 5G fixed broadband. In doing this, some risk cannibalizing their revenues from their residential FTTx broadband services.

CSPs' 5G focus must be the enterprise
To capitalize on 5G, operators need to focus on the enterprise market and be willing to either develop the new use cases themselves or collaborate with enterprise customers to create them. This new business model is the one that will deliver the commercial returns from 5G.

The issue for all operators is that they haven't traditionally been good at reinventing their businesses. Much of the 4G and FTTx opportunity went to the digital startups offering so-called "over the top" (OTT) services like music and gaming. CSPs offer relatively few products and services -- voice, messaging and data. To properly monetize 5G in enterprise markets, like the automotive and manufacturing sectors, they must be willing to play a broader role.

A two-year delay in 5G rollout could be positive for CSPs, in so far as it may reduce the risk they lose "control" of the technology and gift the 5G opportunity to innovative digital startups -- quick to create a new generation of 5G OTT services.

Let's remember that Amazon began life as an online bookseller. Since then, it has incrementally added new products and services to become one of the biggest digital platform businesses, with a huge ecosystem of partners, and is one of the world's most valuable companies. CSPs can emulate Amazon's approach using a digital-platform business model with a powerful partner ecosystem.

CSPs need partners for 5G to succeed
In most cases, CSPs should not wait but use existing network assets -- 4G for now and 5G in the future -- to build these ecosystems and work with enterprise customers on developing vertical-specific offerings. In this way, CSPs will over time incrementally expand their relevance to each industry and grow their customer footprint.

That said, CSPs face obstacles to building and supporting an ecosystem. They have massive R&D arms but are slow to move, with rigid governance structures and centralized control. The integration of new products and services into their existing "IT spaghetti" can be laborious. Willingness to work in a more agile and experimental way around a digital business platform with partners is the way forward.

A new approach
For 5G to be successful, CSPs must change their mindsets, build partner ecosystems and reinvent their business models. More importantly, if history is not to repeat itself, CSPs need to change before a new generation of 5G digital competitors beats them to the punch.

A delay to 5G buys CSPs valuable breathing space to make this change, to define their 5G business models and start the process with their 4G networks and the Internet of Things. When 5G eventually launches, they will be in a much better position to make it the success that its costly price tag needs it to be.

— Angus Ward, CEO, Digital Platform Solutions, BearingPoint

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