Now that 5G commercial services are starting to go live in the leading markets, we get a glimpse into operators’ views of how much value they believe they can wring from 5G. Based on the early 5G mobile pricing announcements in the U.S. and Korea, it looks like they expect some incremental value—higher throughput speeds—that consumers would be willing to pay a premium for, but not a whole lot more.
As the saying goes, we have seen this movie before. And, that’s not a bad thing when 5G promises relief from pending network capacity crunch and longer-term revenue opportunities from “deterministic bandwidth” delivery for industrial and enterprise applications that rely more heavily on the low-latency and massive connectivity features of 5G.
Operators’ initial 5G “value-add” pricing strategies, primarily based on volume, are reminiscent of the 3G-to-4G transition less than a decade ago. This isn’t too surprising or unexpected given that consumers have finite discretionary income left over for communications and entertainment services after essential household expenditures such as housing, healthcare, food, etc. In many developed markets, the four large consumer telecommunication service “buckets”—i.e., mobile wireless, pay TV/video, fixed broadband, and wireline voice—are nearing mature states.
In fact, in many markets, wireline voice is declining as consumers have come to rely on mobile phones for voice communications. Barring a significant boost to household income, operators don’t have much room to expand average revenue per user (ARPU.) Amid this setting, the ability to add a few more dollars to ARPU is a welcome development for operators for sure.
While we sometimes expect big disruptions each time an industry goes through a new technology transition, expecting big changes in business models may be too big of a leap—especially for incumbent players. Operators could have potentially changed their pricing strategy away from “pricing by volume” (e.g., “unlimited” plans with LTE data cap) to “pricing by speed” or something more challenging, such as “pricing by latency.” While different pricing strategies may manifest themselves as 5G matures (i.e., expands more broadly in geographic footprint and across more applications), during this initial ramp-up period, bigger players will probably stick to what has worked in the past.
So, will the 5G market evolve in the same manner as the last LTE transition? In key major markets like consumer mobile broadband, the answer may be yes. But, there are plenty of disruptive changes underneath the “surface” of the current 5G transition.
With huge swaths of spectrum in the C-band and millimeter wave bands, some operators are looking beyond their core markets into fixed wireless in-home broadband and payTV video. For others, private LTE markets across multiple vertical industries offer new opportunities. Furthermore, traditionally siloed views of the technology-market fit are getting blurred as well, as 3GPP continues to extend spectrum sharing concepts like LAA into 5G-NR. What has traditionally been viewed as the enterprise market via Wi-Fi, for example, is being addressed through LTE. Early CBRS/OnGo market activities are good examples of this.
A seemingly conventional 5G introduction to the larger consumer mobile broadband market—implying 5G is “4G, but better”—does not properly capture changes that this “5G” transition may bring to the wider telecommunications industry. The tangible benefits of lower cost-per-bit economics of 5G are driving the operator adoption in the consumer segment initially. As the operators push “quality bandwidth” delivery across disparate licensed/shared/unlicensed spectrum bands, new market opportunities across industrial enterprises will be certain to open up. In the new private LTE and 5G markets, the pricing schemes will probably change.
Whatever happens in the industrial and private LTE world, the trillion-dollar mobile market is unlikely to see much boost in ARPU directly tied to mobile broadband. However, the mobile operators can ‘steal’ revenue from local fixed operators in some regions in the same way that wireless voice services ‘stole’ revenue from the wired voice market. And, that incremental revenue can at least delay the competitive pressure for ARPU decline.
At the end of the day, 5G benefits the operator in cost-per-bit and capacity, but 5G doesn’t benefit the consumer very much, at least based on the current batch of applications. So operators should not expect a big impact on ARPU. They should view 5G as 1) a cost reduction for new capacity, and 2) a chance to create new enterprise revenue.
Kyung Mun is a senior analyst at Mobile Experts LLC, a network of market and technology experts that provides market analysis on the mobile infrastructure and mobile handset markets. Over the course of his 20+ years in the wireless and cable industries in a dynamic range of roles from engineer to product manager and technology strategist, Mun has contributed to the advancement of mobile communication while working at leading companies in the mobile value chain including Motorola, Texas Instruments, Alcatel-Lucent and a few startups in between. He holds undergraduate and graduate degrees in electrical engineering from the University of Texas at Austin and Georgia Tech, and studied finance and strategy at Southern Methodist University.
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