Diversity of Operator
5. MANUFACTURING
3.13.3 Six key business models
Six business model choices will dominate for operators in the 5G era
Whether it is for Business to Consumer (B2C), Business to Business (B2B) or Business to Business/Government to Consumer (B2X2C) opportunities, operators have a broader set of business model options in the 5G era.
In practice, operators will combine elements of the six business models outlined in Figure 3.13.3 to meet most
customer expectations. This section focuses only on six 5G era models. Readers should refer to “Seizing the White Space: Business Model Innovation for Growth and Renewal61” for more information on the rest of example models.
FIGURE 3.13.3
5G ERA BUSINESS MODELS FOR OPERATORS
Spectrum Spectrum Spectrum
Radio Network Radio Network Radio Network
Network Services* Network Services* Network Services*
Backhaul Backhaul Backhaul
Core Network Core Network Core Network
Unlicensed spectrum &
non-operator owners?
Infra sharing &
Non-cellular last mile?
Abstracted into device OS & service layer?
Infra sharing &
aerial technologies?
*Network Services includes authentication, mobility, security, billing, analytics
Operator
control Shared
control
5G ERA MODELS
GENERIC MODELS EXAMPLE MODELS
Affinity Club Brokerage
Bundling Cell phone Crowdsourcing Disintermediation
Fractionalisation Freemium
Leasing Low touch Negative operating cycle
Pay as you go Razor Reverse razor blades
Reverse auction Product to service
Standardisation Subscription User communities
Subscription Pay-as-you-use
Bundling Differentiated Pricing
Platform B2C
B2B B2X2C
Outcome based Others
61. https://books.google.com/books/about/Seizing_the_White_Space.html?id=3AzNGapxmXMC
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3.13.3.1 Subscription models
Established business model for predictable revenues in the 5G era
Subscription is an established business model in the telecoms industry and will continue in the 5G era for both consumers and enterprises. Most operators in developed markets have already moved to subscriptions including unmetered voice and messaging, and some have begun a shift from metered data to subscriptions for big data bundles.
Subscriptions can be post-paid or prepaid depending on the credit worthiness of customers in a market. The former is for customers who settle their bills at the end of the month while the latter is for customers who pay for the subscription before using it. In this context,
‘prepaid’ is different from ‘pay-as-you-go’ which is explored in sub section 3.13.3.2.
The main benefit of a subscription model for operators in the 5G era is that it creates a strong, predictable revenue stream. Accordingly, many operators will seek to move customers onto 5G subscriptions as soon as possible.
3.13.3.2 Usage-based or pay-as-you-use models Directly monetise incremental usage
The usage-based model has traditionally been used to serve low income customers who prefer tighter control of their spend. As customers settle into regular habits, many cost conscious customers also prefer to move to pay-as-you use models to manage costs. While such customers may not be the early adopters for 5G, operators should nonetheless evolve their pay-as-you- use proposition to ensure they are addressing all of the market, and to prepare for new opportunities.
One such new opportunity is in upselling new 5G era products, services or solutions to customers.
For example, if operators develop a cloud AR/VR proposition and can offer, say, 300 minutes of AR communication, the question will arise on how to monetise this. Should operators offer a package of 300 AR/VR minutes for customers taking up a new subscription, or should they allow customers to pay-as- they-use any incremental AR/VR minutes?
The main benefit of a pay-as-you-use model in the 5G era is that it enables a direct link between incremental usage and revenues. Conversely, its main disadvantage, especially in markets where 5G services will be sold as such, is that it leads to less predictability and greater variability of revenue streams, and makes planning difficult for operators.
3.13.3.3 Bundling models
Can be used to enrich, embellish, encircle or upsell the core data proposition
Bundling is a catch-all term and has traditionally being used for products and services that enrich, embellish, encircle or upsell a core proposition. Bundling does not exist as a standalone business model but it combines subscription and pay-as-you-use models for multiple products.
As emphasis shifts from voice to data, data has now become the core proposition and most of the operator bundles in the 5G era will focus on what can be added to improve the appeal of the data bundle. Basic voice and messaging are now included in many data-led bundles and the cost of 5G devices could affirm the need for handset subsidies to encourage adoption.
Operators will also be adding roaming services, security solutions, fixed broadband and increasingly exclusive or premium content (e.g. Netflix, Spotify) into the bundle.
The main benefit of a bundling model in the 5G era will be to encourage customers to subscribe or increase their usage in a pay-as-you-use model. For this, operators will need to understand customer habits and preferences so as to decide what to include in the bundles. Immersive media content is an early candidate for the 5G era service to be added to the bundle.
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3.13.3.4 Differentiated pricing models
Economically optimal to match demand, supply and ability to pay
Operators have always sought to differentiate the capability (e.g. QoS) of the core proposition and market it to different customers for different prices. This has often been offered as a superior product (e.g. leased lines for businesses) or inferior product (e.g. low-cost sub-brands).
This will continue into the 5G era and could become central to unlocking incremental value in 5G. For example, network slicing in the 5G era would give mobile operators the opportunity to market differentiated value propositions for mobile connectivity in a similar way that fixed operators have sold leased lines, ATM, Carrier Ethernet and MPLS for decades.
The main benefit of differentiated pricing is that it is the most economically optimal way for operators to match demand and supply, allowing customers to pay for the product and the capability they need, when they need it.
3.13.3.5 Platform business models
Ideal to create two-sided and asymmetric revenue streams; need APIs to see the platform and an industrialised partnership strategy to woo developers and users
The platform model is the most publicised option for operators in the 5G era. Its advocates promote it as the only approach for operators to develop new ecosystems by bringing together buyers and sellers of 5G era products, services and attributes. Platform owners are able to charge a fee per transaction to one or several parties (two-sided models), use a freemium model to attract users and can use APIs to standardise a previously personalised service to lower cost.
Given their central role as the managers of the market exchange, platform owners can enter new markets by offering subsidies to customers, and then capture value in the core business. This asymmetric business model is the basis of how many internet companies have grown (e.g. Amazon with books, Facebook with news, Google with directory services, Apple with apps).
The main benefit of the platform model is that it creates new value or revenue streams from two-sided and asymmetric sources. And if operators want to become platform owners in the 5G era, at least at the national rather than international level, there are two key success factors.
First, they must ‘seed’ the platform with new products and services. Operators can do this by exposing the capabilities they already have and make sure they are well known to the community. Horizontal APIs is the major interface for operators to harmonise the technical, commercial and policy positions on the most frequently used features.
Secondly, operators must design the platforms to support many customers. This means that the platform cannot just be reserved for a few deep-pocketed enterprises. Instead, operators need an ‘industrialised’
model that encourages thousands or even millions of customers to engage the platform seamlessly. This is the major lesson from the Apple App Store and Google Play.
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3.13.3.6 Outcome-based models
Ideal for embedded connectivity and for product-to- service propositions
Outcome-based business models may become more prominent in the 5G era as managed mobile connectivity becomes a critical enabler of select enterprise products and services. Outcome-based models are also the focus of a broader shift from technology to business outcomes in enterprise technology sourcing, where technology and service providers begin to contract with a focus on business level outcomes instead of seeking pure technology centric SLAs. GSMA Intelligence has explored how such outcome-based thinking can be used for IoT62.
The rapidly growing involvement of business buyers in technology purchases such as IoT is one of the key drivers for the future growth of outcome-based pricing.
Stakeholders such as CMOs and CFOs often want to see a closer link between the technology services they buy and the business outcomes they seek. Linking a portion of the contract revenues to business centric SLAs such as product shipments, customer net adds, churn and even revenues; in addition to the technology SLAs such as speed, latency and reliability, focuses the minds of operators and other technology providers on clients’
broader business issues, rather than looking narrowly on the delivery of a pure technology service.
The key challenge with pure outcome-based pricing is that it ties a provider’s contract revenues to the business operations and results of the client, not all of which are under the control of the provider. This makes pure outcome-based pricing a challenge to execute well even for the largest IT services players such as IBM and Accenture, which have been engaged in such deals for IT outsourcing services for over a decade.
Hence operators need to proceed with outcome-based pricing with care, and start with tying only a very small proportion of contract revenues (e.g. in an IoT engagement) to business specific outcomes, or SLAs.
The main benefit of the outcome-based model is that it is an opportunity for operators to become embedded deeper into the enterprise market and tap into a bigger share of the revenue pool.
3.13.3.7 Other business models
• Ad-funded model: a model often talked about, but it is difficult to see how operators can rely on the ad- funded model for their business in the 5G era.
• Sponsored model: a model where a business subsidises a service in order to provide other services (e.g. Facebook’s Internet.org). It has received a lot of attention given its implications for net neutrality and has so far not delivered on its earlier promise63. It is a model to watch for in the 5G era.
• Rental model: an unsophisticated model for operators to rent out their assets in return for a recurring fee. For consumers, this could be applicable to expensive 5G devices whereas for enterprises, this could be providing physical space at the operator central office or cell site for businesses to install their own equipment.
• Managed services model: a model where the operator acts as an integrator or consultant to businesses and is paid for project delivery.
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62. Outcome based business models for IoT: https://www.gsmaintelligence.com/research/2018/11/outcome-based-pricing-in-iot-high-risk-high-return-bet/706/
63. Internet Regulation, Two-Sided Pricing, and Sponsored Data: http://chairgovreg.fondation-dauphine.fr/sites/chairgovreg.fondation-dauphine.fr/files/attachments/
Sponsored_data_FinalIJIO403.pdf THE 5G GUIDE
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