TIM HATT, head of research at GSMA Intelligence, reflects on some of the key issues shaping the telecoms sector and the competitive implications.
Who wins from enterprise digitalisation?
Companies across a range of verticals (such as manufacturing, power generation and aerospace) are evaluating their options for digitalising product assembly and general operations. This presents an opportunity for operators that can offer 5G with complementary infrastructure for low-latency services in IoT and data analytics. However, while a majority of enterprises recognise the benefits of speed gains brought about by 5G, other improvements (for example network slicing, edge computing and low-latency services) are not widely appreciated, with many believing that 4G remains good enough.
China is a clear exception in this regard: early partnerships and trials from local operators have paid dividends, as evidenced by the widespread intent among companies in the country’s industrial sector to employ 5G. European operators are also active, with around 50 trials initiated the last six months.
Multiple companies are targeting enterprise digitalisation, including cloud and software-as-a-service companies, and systems integrators. The challenge for operators will be to move the conversation about 5G away from technology and towards a consultative mentality of problem solving.
Consumers are wising up to the benefits of 5G, but speed alone will not drive a revenue story
Next-generation services are now live in around 25 countries, with consumer awareness rising off the back of carrier marketing and political support. However, there is wide variation on intentions to upgrade to 5G and the willingness to pay more for it. Consumers in South Korea, China and the Middle East, having witnessed some of the earliest launches, are at the vanguard. Expectations in the US, Europe and Japan have increased the last 12 months although with a longer time horizon, with consumers content to remain on LTE for the time being.
On the current upgrade expectations, we expect a modest uplift (low single digits) to mobile service revenue growth in early adopter countries over the next two years. While not the structural revival the sector seeks, any incremental growth would be good news for the operators. Expanded network coverage, declines in handset prices and sustained marketing campaigns should all drive upgrades into a larger share of the consumer base over the coming two-to-three years. The challenge will be shifting public perceptions that 5G is more than a speed upgrade, for which any pricing premiums will be temporary before being competed away. Should new services in VR and AR materialise, the scope for sustained price rises increase, but the content libraries in such immersive formats remain limited.
When your competitor is also your partner
As we enter the 5G era, network innovation has never been greater. Over the last decade, the mobile network model has gradually trended away from asset ownership to infrastructure sharing in an effort to cut costs in a low-growth environment. 5G adds the potential for further variation in the models of funding and operating a network. As such:
Infrastructure competition becomes harder, not easier.
Capex will need to be spent more judiciously, particularly for small cells.
Frenemy-style partnerships with adjacent sector competitors become the norm rather than the exception.
Edge computing is one such estuary ground. Despite being at the centre of discussions around edge deployments because of their local real estate, operators have struggled to make edge computing a commercial reality, as they lack the application environment and scale of public cloud providers. Carriers will increasingly rely on public cloud companies to host network applications. The line between cooperation and competition will blur further as operators look to move more assets (such as network functions) to the public cloud to increase flexibility and reduce costs.
Devices: still a smartphone world, but with a wearables renaissance underway, portending a deeper movement to digitalise healthcare
Saturation, innovation fatigue and weakness in consumer incomes resulted in a two-year global smartphone sales downturn, although the trend over the last six months gives grounds for cautious optimism among OEMs as 5G arrives. Device vendors benefit from any upgrades that come with a new handset, but it is disconcerting that only 30 per cent of people see a new smartphone as the reason for upgrading: 5G is still seen as predominantly a speed enhancement.
By contrast, adoption rates for fitness trackers and smartwatches picked up in 2019. Millennials show the strongest ownership rates, being more tech-savvy than older generations and benefitting from a rise in work-related subsidies and private health insurance, an important signal of the underlying activity in AI development to shift personal health to a model where consumers are empowered to own their risk profile.
Activity in the wearables space reflects a broader push to digitalise healthcare access, a large but long game. This reflects the complexity of designing commercial products for the health space and the potential for unorthodox B2B funding models for inherently consumer companies such as Apple and Google. More fundamentally, it is because of mixed implications associated with digitalising personal health data on a mass scale despite the purported benefits of cost savings and empowerment. This is a highly charged area of competition that goes to the heart of AI ethics and consent.
The editorial views expressed in this article are solely those of the author and will not necessarily reflect the views of the GSMA, its Members or Associate Members.
* Tim Hatt is head of research at GSMA Intelligence.