101
96
73 69
57 47
41 35
24
77
Real-time automation
Enhanced video service
Monitoring and tracking
Connected vehicle Hazard and maintenance sensing
Smart surveillance Remote operations Autonomous robotics
Augmented reality
Other
FIGURE 3.1.2
ECONOMIC CONTRIBUTION OF 5G (SOURCE: TMG, GSMA)
32. http://pubdocs.worldbank.org/en/391452529895999/WDR16-BP-Exploring-the-Relationship-between-Broadband-and-Economic-Growth-Minges.pdf 33. https://www.gsma.com/spectrum/wp-content/uploads/2018/12/5G-mmWave-benefits.pdf
5G Value Creation and Capture
90
A major question for operators and industry stakeholders is how much of the $2.2 trillion 5G economic contribution to GDP is addressable by operators. An Ericsson study34 in 2017 suggested that operators have the ability to address an additional revenue opportunity of $204 billion to $619 billion by 2026 from ten industries (see Figure 3.1.3). “>$400 billion” is used throughout this study as a reference for the enterprise opportunity. Another study, from Huawei35, explored the opportunities from their top-
ten 5G use cases, showing for example, that there is an operator addressable market opportunity of $93 billion for Cloud AR/VR.
These studies assess the scale of the opportunity that operators can unlock to capture their share of the value in the 5G ecosystem. For 5G to avoid becoming a technology show, it must deliver on its promise to accelerate the digital transformation of other industries.
FIGURE 3.1.3
5G BUSINESS POTENTIAL PER CLUSTER36(SOURCE: ERICSSON)
3.1.3 5G revenue projections
The incremental 5G opportunity is in digital transformation of industries
mmWave band contribution to total GDP mmWave contribution
to 5G total tax revenue
2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034
$2.2tr
$565bn
Total 5G tax revenue:
$588bn
$152bn
Market size
$619 billion
101
96
73 69
57 47
41 35
24
77
Real-time automation
Enhanced video service
Monitoring and tracking
Connected vehicle Hazard and maintenance sensing
Smart surveillance Remote operations Autonomous robotics
Augmented reality
Other
5G Value Creation and Capture
34. https://www.ericsson.com/assets/local/networks/documents/report-bnew-17001714.pdf
35. https://www-file.huawei.com/-/media/CORPORATE/PDF/mbb/5g-unlocks-a-world-of-opportunities-v5.pdf?la=en
36. https://www.ericsson.com/en/networks/trending/insights-and-reports/5g-challenges-the-guide-to-capturing-5g-iot-business-potential?aliId=1206580 THE 5G GUIDE
91
5G Value Capture
5G Value Creation and Capture
3.2
KEY TAKEAWAYS
• There are three opportunities for operators to create and capture value in the 5G era.
• First, 5G will enhance the core business of communications and data services. It will boost its capabilities, and make it more efficient and profitable.
• Second, 5G will deliver new 5G use cases, which operators can either monetise directly, use to enrich the core offering or can be spun off.
• Third, operators can capture value by investing in ecosystem innovations or partnerships that can help to ‘pull through’ 5G adoption or that can benefit from a more connected society.
92
Operators have three sets of recognisable opportunities to capture value in the 5G era, as outlined in Figure 3.2.1.
The first is in enhancing the traditional core business of communications and data services to consumers and enterprises. Operators are already experts in this area, and will evolve their current commercial models into the 5G era.
The second set of opportunities for operators is in new 5G use cases. The industry has focused a lot of effort on activities, pilots, and test beds to conceptualise, develop and commercialise new 5G use cases. Many of these are aimed at industry verticals, in keeping with the expectation that 5G will transform industrial verticals. Some new use cases will have synergies that enrich the core business (e.g. Cloud AR/VR) while some will be independent from the core business and could be spun off to flourish as independent businesses (e.g.
drone delivery).
The third set of opportunities lie in ecosystem innovations or partnerships that can help to ‘pull through’ 5G adoption or that can benefit from a more connected society. Pull-through innovations (e.g. AR/
VR entertainment) encourage customers to upgrade to 5G and their growth invariably leads to faster, and more profitable, 5G adoption. Innovations that grow as mobile connectivity improves (e.g. music streaming) are also good candidates for capturing value in the 5G era. While several operators already make such investments, the key is to explicitly link these ecosystem investments and partnerships as part of the value capture opportunities in the 5G era.
FIGURE 3.2.1
THREE VALUE CAPTURE OPPORTUNITIES FOR OPERATORS IN THE 5G ERA
3.2.1 5G Value capture for operators
Operators need to look beyond the core business to identify where and how to capture value in the 5G era
CORE BUSINESS (VOICE, MESSAGING,
DATA)
NEW USE CASES (CONSUMER &
ENTERPRISES)
ECOSYSTEM INNOVATIONS
(START-UPS, PARTNERS)
A B C
Operators can fund Option C with profits from Option A
Spin-off to flourish Enrich the core
LOW MONETISATION HIGH MONETISATION
OPERATIONAL EXCELLENCE
• Better network efficiency for low cost/GB
• Stimulate data usage & drive network utilisation
DIFFERENTIATION
• Productise 5G capabilities for monetisation (e.g. Network Slices)
• Mass customisation & industrialised partnership model for market segments
54%
41%
25% 23% 22% 20% 24%
Improved mobile
data speed Improved mobile
service coverage Innovative new
services Improved fixed
home broadband Lower service
costs XConnectivity for previously unconnected
devices (wearables, appliances,vehicles, etc.)
Don't know
23%
17%
14%
20%
31%
17%
26%
3%
34%
40%
40%
6%
9%
17%
17%
3%
3%
9%
3%
Enterprises (e.g. B2B, B2B2C)
Consumers (e.g. B2C)
Online (e.g. A2P)
Governments (e.g. B2G, B2G2C)
Most Important 2 3 4 Least Important
69%
5G Value Creation and Capture THE 5G GUIDE
93
5G has the potential to both bring growth in new business areas and improve profitability in operators’
core business. Figure 3.2.2 provides an illustration of these two options.
Using 5G to improve profitability of lower-growth business segments is primarily about making the core business of connectivity more efficient with better utilisation of the network. This is the minimum expectation for any operator seeking to launch 5G.
Operators seeking a higher-growth 5G strategy will need to devise a robust roadmap that is based on offering differentiated services to different market
While there is less of the euphoria to find a 5G ‘killer app’ as was for 3G, there are still high expectations that operators will identify new use cases in the 5G era to drive revenue growth. In practice, any new use case can be used in three ways by operators.
First, operators should always seek to find new products and services that can bring in new revenue streams within the core business. Premium content is a typical example, and Cloud AR/VR is a big potential opportunity in the 5G era.
Second, operators can use new 5G services to enrich and embellish their core offering. Most customers,
segments. This will require commercialising 5G capabilities such as low latency and security, and monetising them, potentially through APIs or a platform model. Based on the technological, market and operator 5G readiness, this high growth scenario is less likely to happen in the first years of 5G deployment.
Operators pursuing the higher growth model need to act now to prepare the market; understand the needs of the ecosystem; test and evaluate new use cases; and strike partnership deals.
whether consumers or enterprises, are buying the core product of connectivity from operators. However, operators can offer new 5G services to increase the bundle price, incentivise upgrades, reward loyalty, minimise churn or even expand their offering.
Third, with strong cash flows and a professionalised workforce, operators are large enough to invest in innovations and efficient enough to execute on these investments. Some innovations that start off as internal projects will turn out not to have strong synergies with the core business. These products and services ought to be spun off so that they can thrive without being constrained by the operator’s internal processes.
3.2.2 5G and the ‘Core’ operator business
The 5G era vision is to offer differentiated services: the reality is, firstly, to deliver 5G at low cost
3.2.3 5G and new use cases
Operators should seek new use cases that can either earn new revenues, enrich the core offering or can be spun off
CORE BUSINESS (VOICE, MESSAGING,
DATA)
NEW USE CASES (CONSUMER &
ENTERPRISES)
ECOSYSTEM INNOVATIONS
(START-UPS, PARTNERS)
A B C
Operators can fund Option C with profits from Option A
Spin-off to flourish Enrich the core
LOW MONETISATION HIGH MONETISATION
OPERATIONAL EXCELLENCE
• Better network efficiency for low cost/GB
• Stimulate data usage & drive network utilisation
DIFFERENTIATION
• Productise 5G capabilities for monetisation (e.g. Network Slices)
• Mass customisation & industrialised partnership model for market segments
54%
41%
25% 23% 22%
20% 24%
Improved mobile
data speed Improved mobile
service coverage Innovative new
services Improved fixed
home broadband Lower service
costs XConnectivity for previously unconnected
devices (wearables, appliances,vehicles, etc.)
Don't know
23%
17%
14%
20%
31%
17%
26%
3%
34%
40%
40%
6%
9%
17%
17%
3%
3%
9%
3%
Enterprises (e.g. B2B, B2B2C)
Consumers (e.g. B2C)
Online (e.g. A2P)
Governments (e.g. B2G, B2G2C)
Most Important 2 3 4 Least Important
69%
FIGURE 3.2.2
OPERATIONAL EXCELLENCE VERSUS DIFFERENTIATION STRATEGIES FOR 5G
5G Value Creation and Capture
94
Most operators already work closely with start-ups to find and fund promising innovations. Overall, operator corporate venture capital (CVC) is on the rise in the wider TMT sector, demonstrated by an increasing number of deals and associated funding over the last few years. GSMA analysis37 of many operators’ CVC shows they invest in start-ups that support extension of core assets or a move into new business lines altogether, e.g. media, content and fintech (see Figure 3.2.3). Operator CVC activity is also on the rise in developing markets, where many local start-ups face scarce funding options and struggle to reach scale.
Collaboration can take different forms and models, based on the depth of collaboration and the financial commitment required from the operator. These include in-house tech hubs, start-up investments (through CVC, direct equity investments and joint ventures) and commercial agreements including OTT reselling partnerships.
While these CVC activities will continue and grow in the 5G era, there is an opportunity to reimagine some of the investments as an extension of the 5G value capture mechanism. These are investments (e.g. AR/
VR solutions) that, while not directly linked to the core operator business, help to create demand for 5G. Value capture from these investments will not come from the usual direct channels. Rather they will help to drive adoption of 5G, providing an indirect route to creating and unlocking value in the 5G era.
3.2.4 The ecosystem investment/innovation opportunity
Operators should use their Corporate Venture Capital (CVC) arms to invest in start-ups that can ‘pull through’ 5G
5G Value Creation and Capture
37. https://www.gsma.com/mobileeconomy/wp-content/uploads/2018/05/The-Mobile-Economy-2018.pdf FIGURE 3.2.3
OPERATOR CVC INVESTMENT SECTORS 2016 – 2018
Accounting &
Finance
Advertising, Sales
& Marketing
Application &
Data Integration
Business Intelligence, Analytics & Performance
Management
Analytics & Performance
Consumer Electronics
Customer Relationship Management
Education & Training Facilities
Health & Wellness Infrastructure
& Hosting Location Based &
Navigation Marketplace Monitoring & Security
Music Networking &
Connectivity Payments Real Estate Scientific, Engineering
Software Security Software
Social Supply Chain & Logistics
Telecom Services
Travel (mobile) Video Travel