5G capacity will drive down prices, not drive up profits
Jan 7, 2019
CES2019 #5G Won’t Reverse Mobile Spending Decline
BOSTON--(BUSINESS WIRE)-- The 5G wave is real and justified by the supply-side benefits it delivers. However 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 (SPS) 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.
- Clients to the Service Provider Strategies group can click here for the report.
The report finds the benefits from 5G in terms of capacity and network efficiencies are compelling. The question on the table is whether 5G’s new service attributes will enable new service value propositions that create significant new revenues. Given Strategy Analytics’ analysis of the industry structure in which operators exist, we believe the answer is no.
Harvey Cohen, President and report author comments, “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.”
David Kerr, Vice President notes, “There is no question that the volume of traffic has skyrocketed during the last ten 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 Service Provider Group, adds, “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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