PwC report
PwC report on Monetizing 5G should be a wake up call to network operators!
A PwC report titled, “The challenge of monetizing 5G,” states that capital expenditures and operating expenses will likely be very high with the deployment of 5G standalone networks and their fully virtualized, cloud-native architectures. Yet returns have been anemic across all generations, ranging from 1.5% to 4.5% of return on assets.
PwC’s 26th Annual Global CEO Survey found that 46% of telco CEOs believe that if their companies continue on their current paths, their businesses would not be economically viable in 10 years.
Source: PwC
As 5G becomes an everyday reality for both investors and consumers, carriers are going to face increasing pressure on two fronts:
1. Improve return on assets
As capital markets and stakeholders begin to focus on investment returns in a high-inflation environment, there will be growing scrutiny on telcos and wireless carriers, especially in comparison to other capital-intensive investment opportunities. An exemplar cloud services provider (CSP) has demonstrated ROA of 17% to 20%+ over the past five years, which compares to the 2% to 3% ROA range of MNOs. The ROA of MNOs approximates that of regulated entities like utilities, which explains investor angst.
2. Deliver on demanding service-level agreements to support 5G “killer apps,” such as metaverse applications (really?)
Improving ROA is intrinsically tied to successfully managing the costs and revenues of 5G applications. Many operators face a growing clamor from application providers and up-stack players to create “metaverse-capable networks,” without much clarity on how application revenue will be shared with them. Network operators risk becoming trapped in a “give more, get less” scenario of providing pure-play connectivity, while up-stack companies monetize the 5G applications.
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For those who believe 5G FWA is the way to monetize 5G, PwC warned that’s not likely. The market research firm’s analysis showed FWA services could cost more than 22-times as much as mobile connectivity services. That’s due to costs associated with delivering data tied to specific latency or QoS service-level agreements (SLAs). Immersive and augmented experiences — such as virtual-reality apps, mobile metaverse and gaming — could cost three to four times as much. Network costs related to the Internet of Things (IoT) are even more challenging to estimate and track, primarily because of the extremely wide range of connected devices and applications available.
The report also found that FWA services could have up to 40-times less revenue potential. This is due to FWA services being price limited by competing fiber or cable internet options.
“Most FWA subscribers are willing to pay only as much as wireline plans cost, yet they expect a similar quality of service for internet connectivity,” the report notes.
PwC Partner Dan Hays explained during an interview with SDx Central at the MWC Barcelona 2023 event that operators should approach FWA and other alternative 5G connection services like IoT with reasonable financial and operational expectations. “Fixed-wireless access is a great way to fill out excess capacity, if you have it,” Hays said. “You see some of the carriers making that play.”
“It’s not a cure all by any means,” Hays said, explaining, “we look at it as not a business model but really a technology. It’s a technology choice that you can use.”
Hays said that operators are indeed being “really thoughtful” in managing capacity to serve FWA customers, but that can potentially run into a problem down the road where a particular site can no longer support a high-bandwidth FWA connection. “Do they fire you as a customer at some point,” he said.
In conclusion, PwC states:
Carriers will be increasingly challenged to demonstrate better returns on invested capital for massive 5G capital outlays, while simultaneously meeting the demanding service-level agreements of future 5G applications. Network costs are likely higher — and revenue potential is likely lower — than carriers understand for these applications. Critical strategies for improving ROA and monetizing 5G successfully involve accurately valuing network features, quantifying network costs and communicating them to all stakeholders, as well as improving 5G offer management, pricing and service evolution.
References:
https://www.pwc.com/us/en/tech-effect/emerging-tech/5g-monetization.html