The industry has long awaited the real beginning of the 5G era, a much-hyped technology that promised supersonic broadband speeds and teased us with the prospect of enhancing our future through IoT, VR, self-driving cars, drones, and AI. At the start of 2020, 33 CSPs across 18 countries had launched commercial 5G services with another 77 operators set to follow suit in the year. However, as the dark clouds of Covid-19 swept across the globe, the entire business world suddenly had to navigate uncharted waters, seeking new ways to grow revenue fast, including those investing in 5G.
With that in mind, it was important to take a step back and to explore the role of the CSP in the 5G value chain and really understand the opportunities in driving revenue from 5G investments. Based on a large-scale survey, we interviewed CSPs, enterprises and SMBs across the globe and compared their attitude towards 5G and the role of CSPs.
The current state of play
What’s encouraging is that businesses really believe in the potential of 5G. In fact, 75% of both large enterprises and SMBs across all regions think that 5G will be important to their operations. In North America, enterprises identified improved business availability (69%) and more advanced solutions that rely on connected devices and connectivity (connected cars, e-health etc.) (66%) as the most prominent opportunities for 5G in their business.
Our research showed that CSPs expect a 15% revenue bump from 5G B2B opportunities. However, despite shared excitement over 5G, the findings suggest that CSPs are failing to meet the expectations of enterprise and SMBs. Our study results also show that businesses around the world are more ambitious about the role CSPs will play in 5G than the CSPs are themselves.
CSPs need to take charge and lead the way. They’re currently leaving far too much on the table for others to take, and with $1 trillion to be invested in 5G by 2025, CSPs must think strategically to ensure a marked return on their investments. That success, however, largely depends on CSPs avoiding the mistakes made with 4G, where more was invested in connectivity than innovation and value shifted to OTT players to the detriment of CSPs.
The power of the vertical
Most CSPs still believe the 5G opportunity is for connectivity services. However, research suggests that only 5% of 5G revenues will come from connectivity. The rest will come from new integrated solutions and services that take advantage of the advanced capabilities of 5G.
While there are similarities in the views of North American CSPs and their peers in Europe and Asia, there is also one outstanding expectation. That is, the potential of vertical industry solutions enabled by partner ecosystems. A whopping 77% of North American CSPs are making their #1 priority the development of vertical industry-specific solutions for enterprise customers, relative to Europe and Asia who are still much more network or mass consumer market focused. The revenue potential of these solutions and the interest in them from vertical sectors is significant. This trend speaks to a heightened level of confidence in the region which will likely drive the creation of more innovative and successful services.
The value of verticalized 5G use cases seems obvious; however, there seems to be confusion among CSPs on which vertical 5G use cases to prioritize. In North America, 33% of CSPs preferred to see 5G as a horizontal opportunity – continuing to provide commodity connectivity plus network services on offer today which would generate no real payback on 5G investment. However, CSPs in this region do see 5G having a big impact on the health and life sciences industry (23%). In truth, it’s not easy to develop verticalized propositions, especially as this is a completely new way of thinking for many CSPs – but this journey will be made all that much harder without prioritizing clear focus areas.
5G’s value will be realized through industry specific processes, supply chains, partnerships, and applications. Research we released in May indicated that in this early stage of 5G development, manufacturing, transport, utilities and energy/mining account for nearly 80% of enterprise deals.
Realizing this potential depends on the integration of multiple technologies and providers, and a combined approach between technologists and industry specialists. CSPs that can orchestrate such a complex web of relationships will be capable of capturing a greater share of the market
CSPs need to start leading the charge
Surprisingly, our research also showed that CSPs are not currently seen as the obvious partner choice for enterprises and SMBs to build their 5G use cases. When asked how important each player was in helping develop 5G use cases, enterprises and SMBs in North America ranked CSPs third (63%) behind technology consultants (69%) and software and technology companies (AWS, Microsoft etc.) (66%).
While 5G is still to reach its maturity, CSPs need to urgently address this perceived lack of confidence as the obvious partner choice, as they simply don’t have the luxury of time. Already, large enterprises and SMBs are choosing their partners for 5G and operators are not at the top of the list. CSPs need to demonstrate a willingness to change and to collaborate with businesses, and quickly. However, all is not bleak, as businesses see CSPs playing a bigger role in the ecosystem, with over 90% believing they are more than just a connectivity provider.
Orchestrating a partner ecosystem
95% of businesses believe that building solutions with a partner ecosystem that better fits their needs is more important than 5G technology.
It’s time for a new vision. To date, digital transformation initiatives have targeted operational effectiveness and bringing together disparate customer channels. However, in order to grow revenue and help make companies more relevant to their customers, businesses need to capitalize on partner ecosystems to drive innovation that better meets their customers needs.
A deeper collaboration between CSPs and enterprise/SMB customers will inspire a deeper understanding of the problems that customers want to solve, and the benefits and drawbacks of alternative solutions.
North American CSPs appear to be more ambitious than their Asian and European counterparts when it comes to their role in the 5G B2B revolution. Our research shows that almost one in five expect to orchestrate ecosystems of providers to help businesses realize 5G use cases, and just over a third expect to combine connectivity solutions and IT infrastructure. One of the reasons for this could be that many of the OTT and ‘webscalers’ are based in North America. CSPs in North America experienced first-hand the ‘miss’ of 3G and 4G, as value shifted from telecommunication services to OTTs.
Our February 2020 5G survey demonstrates that CSPs’ 5G commercial success is dependent on their ability to build broad ecosystems with multiple partners. This will enable the co-creation of new products and solutions for Enterprises and SMBs that allow them to increase automation and operational efficiencies, and finding new opportunities to use technology to introduce new services to their customers. The COVID-19 pandemic will make automation, digitizing the physical, enabling a work-anywhere economy and mitigating risk in supply chains, more relevant than ever.
If built correctly, partner ecosystems will help CSPs become more agile, innovative and able to properly meet the needs of businesses across a range of different industries and verticals. In reality, businesses need an average of nine partners to support their 5G use cases. In addition to that, our research demonstrated that more than 60% believe that 5G use cases will involve between four and 12 partners while CSPs think they will need an average of just four partners to support the 5G use cases which they have in mind.
Harnessing the 5G ecosystem opportunity
If CSPs effectively apply ecosystem strategies in 2020, they will be able to solve real problems for customers while unearthing fresh opportunities for co-created solutions supported by groundbreaking business models and attractive revenue-share arrangements. If CSPs want to meet the expectations and demands of businesses, they have to become masters of partner ecosystem orchestration. Further, time is of the essence with the enterprises and SMBs already choosing their partners to help them carry out their long-term digital transformation plans CSPs must act quickly. If they don’t, the technology providers and vertical solution providers will.
Link to Report
To download a free copy of ‘If B2B is the ‘North Star’ for 5G revenues: how do CSPs get there?’, please visit https://www.bearingpointbeyond.com/en/industries/5g/5g-b2b/.