Mobile operators won’t benefit from 5G without overhauling business model
5G could represent an opportunity for mobile operators to redefine their role in supporting their enterprise customers and so create US$1.5 trillion (€1.27 trillion) in value by 2030.
But if they repeat the approach used with 3G and 4G, they will accelerate the “commoditisation of connectivity” creating downward pressure on revenue and margins in mobile. Operators need to consider 8 strategic actions that will overhaul their financial and operational models enabling them to innovate beyond connectivity and so realise the full potential of 5G.
Enterprises believe incremental value will be generated from 5G – there is strong demand for solutions that leverage new network capabilities. Operators have an opportunity to participate in this because 5G builds on existing investments being made to create more agile networks and operations (in areas such as SDN, network virtualisation and edge computing) which are already starting to encourage business model change.
However, operators must accelerate their business model transformation efforts or risk competing in an intensely competitive connectivity market. An independent report, commissioned by Huawei and published by STL Partners, highlights 8 actions that operator management should consider including:
- Moving from a horizontal (one service to all customers) to a vertical strategy (specific services for specific industries);
- Adopting a new approach to resource allocation: reducing network capital and operating expenditures and refocusing resources on platforms and services that deliver value beyond the network;
- Increasing operating expenditure on network-independent innovation from less than 3% today to around 14% by 2030;
- Establishing senior management commitment to new business model activities and independence for ‘beyond connectivity’ initiatives;
- Focus on innovative commercial solutions (as well as technological ones) to add value to enterprises and disrupt outdated modus operandi in selected verticals;
- Recognise that network integration with services is not essential – focus on building quality platforms and services first and then consider how integration can add further value;
- Recognise that mergers & acquisitions (M&A) will be needed to move beyond connectivity in verticals in most cases as operators lack the skills, knowledge, products, relationships, and customers…
- …but that organic growth is possible if specific operator and marketplace characteristics are present.
The report draws on analysis of recent ‘beyond connectivity’ initiatives from operators, as well as exploring initiatives from outside telecoms. It concludes that the success of 5G in creating customer and societal value is contingent, in part at least, on changes being made by operators themselves.
The report’s author, Chris Barraclough says, “The days of operators claiming they cannot change because their hands are tied by regulators or the behaviour of new competitors are over. Operators are in control of their own destinies. 5G offers them the opportunity to redefine how they serve enterprise customers and to create new value. But management teams need to recognise that their strategies must change. And that, in turn, means investing differently. The same investment process as before will yield the same result: flat or declining revenues and margins.”