Analysts question 5G financials

Jan. 8, 2019
According to Strategy Analytics, 5G wireless capacity could drive down prices, rather than drive up profits. The research house says the 5G ...

According to Strategy Analytics, 5G wireless capacity could drive down prices, rather than drive up profits. The research house says the 5G wave is real and justified by the supply-side benefits it delivers, but the impact on revenues and margins in converged network competition is less certain, and there is potential for disruption.

The Strategy Analytics Service Provider Strategies report, "Can 5G Slow Operator Profit Erosion?" emphasizes the challenge for 5G in lifting operator performance in a competitive telecoms and media environment where household expenditure and commercial willingness to pay or invest in ICT are flat.

The report indicates that the benefits from 5G in terms of capacity and network efficiencies are compelling. The question is whether 5G's new service attributes will enable new service value propositions that create significant new revenues. Strategy Analytics believes the answer is no.

Harvey Cohen, Strategy Analytics' president and report author, said: "At the core, the issue is whether the technological advantages offered in the transition of networks will overcome or aggravate the industry structure and competitive forces that are inherent in the regulated telecoms industry. Regardless of the technological power of the offering, if the service portfolio is offered without value proposition differentiation, the results will be predictably below average due to the increasing commoditization of the market."

Strategy Analytics Vice President David Kerr said: "There is no question that the volume of traffic has skyrocketed during the last 10 years. However, as operators transformed their networks to video-capable 4G and pushed their fixed broadband towards gigabit speeds, competition drove prices down faster than even the impressive growth in GBs was able to accommodate."

Phil Kendall, director of the Service Provider Group at Strategy Analytics, said: "Technology alone will not improve operator financials. Regulatory intent to pass on cost improvements in networks to consumers appears to control the ability for networks to achieve a return on sales of much greater than 6% on a sustained basis. Value creation for operators will come through behavioral segmentation to identify actionable market segments and their needs, improved brand positioning to create differentiated emotional themes that relate to buyer needs and pain points, and a focus on innovative value propositions that are derived from segment-specific requirements and willingness to pay."

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