Consumers really do want 5G, don’t they?
Gigabit speeds. MIMO. Spectrum. Trials. Verizon. Fixed wireless. Korea. Operator-vendor partnerships. Whoever is working in telecom these days will no doubt agree that, on any given day, it is next to impossible to avoid reading some new headline about some “major development” in 5G somewhere in the world. Most recently, we have even been made aware of the world’s first “actual”, live mobile 5G deployment by a mobile network operator (MNO) in the Middle East. Now, of course, not every ongoing 5G development should be disqualified as mere promotion talk (e.g., the next round of 5G NR specifications is about to be completed in June). But I, for one, cannot help but wonder: Do consumers actually want [or want to pay for] 5G? And if they do, what is it exactly they don’t have today and would like to get out of the new generation of mobile? One would have assumed that operators would be pre-occupied with these questions before focusing all their attention on spectrum auctions and the race to 5G per se, but…
Although they might not have received the same amount of limelight as press releases about record speeds achieved in 5G tests, there have indeed been studies published on consumer expectations for 5G. The IEEE released a report in mid-2017 in which they established what they call the must-haves for 5G from a customer perspective: coverage improvements, higher throughputs, lower battery consumption and increased security. While higher throughputs and increased security definitely sound more than familiar and obviously echo many operators’ current efforts (think mmWave testing and GDPR compliance), the two other factors are somewhat less obvious. 5G on mmWave doesn’t contribute to coverage improvements, and also mid-band spectrum such as that on 3.5 GHz has lesser coverage capabilities than the spectrum used by all of the current Gs. And as for longer-lasting batteries, well… device history tells a different tale. With even more spectrum bands and yet another G to support, it is doubtful that handset batteries, at least in the early parts of the 5G era, will be able to do better than today, even though 5G frontrunner Verizon has recently stated that it believes otherwise.
What MNOs should take home from these findings is that consumers expect seamless high-speed connectivity, and that they want this without having to worry about the battery implications of any given app. Ultimately, operators should view these must-haves as something users will demand, regardless of whether they are branded as “5G” services or not. A proper balance between access to urban hotspots, ubiquitous “good enough” coverage and appropriate device capabilities will be more and more of a hygiene factor for MNOs going forward.
Figure 1: 5G “must-haves” from a consumer perspective. Source: IEEE
Moving on toward more specific consumer visions for 5G, a report by Qualcomm and Nokia published in the fall of 2017 illustrates that there indeed is a higher willingness to pay (WTP) for 5G-capable cell phones on the side of consumers. More than 60% of study respondents in mature mobile markets were ready to pay an additional USD 50 for a 5G phone. That is, provided the new standard addresses their most pressing pain points, the number one of which is never having to log on to public WiFi networks again, with super-fast speeds coming in a close second. For roughly half of the participants, these desires go hand in hand with the availability of “unlimited” data plans that are to carry this omnipresence of cellular networks. This is, on the one hand, good news for operators, as it confirms that their planned 5G investments in capacity with small cells and new spectrum bands will actually serve a present or upcoming demand. On the other hand, the question for MNOs will be how they themselves can profit from this higher WTP and not leave it all to handset manufacturers to collect (after all, the overall increase of industry profitability in the 4G era was to a high degree pocketed by certain handset suppliers).
And there seems to be potential! High network quality remains an important profit contributor for operators. An Ericsson consumer study released in January 2018 found that, across 14 countries studied, MNOs with the best perceived network in their respective market reported an EBITDA margin that was on average 5% higher than that of the rest. This is because customers who believe in the superiority of their operator’s network (coverage and/or speed) pay an average of 17% more per month for services than others. From this, one can deduce that MNOs can further increase their piece of the WTP pie by offering the 5G-enabled services that consumers are most interested in ahead of their competitors.
The Ericsson study showed that the upcoming 5G offerings consumers are most excited about include extreme mobile broadband speeds, real-time translation, security services, VR movies and virtual shopping. Respondents furthermore expected all of these services to go mainstream within 2-4 years after 5G commercial launches have started. 44% of these surveyed smartphone users across mature and developing mobile markets had substantial levels of WTP for these potential offerings. By being among the first ones to offer such services together with the phone and connectivity in a well-marketed fashion, MNOs can leverage consumers’ WTP for each of them in a profitable way.
So now we have established three things: First, yes, there is consumer demand for 5G services which is also connected to a higher WTP than what we have in our current 4G world. Second, consumers have concrete ideas about what they want to be paying for in 5G. And third, higher CAPEX investments into networks are expected to pay off for operators in the 5G era, as users do – monetarily – reward better performing networks. Knowing all this, how should operators now go about marketing 5G? Well, here, at least Ericsson’s research results indicate that the majority of users are wary of operator advertising and even concerned about premature branding of LTE-Advanced networks as 5G. Consumers rather value the actual, daily experience with the networks they’re using, which can, of course, heavily deviate from official claims. Thinking again about the constant press statements currently being made in the ongoing 5G race, as well as about my own impressions being a mobile subscriber, this sounds like a very reasonable argument.
It hence seems that MNOs in 5G should focus on designing and optimizing their networks in such a manner that will give users the best possible experience with the services they are interested in most, when and where they want them. Instead of aspiring to be the first to make the headlines with just any live 5G network, a better approach can be to strive toward being the first operator to, e.g., enable its users to experience VR on a broad scale, or to adjust one’s network for ultra-reliable security applications. The task that operators face is thus threefold: Determining the most beneficial 5G services to invest in given their specific market conditions, making the corresponding investments into one’s network in due time, and finally creating effective consumer awareness in order to stand out from the other 5G news that are likely here to stay for many years to come.
Figure 2: Suggested consumer-oriented approach to 5G for operators
Jewgeni is a Consultant at Northstream