In Business Model, Internet Access, Mobile

It is probably fair to note that not every mobile operator today sees a clear 5G business model. Probably just as certain: even firms who do see a business model do not have a fully-understood strategy already in place for various models that might exist. Even its biggest supporters might readily agree that 5G is not likely going to be the best network for every important application.

It is not so much that there is confusion about potential 5G business models as there likely is an accurate understanding that incremental revenue opportunities will not be ubiquitous, equally substantial or transformative in every case.

In the colloquial, there likely will be 5G winners and losers, with the greatest odds of success lying with the largest tier-one carriers with the biggest internal markets, deepest pockets and other assets that allow them to be significant providers of big internet of things applications and solutions.

MTS in 2016, in its core Russian market, saw slightly negative revenue growth, year over year, in both its fixed network and mobile businesses. That might be one reason why MTS executives are skeptical about the 5G business case, for example. MTS likely already understands that 5G mostly represents a faster network with lower latency, but not necessarily an obvious driver of new revenues at the application layer. In other words, 5G will be a better network than 4G, but might not drive all that much incremental new revenue from expected internet of things applications and devices.

Also, MTS, having largely finished its 4G network builds, would prefer to spend less on network capital, not more, which 5G will require.

As always, statements questioning business models have to be parsed. When any executive or scientist says “something cannot be done,” there are unstated qualifiers, whether the speaker acknowledges those qualifiers or does not.

There is a difference between “we cannot do so” and “nobody can do so.”

When it is said that there is “no business model for 5G,” that can mean many things. It might mean that “at the present moment, before settled standards, available transmission gear and customer devices such as phones are available, there is no existing business model.” That is correct.

Sometimes, as with earlier generations of technology, some companies, having capital issues, and having just made a big platform investment, have downplayed the importance of a coming platform, to protect the value and revenue of their “just built” platform. That is reasonable, and provides yet another set of qualifiers: “we cannot, at the moment, having just finished our latest next-generation platform, afford to invest in yet another next-generation platform.” 

In other cases, the qualifiers might relate to potential market opportunities, as in “we do not see, in our current markets, serving current customers, incremental revenue opportunities of sufficient size to justify making the investment in 5G.” That also would be a rational set of qualifiers.

The point is that skepticism about 5G financial upside is not an unreasonable concern, for many mobile operators, and not just in small markets. It is possible that 5G–which promises big and brand new markets related to internet of things–will require participation on the applications side of the business. Think layer seven of the Open Systems Interconnect model, with physical layer assets at layer one.

That is not something most telcos will be able to do at all, much less do so with global or continental scale. Most of the 5G “new revenue” might well turn out to be on the applications and solutions side of the business, not the access part of the business. In that sense, it is rational to worry about the 5G business model in a broad sense.


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