Business model innovations are central to 5G

With the move back to unlimited data plans, both fixed and mobile have now completed the full circle of the classic broadband business model. Starting as flat rate, going through an iteration of speed and bucket caps to land in an unlimited proposition. So, perhaps the biggest question for the 5G industry is what the business models will look like.

Broadband business model heritage
The broadband business model that has been driving fixed and mobile broadband networks investments has been centered around subscriber growth. The business model for DSL/Cable was an evolution of the dial-up model, with narrowband data subscribers converted to Broadband. All with web based services as the appealing service engine. The business model for Mobile Broadband, introduced with 3G was to a large extent a replica of the DSL/Cable model.

The broadband success to date is based on services operating over the top of the broadband network – a world where best effort connectivity is sufficient to deliver services from cloud based data centers to the app on the phone. Most app providers have been operating with a freemium model, where rapid growth of the free offering has been essential to drive advertising revenues and to convert a fraction of the free customers to a premium offering.

The broadband business model has secured rapid growth over the last 20 years. This model has enabled both fixed and mobile broadband to reach the point of saturation in developed markets.

5G business model innovation potential 
The promise of 5G is to deliver 5-1000X improvements of characteristics in networks where fixed and mobile are integrated tighter together. A number of factors are driving the potential for business model innovations for 5G.

The pursuit of fiber build-outs in the saturated fixed broadband space are switching to new models,  where subscribers are asked to sign up in advance as a community before the build starts. In these models, the infrastructure build is decoupled from the service provisioning in open network paradigms, and build-outs focused on smaller geographical areas with favorable revenues and cost situations. Parts of these model shifts might be applicable to 5G as fiber and 5G will be more connected than any fixed and mobile generation in the past.

The mobile broadband market in developed markets is at or approaching saturation and driven by revenues from consumers or consumer driven services offered to business. 5G will expand the addressed market into B2B applications – a scenario where the 5G network will improve or rationalize existing business processes with a digital/networked alternative. The potential efficiency improvement for these B2B applications brings very different businesses into play. Some of these can already be solved with 4G and can happen without business model innovations. But a larger number will leverage the 5G capabilities and characteristics with new business models.

Expansion of platform-based business models 
Platform-based business models play a prominent role in the market already today. 10 out of the 10 largest Internet sites in the US are built around platform-based business models. Businesses designed this way have significantly higher valuations than non-platform based businesses.

As we enter 5G era, the number of industries and businesses designed around platform-based business models is growing quickly. The growth of platform-based business models and the strong connection to the mobile eco-system are likely to tie the tow tighter together. Combining platform-based business models with the new network is an real possibility as networks become agile and flexible all the way from capabilities, through provisioning and billing options.

There are a larger number of capabilities in a 4G network that are combined in well-defined and rigid ways. The ability to leverage all the parts and combine them in new ways is an area triggering business model innovations.

Predictions for the future:

  • Business model innovation is perhaps the single biggest innovation 5G will bring to the market
  • The classic broadband business model will be complemented with new models for 5G, centered around business rather than consumer proposition
  • By the time we reach 50 billion connected devices, the network revenues from the first 5 billion devices might be equal in size to the last 45 billion
  • A doubling of network revenues is possible if the 10X growth in connected devices and 10X growth in connected industries generate 1/10 of the monthly revenue for smartphones
  • The platform based business model will play a key role in transforming industries and ecosystems.

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