In this six-part series on 5G network and digital innovation, I am discussing some of my observations and suggestions on how the wireless ecosystem can come together to address an unprecedented set of opportunities that will come before us in the next decade. In the first piece, I laid the basic thesis of why 5G is different and how operators should think about strategy and network economics. In the second part of this series, we looked at the cost element and role software will play in managing costs and expanding EBITDA. In this column, I will talk about revenues.
Back in 2011, when I started looking at new revenue cycles, it was very clear looking at the data that industry will have to invest in digital services as the traditional revenue curves of voice, messaging, and access will reach saturation point and start declining. That was the genesis of the 4th wave thesis, which has accurately predicted the rise and fall of the traditional revenue curves. The 4th wave looks at new digital revenue streams that run on top of the access layers.
At the time, due to the explosive growth in mobile data, the conventional wisdom was that the access revenue curve could grow forever. However, the 4th wave thesis data was pointing to the saturation in a few years. In fact, the 4th wave predicted the decline in U.S. wireless market data revenues five years before data revenues start plateauing. Additionally, as predicted, the 4th wave is already generating majority of industry revenues.
The phenomenon was not limited to the U.S. market. We have seen pressure on access and net revenue worldwide. Operators who have embraced the 4th wave strategy have benefited from it. Our research shows that for the last two years, the access revenue growth for the top 18 operators was virtually zero, but the digital services revenues grew by double digits. We expect some of the progressive operators to continue to sharpen the digital skills and revenues. Access is a critical building block, but the value has shifted to the higher layers of the stack.
There are numerous lessons from what we have learned from implementing 4th wave strategies with the ecosystem and regulators around the world over the last eight-plus years. How do they apply to the new upgrade cycle of 5G? Does the ecosystem dynamics change as a result? How should operators restructure their strategies and businesses in the 5G era? I get asked these and related questions in board rooms and by senior leadership teams at mobile operators, infrastructure providers, startups, VCs, regulators, and government officials.
One thing is clear. The 4th wave is irreversible. Just because the 5G cycle is here doesn’t mean that we will go back to the business dynamics at the emergence of the 4G era. While there might be some appetite for 5G access premiums from customers, it will be short-lived. The value-chains will be permanently restructured in the 5G cycle. The operator landscape is likely to look quite different at the end of the 5G cycle than how it is in 2019.
As we alluded in the last two columns, software and sensors will define the 5G cycle. While a vibrant access layer is critical to the 5G economy, the 4th wave services will rule the day. We are already seeing signs of services that will enable a new class of applications for both consumers and enterprises. Edge computing architecture will fundamentally change how packets are delivered from point A to point B. VR will create experiences unlike anything we have created in human history. Holographic and volumetric video streaming has tremendous potential. Furthermore, there are opportunities in improving the workflow in enterprises of virtually every major industry through meaningful automation and creation of new ways of task completion and end-user engagement.
The 4th wave is also about alliances and developer partnerships. New revenue streams mean new platforms, new ecosystems, new value-chains, and the players need to be agile to formulate the business models to make it work for everyone. Mobile operators can participate in them only if they have their access economics in control. If the margins from the 5G business aren’t enough, there will be tremendous pressure not to participate in the 4th wave economy, as by definition it is riskier and requires patience to carve out your own piece of the pie.
In the original 2012 4th wave paper, “Operator’s Dilemma (and Opportunity): The 4th wave,” we wrote, “To be an effective and a long-term competitor on the 4th curve, operators have to become the OTT players themselves. This requires innovation, financial muscles, and a ruthless mindset to capture its share from the value chain.” Some operators have created multi-billion dollar 4th wave streams in IoT, connected cars, enterprise security, media and entertainment, cloud services, healthcare, and more. However, only a small percentage of operators understood the implications of the 4th wave and invested accordingly.
As we have said repeatedly, 5G will also require a different regulatory regime as well. Current measures to regulate the market are leading to market failures and if governments are not careful and forthright about the inadequacies of current ways to regulate the market, we might see a slower 5G deployment than many are expecting.
5G will undoubtedly create new opportunities and if the last cycle was any indication, the 4th wave will be at the center of the ecosystem revenue expansion. If 4G enabled the 4th wave curves, 5G will be defined by them. If operators are not sanguine about how they run their networks, their role in the 5G stack will be a diminished one despite enabling it. By taking a more software-centric approach to network and services, they can become healthy competitors on the 4th wave curve.
Chetan Sharma is CEO of Chetan Sharma Consulting, an 18-year young management consulting firm and is an advisor to CXOs and boards of companies in the wireless industry. Over his 25 years in the industry, he has worked with operators on all five continents and has the rare distinction of advising each of the top 9 global mobile operators. Chetan has written 14 books on various wireless topics and his research work has helped shape many strategic decisions and dialogue in the industry. He is curator of industry’s premier brainstorming summit Mobile Future Forward. More information at www.chetansharma.com. You can follow his musings at @chetansharma
"Industry Voices" are opinion columns written by outside contributors--often industry experts or analysts--who are invited to the conversation by Fierce staff. They do not represent the opinions of Fierce.