Elevating 5G with differentiated connectivity
Unveiling consumer demands and market potential
Imagine you’re at a bustling airport terminal, where everyone is trying to get to their gate on time. The main security line is long, and while everyone will eventually get through, it’s a slow process with a lot of stops and starts.
Differentiated connectivity is like the airport equivalent of adding specific lanes for different needs – one for families, another for those traveling with accessibility needs and even an express lane for those with time-critical connecting flights. Each lane is designed to ensure every person has a smooth journey and reaches their destination on time, with the right experience tailored to their needs.
Differentiated connectivity uses technologies like network slicing and exposure of network application programming interfaces (APIs) to enable communications service providers to offer consumers, enterprises and developers performance assurance beyond best-effort services, offering connectivity tailored to their specific needs. This unlocks more reliable experiences for activities such as streaming, gaming or just staying connected in high-demand environments.
How about being at a packed concert, struggling to share the experience live due to overloaded 5G networks? With an option to buy a performance boost for a few hours with elevated uplink speeds beyond best effort, you could enjoy a seamless livestream, sharing every moment in real time.
Or picture a mobile gamer competing in a player-versus-player match on the go, hindered by high lag. With the ability to subscribe to a specific plan built to offer elevated, low-latency connectivity, they can stay in the game without interruption. Differentiated connectivity offers tailored performance for those moments when standard connectivity just isn’t enough.
Differentiated connectivity can enhance everyday life and create new segments for service providers to tap into as revenue streams. These can range from extended reality (XR) to public safety services. Differentiated connectivity makes this possible by harnessing advanced technologies such as 5G standalone (SA), which enable network slicing, together with User Route Selection Policy (URSP), as well as the exposure of network functionalities to external parties such as developers.
To offer differentiated connectivity, service providers must navigate varying net neutrality regulations in different countries. Successfully maneuvering these frameworks requires engaging with regulators to determine what offerings are feasible, ensuring that consumer demands are met within legal and ethical boundaries.
But the big question is, how do consumers really feel about it?
Overall, consumers seem intrigued by the idea of differentiated connectivity, and what it could mean for their overall network experience.
Our survey, which we conducted from June to July 2024, saw the responses of over 23,000 smartphone users aged 15–69 across 16 markets, over 17,000 of which are 5G users – the prime target market for this service.
What did our survey uncover?
As a consumer-focused survey, we wanted to see how consumers used digital services, their thoughts on 5G and what could elevate their experience of the network.
Firstly, we found that 5G users report higher performance satisfaction than 4G users, but face issues in high-traffic locations, meaning that 4 in 10 users are no longer willing to accept best-effort 5G performance.
This feeds into our next key finding, which shows that 35 percent of the surveyed 5G users show a growing appetite for elevated connectivity beyond standard 5G performance, signaling a strong willingness to adopt and pay extra for differentiated connectivity.
So, what can differentiated connectivity do for them? Today, 5G users are looking for performance assurance on core services such as video calls and streaming, while generative artificial intelligence (GenAI) users are going a step further and are already willing to pay a premium that is 35 percent higher than these core services. This signals a growing demand for enhanced, performance-assured connectivity that goes beyond traditional application expectations.
Based on consumer willingness to pay for differentiated connectivity, service providers have a significant opportunity to increase 5G average revenue per user (ARPU) by 5 to 12 percent in addition to unlocking new revenue pools by exposing quality on demand APIs to application service providers.
Our key questions
- Where does best-effort 5G fall short for today’s connected consumers?
- What consumer segments value differentiated connectivity?
- What app clusters do consumers expect performance assurance on?
- How will this market develop and what is the ARPU potential for service providers?
We now live in a world where network connectivity means everything, and we are connected all the time, from the moment our day begins to when we climb into bed. Our expectation of network connectivity is for it to maintain and improve that connection so that we can live our lives without digital drop-off.
5G network performance has only improved over the last few years, aided by the introduction of network slicing, with overall consumer satisfaction relatively high. Consumer expectations are rising, meaning they want more of a seamless connection at high-footfall locations, such as stadiums, transport hubs and retail centers, with 42 percent of 5G users we surveyed expecting more.
It’s worth noting that our research revealed 10 percentage points difference in satisfaction levels with network performance between 5G and 4G users, with an average of 38 percent of 5G users expressing very high satisfaction compared to just 28 percent of 4G users.
4 in 10 users no longer accept best-effort 5G performance.
So, what is the root cause of these issues?
To start with, we discovered that people with 5G smartphones older than 4 years are actually 20 percent more likely to face connectivity problems and rate their satisfaction 16 percentage points lower than those with 5G phones bought within the last year.
This trend extends beyond emerging markets, as our data suggests it is particularly prevalent in markets that were early with 5G, with approximately one-quarter of 5G users surveyed in Australia, Europe, the US and Canada who are using phones that are at least four years old. The implication is that there is a need to expedite the upgrade of handsets, especially with the rollout of 5G SA networks, as shorter replacement cycles can enhance consumer 5G experiences and satisfaction.
Not only does the device itself have an impact, but the data use does too. Heavy mobile users who have high mobile data consumption and experience network issues tend to report lower satisfaction than light users. In fact, these heavy users are 2.5 times more likely to consider switching their mobile service provider.
So, it’s clear that 5G users encounter various connectivity challenges based on their activities, but what about the environments they’re using it in?
Perhaps you’ve been there yourself, trying to video call a friend at a sold-out concert or a packed-out sports arena, but network congestion means that you can’t get through. We need to factor in problematic locations that would have high-density footfall such as transportation hubs, outdoor event venues, stadiums and challenging indoor areas such as shopping malls or retail centers. The majority of reported issues at these locations stem from insufficient indoor coverage and limited capacity, leading to gaps in 5G availability and inconsistent connections. These challenges not only impact network speeds, but also degrade the quality of experience for mobile apps.
Shortening the 5G handset replacement cycle by one year could increase service providers’ 5G satisfaction ratings.
Figure 1: Type of connectivity issues 5G users reported when experiencing issues at respective locations
Our past research highlighted that frequent network connectivity issues in crowded places such as event venues and airports have a significant negative impact on consumer loyalty. Frequent issues with the quality of app experiences at crowded locations have led 4 in 10 5G users to set higher expectations on network performance, with many now saying they are no longer willing to settle for standard, best-effort 5G. This shift underscores a clear opportunity for differentiated connectivity.
This means that before service providers can focus on achieving differentiated connectivity to unlock premium experiences for their customers, it is essential to resolve 5G coverage issues, especially indoor coverage, proactively which will enable a more reliable and high-performing network in the future.
The 5G connection strength, of course, relies massively on the area a subscriber is living in. Around the world, 5G is available in most countries, spanning from mainland China to the US, with varying levels of reliability.
The market demand for differentiated connectivity can be seen in the findings of our study, which reveal a strong correlation between the user expectation of 5G network performance and the demand for differentiated connectivity. We designed a “Consumer Network Expectation Index”, ranging from 0 to 100. This index combines consumer perceptions of network reliability with the proportion of users who have high expectations for network performance beyond standard 5G. Higher scores on the index indicate elevated expectations of network reliability, providing a comprehensive view of how the network is perceived. By correlating this index with demand for differentiated connectivity, we highlight markets where a blend of elevated expectations and network experience drives interest.
Figure 2: Consumer Network Expectation Index versus share of users who are interested in paying for experiences powered by differentiated connectivity
As expected, the adoption of differentiated connectivity will vary across different markets. Densely populated countries such as India, Thailand and Brazil have 1.5 times more users interested in paying for differentiated connectivity in comparison to the global average. These are mobile-first markets, where reliance on mobile connectivity is particularly strong. In these markets, elevated demand for differentiated connectivity could be attributed to the need for improved capacity rather than general network inadequacy.
We’ve identified four distinct user groups based on their level of network expectation and their adoption pace for differentiated connectivity. The model for promoting the adoption of differentiated connectivity services considers factors such as the expectations on network performance, type of network issues faced, user interest levels, usage patterns, device types, attitudes toward technology, payment preferences and preferred digital services and apps.
Figure 3: Consumer segments for differentiated connectivity adoption
Performance strivers (15%) Assurance seekers (20%) Benefit doubters (25%) Skeptics (40%)
Who is the most likely to adopt differentiated connectivity?
Contrary to the belief that consumers won’t pay extra for differentiated connectivity, our survey identifies two segments that could be early adopters of differentiated connectivity. For now, the most accessible opportunity for offering personalized experiences lies with the “performance strivers”, who make up approximately 15 percent of users. However, it’s important to recognize that market opportunities extend beyond this initial group. We’ve also identified “assurance seekers” who are very satisfied with their 5G experience today, but prioritize uninterrupted, elevated connectivity for critical tasks – even if it requires them to pay more for it.
Our research shows that there is significant market potential for differentiated connectivity equating to about 35 percent of 5G users across the 16 markets, but achieving this requires a comprehensive approach. Time to think creatively.
35 percent of 5G users today show a growing appetite for elevated connectivity beyond standard 5G performance.
Everyone uses the network differently. The difficulty is having to work out a strategy or a plan that encompasses everyone’s needs from the network. However, our study has enabled the creation of the consumer-driven prioritization of application clusters figure, which highlights a preference for a higher-quality experience that aligns with daily usage patterns and the need for differentiated connectivity.
Figure 4: Application clusters for differentiated connectivity – user interest versus the premium they are willing to pay
From here, we can see that 5G users are interested and willing to pay a moderate premium for differentiated connectivity for core services such as video calls for work and personal reasons and streaming various media formats. However, the highest premium is set for niche services such as multiplayer mobile gaming, cloud gaming, dedicated augmented reality (AR) apps, and payment and banking services.
These core services are things we currently use, so what about services of the future?
Generative AI applications are emerging as a rapidly growing category, with usage expected to expand significantly based on strong consumer interest.
Notably, a quarter of current generative AI app users already expect guaranteed performance, such as fast real-time response, and are willing to pay up to 35 percent more compared to established app categories. Generative AI capabilities are increasingly integrated into popular apps such as TikTok and Snapchat, while new AI-driven apps for image and video upscaling could add substantial mobile traffic in the near future. We anticipate a substantial increase in generative AI usage by 2030, with an expected 65 percent of weekly users engaging with these applications.
This trend will likely place new demands on 5G networks, as generative AI applications are expected to drive an increased need for higher uplink speeds and low latency to meet user expectations for responsive and seamless experiences.
We anticipate a substantial increase in generative AI usage over the next 5 years, with an expected 65 percent of weekly users engaging with these applications.
1 in 4 generative AI users prioritize performance and are willing to pay 35 percent more for real-time responsiveness.
How will the growing integration of AI-driven applications shape the future of network capabilities?
The integration of generative AI capabilities in apps and XR devices, such as future AR glasses, will drive new demands on mobile networks, particularly for uplink traffic. With more AI-powered features on smartphones and emerging products like Meta’s Ray-Ban smart glasses, which rely on multimodal AI, the need for fast, reliable uplink will grow. Hybrid computing, balancing on-device and cloud-based processing, will shape this demand. AI tasks processed on-device reduce latency and offer privacy, but more intensive tasks will still require cloud support, increasing data traffic.
The implications of AI for networks are considerable. It’s no longer just about the ability to stream a favorite show without buffering. Instead, it’s about the network’s prowess in supporting the dynamic and instantaneous demands of AI applications. Looking forward, service providers must prepare for shifts in network traffic, with rising demands on uplink, downlink capacity, and low latency as generative AI usage grows.
The transition from the current mobile broadband business model toward differentiated connectivity is a journey. It’s something that requires strategic planning and direction to ensure seamless transformation.
We’ve identified that this journey includes five stages. These are designed to redefine the delivery and monetization of mobile network services.
Figure 5: Five stage road-map aligned with the 5G network evolution
Current MBB business model Performance-based model Platform business model
If you’re a service provider, which stages do you currently sit within?
Most service providers are situated within Stage 1, where the focus is on a volume-centric model, offering unlimited data or fixed data plans without differentiation. Some service providers have also ventured into Stage 2, where they provide traffic prioritization during congestion and offer speed tiering. However, there is a lack of performance assurance or dedicated resource allocation within these approaches.
What do consumer mobile broadband packages currently look like and what are the challenges with them?
It’s unusual these days to hear people saying that they have run out of data on their monthly or yearly mobile broadband plans. Consumers are often paying for services that account for unlimited services and data usage or a very high amount of mobile data, and the consumers are barely creating a dent in those services.
We found that around two-thirds of 5G users reported having leftover data allowance (more than 30 GB) by the end of the month, with little motivation to upgrade to higher-tier plans as the data usage volume does not significantly increase.
So, what can service providers do to encourage consumers to pay for differentiated connectivity? Well, to continue monetizing 5G, service providers need to go beyond the current mobile broadband business model of Stages 1 and 2 toward differentiated connectivity in Stages 3, 4 and 5. This transition will be facilitated by the shift from 5G non-standalone to 5G SA, enabling a focus on delivering performance-based services and offerings.
We found that around two-thirds of 5G users reported having leftover data allowance (more than 30 GB) by the end of the month.
What is the ARPU potential for service providers?
Based on consumer willingness to pay for differentiated connectivity, service providers have a significant opportunity to increase 5G ARPU by 5 percent to 12 percent depending on how proactive they are in Stage 4. This is significant since the increase in ARPU for 5G users has been modest so far, as telcos often emphasize high-speed connectivity without additional premium, which limits the ability to drive substantial revenue increases. To capitalize on this opportunity throughout this five-stage journey, our suggestion to service providers is to adopt a dual approach. This means offering differentiated connectivity directly to consumers leveraging advanced network functionalities, while also exposing network APIs to developers.
Service providers have a significant opportunity to increase 5G ARPU by 5 to 12 percent.
By pursuing this dual approach, service providers can accelerate the monetization of their 5G investments. It opens up the game-changing opportunity of generating revenue directly from consumers through differentiated connectivity services and getting the ARPU uplift, while also tapping into new revenue streams stemming from partnerships with developers and the broader application ecosystem.
This strategy allows service providers to maximize their returns on 5G infrastructure investments and position themselves as key enablers of innovative digital services.
What opportunities do evolving payment models open up for service providers?
Given the market demands and potential for consumer revenue growth, fully capturing the value of 5G SA for the consumer market will require service providers to develop more creative business models beyond the current direct payment structures.
Our research reveals that service providers cannot capture the entire consumer market with differentiated connectivity through selling direct subscriptions or on-demand performance add-ons. While 45 percent of consumers prefer to pay service providers directly for differentiated connectivity offerings, a significant 25 percent of 5G users prefer alternative payment models. This group favors in-app purchases, apps with built-in elevated connectivity, or devices like 5G laptops and smart glasses bundled with QoS features, or receiving QoS performance boosts in exchange for watching adverts. The remaining consumers remain uncertain about the value of differentiated connectivity, underscoring the need for service providers to adopt creative, flexible business models to capture a broader market.
Will network APIs allow service providers to finally tap into the booming consumer app ecosystem revenue streams that have been largely out of reach?
During the platform-centric phase, the business models will transition from a B2C to a B2B2C model.
According to Sensortower data, the global consumer spending on applications between 2025 and 2030 is projected to reach USD 1.43 trillion. In a conservative estimate assuming that consumers do not increase their spending for advanced network features integrated into applications, but rather redirect their existing spending from purchasing applications to those with advanced network features, our research indicates that 1 in 3 consumers would be willing to reallocate about 10 percent of their current spending toward in-app purchases or subscriptions of apps with built-in performance assurance enabled via network APIs. Service providers have a major opportunity to capture billions in new revenue by enabling advanced network features within apps if consumers shift just part of their current spending to apps offering in-app performance assurance through network APIs.
To unlock 5G’s potential, service providers must move beyond one-size-fits-all connectivity – much like airlines offering economy to first class and hotels offering everything from standard rooms to luxury suites. The telecom industry now has the opportunity to design differentiated connectivity experiences, allowing consumers and application service providers to choose performance levels that meet their specific needs and expectations, ultimately delivering a more tailored, satisfying 5G service.
1 in 3 consumers are ready to reallocate 10 percent of their current mobile app spend toward apps with built-in performance assurance.
This report examines data from the Ericsson ConsumerLab survey conducted in June and July 2024, covering 16 markets with responses from more than 23,000 smartphone users aged 15–69, of which over 17,000 are 5G users.
The study’s goal is to understand users’ demand for differentiated connectivity and determine the market size and consumer revenue potential for moving toward differentiated connectivity. Additionally, it explores the hurdles and opportunities that 5G network communication service providers face in reaching differentiated connectivity.
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