The telecoms industry’s biggest problem? Failure to monetise 5G

As the chorus of a thousand corporations singing the praises of their latest products and services fills the halls of the Barcelona Fira at MWC 2024, spokespeople are usually, understandably, poised to convey messages of positivity both about the industry generally and of their own activities specifically.

And while there is no doubt plenty to celebrate, the telecoms industry in 2024 faces some sticky issues. To this point, at the show we posed Ericsson, BT, Intelsat, Nvidia, SK Telecom, IBM, Nokia, Samsung, Interdigital, UKTIN and Verizon the question ‘what is the biggest problem facing the telecoms industry today?’

5G monetisation and the elusive ‘killer app’

Many of our panelled firms pointed to the issue of growth, or the ability of operators to recoup the significant costs of deploying 5G networks with subsequent revenue bumps from the new services. This is perhaps the perennial problem within telecoms, at least partially fuelling ongoing debates about whether regulators should be less prohibitive of big operator mergers.

Chris Penrose, Global Head of Business Development for Telco at Nvidia said: “I would say that, right now, there have been significant investments that have happened in 5G, but that hasn't necessarily translated into a significant lift in the revenues that telcos have been able to achieve. And they really are needing to find ways to ensure that they're getting that return on the investment.

“There was a lot of early on excitement about what will be the killer app for unlocking that value, and what I would say is that I think we're actually at an interesting point now because I believe that generative AI has the potential to be that killer app, and that's just coming on the scene.

“Because every single application that exists will have generative AI as part of its user interface going forward. And this really is now an opportunity, whether you're bringing Infrastructure as a Service, you're bringing Training as a Service, Inferencing as a Service or even AI applications, this is a whole new opportunity powered by generative AI that the telcos can really lean into and hopefully tap and get some additional revenues to make it to pay for that investment and leverage that 5G infrastructure in a way that we all want it to be leveraged.”

Alok Shah - VP, Networks Strategy, Business Development and Marketing, Samsung Electronics America concurred. “I think fundamentally it comes down to monetisation,” he said. “Technology continues to improve, performance in the network continues to improve, and what’s always happened in prior generations is we build a network, we think we know some of the interesting use cases, we’re usually wrong about that and something else becomes what really expands the value of networks for operators.

“I think we’re at the stage now where, hopefully pretty soon, we’ll see some entrepreneurs in the innovator ecosystem come up with the use cases that are going to drive value.And then the interesting question will be who gets to capture that value. Is it the operators? Is the start-ups that are coming up with these ideas? Hoe does that get split between them? That I think will be quite interesting to see.”

Nick Johnson, head of UKTIN, said: “Less than ten years ago the telco revenue for the UK was £40 billion a year. Now it’s £30 billion. It’s a big number – if you’re running a business where your revenue is drooping two and a half percent a year, the alarm bells ought to be ringing really. And if you’re in that situation, you can do what you like to turn around the revenue – people have been trying, and evidently not succeeding. If you are in that situation, you’ve got to focus on your costs, and people have been doing that to some extent. 

“And this is where innovation comes in. It's business fundamentals really, if you’re running a business your costs have got to be less than you’re borrowing or else you’re not going to last very long. In terms of things to focus on from an innovation point of view, my view is that we need to be focusing on things that reduce the cost.”

Stephen Rose, IBM’s GM, Global Industries thinks the biggest current issue is the ability for telcos to grow and that the answer may lie in specialisation: “I think it's unequivocally growth. That's where we need to be looking as an industry, but I'm a really big believer in coopetition, “ he said. ”The structure of the telco industry supports coopetition, because all of the operators are used to working with each other. There's intense competition within a market, but ultimately I think what will end up happening is the operators will start maybe even focusing on different specialists verticals.

“So if you're running AI, and you've got a number of broad use cases, that's great, but actually over time, you will probably find that you will drift towards… Let's say, if you work in in the Gulf, you'll probably become really good at serving the oil and gas sector. So actually your use cases will end up becoming increasingly verticalized as you build more and more use cases on top of the network platform that is available. And then that way people feel less threatened about whether or not they should be sharing ideas. In fact, there'll be encouraged to do so.”

Alain Mourad, head of wireless lab Europe at Interdigital pointed to the difficulties telcos have had recouping the costs of the 5G rollout: ”What we hear at least from this event, which is quite representative of the views of all stakeholders in telecoms, is that especially operators would like to better recoup the investment that they made into 5G,” he said. They are making some money, but not maybe enough for them to declare 5G a success.

“Going forward we'll see more emphasis on operational efficiency, and then sharpening these use cases that hold the potential for further commercialization and monetisation based on 5G, so that we can declare 5G as a success from the standpoint of these operators who are running the services and deploying the services."

Fragmentation of the market

Youssef Lotayef, Head of Strategy and Portfolio for the Cloud Software and Services Business at Ericsson warned against disruption of the vendor ecosystem.

“From a very macro perspective, I think the biggest risk is fragmentation,” he said. “We're an industry of scale, everything is built on scale. There are few vendors left to address a large customer base. And I think as we go more IT – IT is not an industry of scale, they have a different paradigm, it’s a very SI led business – I think we have to make sure we retain the scale, as we leverage the benefits of these paradigms. So how do we make sure we standardize the platform, the infrastructure as much as possible? And then you balance that with choice.

“How do you balance those two realities to create a healthy ecosystem at the end of the day? We of course need to find ways to grow the top line and other things as well, but I think there has to be a cost element to this, which is how do we keep costs under control across the industry? And then the other side of this, of course, is how do we monetize these more, how do we market and sell these new offerings in an effective way?

Converting ideas into products, and talking the customer’s language

Chris Keone, MD of Division X at BT offered a fresh perspective on the industry. “I can definitely give you my view on that as I'm new into the telecoms industry, certainly as it pertains to innovation within my space,” he said. “So if I look at coming into it reading externally for a while before I joined BT, there are a huge amount of ideas and a huge amount of technical capability. How do we truly make that a reality and take that idea generation, to convert it into reality and actually get customers embracing it and using it and solving their problems? That's something that I certainly want to be driving within Division X and within BT.”

Theirry E. Klein, President of Nokia Bell Labs Solutions Research pointed to the way in which the industry communicates the technology it produces to the outside world: “I would say it's really adding technology capability to unlock more value, especially in the enterprise sector,” he said. We tend to think connectivity first, especially when we think enterprise. Enterprise thinks a lot about business outcomes. And we will need to translate the value we provide into the enterprise language - what does it mean for them?

“There are additional technologies beyond the network. And either you develop that yourself or you need to partner with others in the ecosystem to provide an end-to-end solution. But it's also an exercise of translating why the core capabilities that we as an industry have, and why they matter – because [a customer] didn't care whether it was 4G or 5G. They didn't care whether it was Wi Fi or some other technology. Maybe the biggest problem is we need to translate the value that we have to the value that the enterprise is looking for.”

Cutting out the middle man

Rhys Morgan, General Manager and VP, Media and Networks EMEA at Intelsat brought up disintermediation – a term which refers to a reduction in the number of intermediaries in a supply chain. In other words, cutting out the middle man.

“It's a difficult question to answer. I would potentially say disintermediation. There are a lot of very large mobile network operators, telecommunications providers, who have got long established legacy businesses, invested tens of billions of dollars and euros in their networks. But then there are disruptive players who are often trying to disintermediate them from their customers, whether it's the consumer or enterprises. We've had this for a number of years with OTT applications like WhatsApp.

“And so, I think telco operators just need to be smart about the type of partnerships they develop, to make sure that that disintermediation doesn't continue further down the line. If you look at perhaps some of the direct to handset discussions, there's potentially risk there for some of the operators. And also if you look at the very large cloud providers who are launching their own satellite services networks in some cases, well where does that leave a large enterprise business within a telco environment?

“They may get cut out of the business long term, so I think people need to think long term about where they're headed and pick the right partners, and make sure that they genuinely are partners, rather than maybe good bedfellows for a year or two, and then in five years’ time you realize that maybe you've created a new strategic problem.”

Adapting to a changing world

Two of our canvassed execs spoke of the need to adapt to the wider, increasingly fast-moving technological landscape.

Lee Jong-min, VP and Head of Future R&D at SK Telecom, mentioned the difficulty in predicting the next big technological snowstorm. “The lifecycle of technologies are getting shorter and shorter as time goes on,” he said. “So the good technologies in the past… are disrupted by other technologies. And new technologies and emerging technologies are developing really fast. So it's really difficult to predict these emerging technologies and to prepare for that, and to develop these technologies. That will be the challenge facing SKT and other telcos, and nobody can expect when which technologies will appear in which areas – that’s something that we do not know.

Sanjiv Gossain, Head of EMEA at Verizon Business, spoke of the need for telcos to react and change mindsets in the face of rapid technological changes.“If you’ve been in the industry for a long period of time, organizations are realising they have to change and adapt quickly, because the market is moving quickly,” he said.

“We at Verizon are trying to move and change quickly, as quickly as we can. But I think that's the overall challenge for the industry is how do you change and adapt quickly, because the pace of change – we've seen it this year, everyone’s talking about AI. A year ago, just a little bit more than a year ago, we weren't really talking about it that much. But expectations are changing quickly. I think that's one of the biggest issues facing the telecoms industry.”

Show me the money

While not all our spokespeople specifically pointed to revenue growth for operators post-5G rollout as the biggest problem facing the industry, that was the most referenced theme. Which isn’t surprising, since it’s been a major talking point in the industry for a while now.

Others pointed to potential ways out of this, which in various ways described some form of taking ideas and incremental technological achievements, which are numerous, and finding ways to better ‘productise’ them, or at least communicate their benefits to the end user better, be they consumer or enterprise.

But of course, it’s not an easy thing to do. Rolling out 5G was a huge, expensive endeavour, and while plenty can be said for the improvements it brought in network quality and power efficiency, operators have not found themselves in a position to charge customers significantly more for the fruits of that labour.

Partly that’s to do with market forces and competition within regions but also, despite being pitched at times as something of a technological revolution, that ‘killer app’ or genuine novel use case remains elusive. If the general public were presented with 5G contract upgrades with the premium price points that would leave the operators in a better shape financially, it might not be very obvious to your average person what exactly they are being upgraded to.    

While increased revenue generation is one way to increase profits, the other lever firms can pull is cost savings, as some of our spokespeople alluded to above. There is a lot of high-minded talk of the brave new world the latest wave of AI, particularly generative, is going to usher in for all sorts of industries. But the biggest impact it might end up having on telecoms is lot’s more automation, providing an opportunity to pull that second lever harder in the years to come.