Network slicing: A USD 200 billion opportunity for CSPs
While other reports have discussed the possibilities that network slicing offers, they don’t comprehensively answer the questions communication service providers (CSPs) have about investing in, deploying, and monetizing network slice use cases. The recent in-depth study by Ericsson and Arthur D. Little, Network Slicing: A go-to-market guide to capture high revenue potential, explores the USD 200 billion value potential of network slicing for CSPs. The study conducted market research on network slicing to determine the future market opportunities for CSPs. It also focused on examining the questions CSPs were asking about:
- The revenue potential of network slicing for CSPs
- The potential across industries and segments and which specific use cases provided stronger cases for slicing?
Network slicing is important and profitable
The report focused on the macro value of network slicing and the opportunities for CSPs. Results were derived from the total global digitalization revenues from 70+ external reports and a ’bottom-up’ assessment of 400+ use cases from 10 different industry segments.
This analysis revealed the clear business potential for network slicing – a valuation of USD 200 billion by 2030 with a strong CAGR (Compound Annual Growth Rate).
The prime benefit of 5G for CSPs, lies in the opportunity to capture new revenues in services for industries and enterprises. This is opposed to focusing on the consumer market - an area where CSPs typically derive 80 percent of their revenue but shows limited future potential, with growth projected at only 0.1 percent. Here is the big upside and CAGR for the coming years, and network slicing is the key enabler for that. Network slicing will also be highly relevant for many consumer use cases, such as mobile gaming, augmented reality (AR) and virtual reality (VR).
Network slicing vs a private dedicated 5G network
Recently there have been numerous debates about network slicing verses a private network. However, we believe slicing shows enormous potential in terms of cost and wider-area coverage. With slicing there will be less need to invest in equipment on premises and it will also be possible to extend the usage outside the campus e.g. for tracking goods or in automotive use cases.
Today most industries and enterprises have some type of private network on premise, mostly Ethernet LAN or Wi-Fi. In another study we undertook with Analysys Mason, we found around 75-85 percent of enterprises plan to use a 5G private network of some sort. However, one does not exclude the other, and some 50 percent of enterprises will use 5G both on premises and as a private network slice.
The top six industries for network slicing
The addressable opportunity for CSPs with network slicing is USD 200 billion. When split by industry, it shows that the top 6 industries account for 90 percent of the revenue potential. Healthcare is the largest industry, followed by government and transportation. The CAGR for the top industries ranges from 23-46 percent during the period 2025 – 2030, which is substantial. See fig 2. This macro data also corroborates an interview study we did in late 2020 with CSPs about their plans to focus on these specific industries
The slicing value chain for CSPs
The overall value chain has five parts: 1) Devices 2) Network deployment and provisioning 3) Network management and operations 4) Application platform provisioning 5) Applications and monetization. The CSPs traditionally occupy the network sections 2 and 3 above in the role as network developers. There is a potential to capture 43 percent more from the other parts by e.g. resell devices, provision platforms, provide security and data monetization – a role we call the ‘service creator.’
Use cases and enterprise strategy
Emphasis is often placed on advanced use cases, such as remote surgery and self-driving cars. However, use cases are applicable to all industries and sectors. As we witnessed with 4G and the smartphone app revolution, there will be a plethora of 5G use cases and the industry will initially start offering those that are both needed and easy to deploy. See fig 3.
The use cases chosen will depend on the CSPs enterprise strategy e.g. automotive, manufacturing, go-to-market, partnerships etc. A natural starting point for CSPs when determining their strategy, is to assess their existing customer relations and local enterprise customers. To act as a relevant partner, it is also key that CSPs understand the needs of the enterprises. Some of our findings from 2020 indicate that CSPs have a good possibility of partnering with enterprises provided they understand their business.
How to get going with network slicing
When working out how to get going with network slicing the main questions usually are:
- Where is the money in network slicing?
- How do we deploy and introduce slicing?
As discussed, there is clear business potential in this area, but there are several ways to get there.
The foundation of CSPs’ commercial slicing capabilities should be based on a sound enterprise strategy that includes an understanding of enterprise demands and is derived from a B2B/B2G or B2B2x strategy. This will initially lead to a slicing strategy and eventually a commercial slicing model.
The commercial capabilities are just as important as the technical elements. New processes and operational roles will need to be defined, given the commercial requirements on slicing enablement. Roles will be needed for slice design, based on templates and use-case design to create a service model that can be life cycle managed. Later slice-based services will be possible to self-manage by enterprise users. Slice-based services will require new pricing models based on value.
As enterprises generally don’t understand how to maximize 5G technologies, CSPs will have to inform and educate their enterprise customers.
The technical capabilities will be built on the foundation of Network Functions Virtualization Infrastructure (NFVI) and Virtual Network Functions (VNFs)/Cloud Native Functions (CNFs) like 5G Core and network resource management. The network slicing enablement consists of three main blocks:
- Network slice management and orchestration
- Management of services, revenue, customer and partners, resources, etc.
- Market storefront, customer channel and journey, sales and marketing.
These capabilities will be built in steps - starting with a few static slices with a limited number of customers. The next step is to scale up and introduce more automation, in order to - to handle more granular use cases and customers. The key here will be the Operations Support Systems (OSS) and Business Support System (BSS) integration to manage both service orchestration, ordering and product management of the slices.
Network slicing is a key enabling technology to make 5G use cases profitable beyond today's consumer services. The road to get there will be a step journey - commercially, operationally, and technically. While this journey is an undertaking for the industry, it is needed to most of the 5G investments.
Read our report: Network slicing: A go-to-market guide to capture the high revenue potential.
Listen: In this podcast Pehr Claesson, Marketing Director at Ericsson Digital Services explain how slicing could transform how we experience live gaming experiences.
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