The secret to monetising 5G network investment is B2B

Billions of dollars has already been spent, with many more hundreds billions to come, on 5G mobile telecommunications networks around the world. Telecom operators will spend 80% of an estimated $890 billion of capital expenditure on 5G networks over the next five years, according to the GSMA. 

But the huge promise of these networks with high bandwidth and ultra-low latency has somewhat disguised the fact that for all this new investment there is no clear path for telecommunications network companies (telecoms) to make money.

For the past two decades telecoms have been forced to watch rather helplessly as so-called over the top players (OTT), internet media companies, and software companies who have migrated to cloud computing have eaten away at their margins. From a telecoms point of view, these companies have been free riding on their expensive infrastructure.

The basic network promise of 5G for consumers is simply greater bandwidth and in competitive mobile markets, telecoms have been forced to compete largely on price. The financial motivation for investment in 5G is therefore muddied, consumers have been in a buyer’s market for too long now. So when telecoms companies offer more data, more bandwidth, and more speed, it becomes an increasingly tough sell for the network already competing against hungry, lower cost virtual network players.

Telecommunications is at the fork in the road for a couple of reasons. Total shareholder value returns and return on investment capital in the telecommunications industry has been on a decline. They have also had very high fixed costs even before COVID. They were already looking at how do they actually change their fixed costs to variable costs and how do they go and capture new revenue.  

Telecommunications has either been the enabler, or part of, most digital transformations of industries. Now digital transformation within the industry itself is actually being accelerated for two reasons – one, to actually improve their top line and improve their customer experience, but also to fundamentally change their cost structure so that they can maintain and grow future earnings and improve total shareholder return.

So 5G has come at an interesting time; it was always going to be a game changer as opposed to 4G and it is not just promising on the classic promise of higher speed that was the key hook for 2G, 3G and 4G.

5G brings with it very interesting technological advancements. One is much reduced latency, the time of connection between one device and another. The other is greater bandwidth and greater quality of service. But there has also been a technological shift: for the first time in mobile networks comes the importance of cloud and edge computing to 5G network architecture – bringing the processing of data from the core of the network to the edge in mobile networks.

That means for the first time, this particular advancement in mobile technology is actually going to benefit the business-to-business segment, instead of the business-to-consumer segment, and that is because of the confluence of Internet of Things (IoT) – myriad large, small and minute devices connected to the World Wide Web and 5G together. There are new business models that the telecoms customers are contemplating, whether it’s in maritime logistics, supply chain management, whether it’s agriculture financial services, retail or manufacturing.

The GSMA said that enterprise is where 56% of operators see the highest potential for 5G, with a mix of IoT, cloud and private networks, This is a great time for telecommunications to now latch on and deliver great outcomes for the B2B segment. Getting the business models and skills in in place to fully service enterprises in 5G and IoT will take time, but operators need to start now.