5G Spotlight #2: 5G and B2C Users - A Huge Monetization Opportunity

5G has been talked about as being a platform for the enterprise. The various multi-industry use cases would show you the same; from IIoT to factory automation, and other Industry 4.0 use cases, it is being widely considered as the first generation of mobile networks which will find widespread use in the enterprise.

However, the fact remains that the largest sources of income for the telcos will be the individual users.

Here's a question. 4G can do all of the things an individual user needs, at a reasonable speed. So, what is the use of a new network here? In the second edition of 5G Spotlight, I explore why telcos should look at individual users even more closely than before

4G Doing Good, But Not Enough

4G has done well to capture the imagination of the users. Before 4G, the things that we find commonplace were not possible on mobile networks. However, 4G enabled that, and more. This hasn't been a particularly positive development for telcos, though. For the last few years, the telcos have not made incremental revenue, not at least corresponding with the amount of money they have invested in their 4G networks.

No doubt that 4G paved the way for the entire app economy, worth $6.3 trillion by the end of 2021. It has also supported SaaS businesses as well. However, given the scale of the opportunity that 4G generated, it did not reflect in any proper monetization for the telcos. Experts have cited the limitations in technology, that prevented telcos from offering their subscribers plans based on their digital habits and needs. The lack of network agility has limited network monetization for the telcos.

It is clear that 4G will not just disappear out of existence. Telcos will have to create an ecosystem, first using a 4G core, then moving to a 5G core in a phased manner.

What Telcos Need To Do Right Now

For now, deploying 5G tech over a 4G core network will improve mobile broadband a lot. It can, in theory, support use cases such as IoT in smart homes and buildings. By building 5G technology on a 4G core, telcos can improve a network's speed and capacity. Apart from that, it will save a lot of money initially. That is due to two reasons; first, the network will use the existing LTE core, and second, telcos can introduce 5G equipment later by software upgrades.

In essence, there are a few things telcos can do right now.

1. Investing in 5G Core: Normally, a 5G network represents a large investment, and as such, telcos need to carefully access each choice before deciding on anything. For now, 5G's low latency applications depend on the maturity of the edge ecosystem. Therefore, telcos have anywhere from 1 to 3 years to upgrade to a 5G core.
2. Partner with the Right People: Telcos can deliver only so many 5G-driven experiences. As such, these telcos will need strong partnerships across industries, creating a catalog of content for the customers to choose from. In India, it is already common practice; the three major telcos have partnerships with OTT platforms such as Disney+Hotstar and Amazon Prime.
3. Understanding the User Better: 5G will bring a lot of changes, and as such, especially in India, telcos will have customers spread across three generations of mobile networks. Therefore, telcos will have to develop a deep understanding of what their customers need.
4. Promote 5G Device Adoption: India's 5G ecosystem has been gathering steam over the last few months; according to CyberMedia Research, by the end of 2021, India will have 25-30 million 5G smartphones. Therefore, telcos will have to promote 5G device adoption. Telcos can offer subsidized plans for early adopters.

Pay More, Get More - The Gamble of 5G Tiered Plans

However, telcos will need to move to a 5G core to better utilize the capabilities it can deliver. With a 5G core comes network slicing; it will allow telcos to better monetize 5G from a B2C standpoint. Along with slicing, CSPs can rely on the ultra-low latencies that will come with a 5G core.

With network slicing, telcos can establish "slices" of networks, fine-tuned to the deliverables. This will allow telcos to differentiate services over the same physical infrastructure. This will allow telcos to charge customers for varying service qualities and performance levels. This allows telcos to introduce speed-tiering, which will just consist of different slices with different capacities and speeds. Speed-tiering will also represent a shift from the usual telecom subscriptions; instead of telcos offering limited data, they can offer limited speed.

McKinsey had conducted a survey regarding the same; according to it, almost 74% of customers won't mind a speed-tiered service. Since speed has been a larger factor for customer satisfaction, McKinsey found that the customer didn't mind the larger bill attached to it. What this means is that telcos can improve their ARPUs, by speed-tiering, instead of data capping, their 5G plans. This might sound easy - and it can be. Telcos need only upsell normal 5G portfolios to improve ARPU by as much as 6%. But customers will only pay so much for faster internet. McKinsey's survey backed that; almost 66% of customers were not willing to pay more than 5 euros/month for a 10x speed hike.

However, telcos will have to make sure that their 5G plans are properly differentiated so that customers find it easy to pick what they need. Also, sector regulators can impose limits on doing something like differentiating service qualities. So far, though, in India, the telcos can't do that.

5G À La Carte

With network slicing, telcos also have another unexplored avenue - personalized 5G offerings. Based on the needs of the customers, telecom operators can focus on a use-case-based portfolio. That means telcos can have a gaming-focused plan, a streaming-focused plan, and so on. Essentially, telcos need to learn from the shortcomings 4G had and try to compensate for that with 5G.

As I mentioned before, 4G did not possess the agility the telcos needed to offer such personalized plans. The telcos have tried to compensate with OTT-based partnerships. However, there was no way to offer tiered plans, based on the application of the network.

5G performance boosters represent a special case for these personalized plans.

Telcos can offer a temporary boost in performance for individual users, sort of like data top-ups. However, these performance boosters can increase the speed multiple times. This is nothing new; people buy Wi-Fi on an airplane. For example, if a customer wants to stream a video, or play a game, and needs strong connectivity, they can pay a small amount and receive a boost. For places where network congestion can hamper performance, boosters can help telcos provide premium connectivity, and monetize that.

5G boosters represent one of the needs-based monetization opportunities, while another one could be so-called "business" plans. These plans can offer premium connectivity, in terms of speed, latency, and network access. For telcos to seize on the potential of this, they will need to have a better understanding of what their customers need and where they are. Telcos need to invest in their operational and business support systems to engage with their customers at all times, for this to work.

Beyond Voice and Data

Since 5G networks have a lot of flexibility, telcos have the option to integrate 5G-driven experiences in their services. This has to be the next step in the evolution of delivering value with connectivity. Right now, telcos partner with OTT apps and offer subscriptions along with plans. However, with 5G, telcos can offer 5G-enhanced use cases such as cloud gaming. That will allow telcos to monetize the new 5G-based products and services.

Here are a few use cases that have already been talked about.

• Cloud Gaming: this allows users to not have to actually download games on their devices, but still access and play the game. With 5G connectivity, game publishers can allow users to access the games from edge servers.
• FWA-hybrid Plans: Speaking of connectivity, 5G FWA can use both fiber and 5G connectivity to greatly enhance connectivity and very high network stability at home. According to analysts, this can translate into an APRU rise of 1-1.5%.
• Immersive Entertainment: As mentioned before, VR will benefit the most from 5G's network capacity and speed. Since VR service providers can stream ultra-high quality content. This can be used at museums and sports arenas, for example. This can also translate into an ARPU rise of 4-5%, per McKinsey.
• AR/VR/XR: AR and VR have been around for years now, but with 5G, companies can deliver high-quality content with better latencies and network qualities. Telcos need to partner with companies in the field, develop use cases and look to monetize the network further.

These use cases might appear niche, with only as much as 30% of users going for them. However, these use cases can increase telcos' ARPU by as much as 9.5%. For telcos to succeed, they need to develop an ecosystem, so they can provide a catalog of user experiences.

However, again, telcos need to communicate precisely why they will charge extra for better connectivity. From the point of view of a customer, telcos are supposed to provide the best connectivity all the time. As such, telcos need to make the customers understand the value of better connectivity.

What Can Go Wrong?

Of course, on the way to 5G, there are certain things that telcos need to avoid doing.

• Unlimited 5G Plans: when 4G first rolled out in India, Reliance Jio offered unlimited 4G plans free of cost, as a promotional strategy at their launch. However, that move has raised customer expectations and reduced the value pool of the entire Indian market. Since then, the telecom market has settled down a bit, however, the other two telecom players in India are still struggling with monetization. Airtel only recently hiked tariffs, which would set a precedent. However, telcos need to avoid this at the time of 5G. Taking a shortcut like this will help in the short run with early market capture, but it will not translate into meaningful monetization.
• Focusing on Connectivity Alone: 4G saw the telcos being reduced to just CSPs, with no role in the value chain. Even though 4G transformed how people work and developed new habits, telcos were more or less left out of all the value that followed. Since 5G offers more use cases, it offers telcos more headroom and allows them a better place in the value chain.
• Slow Innovation in Products: when it comes to innovative offerings such as 5G boosters and selling experiences, the market will favor carriers that behave like start-ups—introducing minimum viable products that are continually improved upon rather than waiting to go to market with a polished product.

Of course, this, by no means, serves as a definitive list of things not to do. However, the telcos can try and avoid these things to ensure a better overall 5G ecosystem, for the users and themselves.

For the People

Over the last few months, we have all heard how 5G will reshape the way we see connectivity, and that's true. However, unlike 4G, telcos need to work towards better monetization. We need to give the telcos a break, though; before now, the technology to truly capture the value they created was not available. Right now, the world is sitting on the cusp of another revolution. With the number of devices increasing every year, IoT will take off, bringing with it a host of personal and enterprise applications.

Along with this, customers inherently are changing. Only half a decade ago, no one could imagine the things that we can do these days; the COVID-19 pandemic would have been multiple times more disruptive in 2015.

But with the virtually unlimited things you can do with good internet, the connectivity demand will only rise. 4G built the foundations for the app economy; 5G will propel that. In the next 5 years, with how ubiquitous social media and on-demand video content have become, network traffic will grow by as much as 50%. Give it a decade, and that same traffic would be 10 times higher.

Telcos are sitting on an opportunity that will define the next decade, and their investment in 5G networks should reflect that. No one can deliver the kind of value 5G will require by building a 5G network over a 4G core. The time is now to move towards a 5G core and build a network proactively, with the end-user in mind. A network that can support the multilayered and complex digital lives people are leading these days. A few years ago, pre-4G, customers valued simplicity. This reflects upon the evolution that 4G sparked, and 5G would carry forward; customers now are adapting more to immersive experiences.