Unlocking the value of 5G in the B2B marketplace

Telco operators typically seek to pack their networks with as many customers as possible, while other sectors, such as airlines and hotels, occasionally leave space open. These empty seats and rooms may present as lost opportunities, but in fact they are inevitable by products of yield management: an approach to price optimization that telcos have been largely unable to pursue during the 3G and 4G eras.

The rise of 5G, however, has the potential to change that paving the way for a significant shift in how telcos engage with customers. As the telco industry confronts a surge in network traffic volume, a massive proliferation of connected devices, and a future built around widespread automation and augmented reality (AR), carriers are facing a new opportunity to charge customers for what 5G promises and delivers.

Operators have already identified the enormous value that 5G core can bring in the B2B arena, and on this basis the 5G revolution is already under way. In the B2C market, however, the value proposition of 5G remains murky.

Three innovative models and one critical enabler for monetizing 5G in B2C

There are three innovative models that telcos can pursue to monetize 5G in the B2C marketplace. Depending on the road that operators take, the technologies they invest in, and the partnerships they forge, we see a potential for operators to increase average revenue per user (ARPU) by between 16 and 20 percent if not more.

5G core has the potential to change that. By enabling “network slicing,” it can allow telcos to shed the traditional one size fits all model and differentiate among offerings that share physical infrastructure. This ability to charge customers more for parts, or slices, of a network that feature premium performance underpins all three of our innovation models.

Network slicing allows telcos to introduce sophisticated “speed tiering,” which is a critical enabler and prerequisite for the three innovation models. Speed tiering represents a fundamental shift away from the wireless industry’s standard gigabyte-based “data bucket.” While there is a perception throughout the industry that B2C customers will reject speed tiering on mobile devices, our research suggests otherwise.

The urgency of the moment

The 4G evolution changed the world. Suddenly, people could use their smart phones to order dinner, call a cab, post to social media, refresh their wardrobe, or watch a movie. Entire industries shifted and sprang up around this sea change, which the telco industry made possible.

The anticipated 5G evolution is poised to reshape the world again. But this time, carriers are positioned to capture the value they create. Only now does the technology exist to manage customers in real time, offer (and charge them for) precisely what they need, and create opportunities for expansive partner ecosystems.

Rapidly shifting customer behavior also distinguishes the current moment. Connectivity needs are poised to skyrocket over the coming years, driven by developments including the explosion of high definition on demand video content, the rise in cloud-based processing and storage, and the proliferation of social media. Overall, the volume of network traffic is expected to grow by 20 to 50 percent per year over the next five years. A decade from now, network traffic is expected to be ten times what it is today. These needs cannot be met solely by building 5G on a 4G core network.

Just a few years ago, simplicity was paramount for customers. They may have rejected pay per use connectivity boosts, for example, or the notion of paying each content provider separately for the premium connectivity specific to their game, app, or experience. However, as people’s digital lives become more robust and complex, customers are growing more comfortable juggling multiple devices and content subscriptions. Increasingly, they are embracing the kind of immersive, interactive experiences that may have seemed like science fiction only a few years ago. Telcos that invest in 5G core are in a position to meet these and other needs, at a time when the opportunities for monetization are ripening.

McKinsey