Even as 5G commercial launches have been set in motion through 5G spectrum auctions cross the globe, Communication Service Providers (CSPs) are digging deep into their pockets towards this first round of investments. The last few years have been difficult for most wireless CSPs as the subscriber markets have started saturating, thereby, leaving limited room for further growth of traditional markets. Besides, the CSPs are finding it an uphill task to lift average revenue per user (ARPU). Under these circumstances, it is of paramount importance that CSPs strategise their investments in the right components that would drive 5G-related business growth.
Till 4G, communication services had been rendered on a best-effort basis with no service guarantees. Apart from the well-known features related to ultra-low latency and high bandwidth, 5G brings in the possibility of giving guaranteed service to the consumers. This fact opens up the possibility of a customer base that needs deterministic communication behaviour. Apart from this aspect of 5G, there are other aspects like ubiquitous presence, seamless connectivity, and differentiated service that make it easier for a wide variety of verticals (e.g. healthcare, banking and finance, energy and utilities, and retail) to incorporate 5G in the core part of their business and operations. This new industry vertical market that 5G can enable can be the panacea that CSPs are looking for.
Traditionally, major investments by mobile CSPs have been related to telco infrastructure and spectrum. With every generation of wireless communication, the amount spent on spectrum is going up. Similarly, while the costs of equipment for building the infrastructure is reducing, the costs of physically deploying the infrastructure is spiraling, both in densely populated areas and remote locations. Virtualisation techniques like network function virtualisation (NFV) and software defined networking (SDN) have enabled flexibility and to an extent, contained the cost of deployment. However, it continues to be a major cost that needs to be incurred by CSPs as they progress from one generation to another generation of communication technology. The progression to 5G is not expected to be any different and CSPs are facing problems with these spends across the globe.
While the uptake of 5G is likely to be rapid in the traditional market, the net added revenue will not be substantial, as it will be shoring up the declining revenues of 3G. CSPs will need to embrace new markets and customer base to rise above the current situation. Penetrating the new industry vertical market would entail new investments, both from the CSPs’ side as well as from the consuming industry’s side.
To start with, current vertical industry processes and business models are likely to be hesitant about incorporation of a new generation of communication services due to the prevailing uncertainty caused by the pandemic. Even with the possibility of radically expanding their business (e.g. with the Internet transforming the retail business), there is bound to be a hesitation due to the inherent risks involved in any transformation. Also, such transformation could potentially need to deal with the inclusion of new players not typically associated with the sector, implementation of cohesive end-to-end solutions, handling of data security and privacy, etc. These issues will vary across industry sectors and will require creation of new supporting ecosystems. Organic evolution and subsequent stabilisation of such platforms will take time and can, thus, potentially delay the transformation process of leveraging 5G communication services as a core part of the business of the vertical.
In fact, this lacuna provides an opportunity for CSPs to not only accelerate the uptake of 5G services in the new market but also play a pivotal role in the upcoming transformations across industry sectors. CSPs can invest in the creation of ecosystems for different vertical sectors. These ecosystem platforms, besides orchestrating players of future business designs, and by providing 5G communication services, can include services such as trust services between parties, enforcement of transactional privacy, ensuring end-to-end service level agreements, etc. CSPs inherently possess capabilities beyond just providing communication services, and these can be leveraged through the means of ecosystem platforms.
CSPs can embark and prioritise this new and third type of investment to reach out beyond their traditional market. While this would involve a certain financial commitment, it may not be too large. However, ecosystems will take time to build and be functional as it involves multiple players. In addition, it takes time to establish a brand as an ecosystem player from the current view of a traditional CSP. By playing this role, CSPs can ensure that they are no mere bit-pipe vendors, but the backbone of different industries.
There is another advantage in taking steps in this direction. With the inclusion of different players from the consumption side, CSPs can not only be more focussed on their traditional investments, but may also be able to leverage the ecosystem for investments towards infrastructure and spectrum. For instance, a country’s national healthcare can co-invest towards a specific network slice tuned towards active monitoring, remote consultation, and procedures for an efficient and effective service. Besides providing communication services, CSPs can build ecosystems for comprehensive healthcare by roping in ecosystem players (e.g. insurance providers, ambulance services, IoT device maintenance companies, and diet food providers).
5G is the path for CSPs to move beyond their traditional market. However, this would require CSPs to invest in business components beyond infrastructure and spectrum. By creating ecosystems for verticals, CSPs can play a pivotal role in accelerating the infusion of 5G services across industries, and throw open new paths to finance the traditional CSP investments. The verticals will be able de-risk transformation and CSPs will be able to make focussed investments on traditional components.
Views are personal. The author is practice head, Innovation & Industry Relations, Wipro Limited.