A staircase to successful monetization of 5G to consumers

When 5G was introduced commercially in 2019, it was anticipated that it would herald far-reaching changes in perceptions of networks, apps and services, which would mean service providers could position 5G as something new, innovative and different – not just “another G”.

Yet today, most service providers are promoting 5G with statements claiming to offer the best, fastest and most reliable network on the market. This lack of differentiation is confirmed in research on service packaging across more than 300 service providers worldwide, revealing little to no differentiation between service provider offerings of subscriber packages in any given market.

Meanwhile, the majority of consumers are ending the month with significant amounts of unused data. In some markets, mobile data plans include 100, 500, or even 1,000 GB of data per month. Yet the global average monthly data usage per smartphone is around 20 GB, and even the markets with the highest data consumption in the world still average below 50 GB.

With killer apps unlikely to emerge and the old ways of marketing being insufficient to showcase the value of 5G, there is a pressing need to recalibrate the fundamentals and look for more ways to achieve growth. Fortunately, suitable tools are emerging that make this shift possible, thanks to the availability of 5G SA.

To navigate this landscape, service providers will have to address their entire offerings, starting at the foundation and building up toward utilizing all the new tools that are becoming available and maximizing the opportunities they bring.

Baseline connectivity remains the foundation

Baseline connectivity represents the foundation for service revenue generation that all service providers rely on today. Therefore, there are good reasons to put efforts into maintaining and developing baseline connectivity offerings to have sound and profitable long-term growth.

An Ericsson study of retail packages across more than 300 service providers worldwide shows that nearly all offer some combination of data buckets as their base packaging. However, there has been a trend toward rapid expansion of data plans and a broader use of unlimited data plans, especially when providing 5G. Globally, 42 percent of service providers have introduced unlimited plans. In Western Europe, as many as 89 percent of service providers have unlimited data plans, and many have deployed them across their entire postpaid structure, or just for 5G. With unlimited offerings, service providers are placing themselves at risk by effectively capping their ability to grow revenue when usage increases. Data usage is growing among existing smartphone users at around 20 percent annually on a global basis and could potentially expand even more with higher data usage generated by some services, such as XR and cloud gaming.¹ If subscribers do not reach their quotas despite increasing their data consumption, then there will be little reason for them to engage with their service provider, except perhaps to upgrade their device.

A solution is to actively adjust plan structures and realign packages to match the actual usage of different subscriber segments. This can include removing unlimited data plans or restricting them to a small, top-tier market segment, or replacing substantial or unlimited data plans with service plans better suited for long-term growth. This represents a challenge, especially in markets where these packaging principles have existed for years. But it could be highly rewarding for service providers – maybe even a necessity to fully utilize the toolbox and capabilities provided by 5G.

One of the capabilities made available by 5G is very high throughput. As 5G networks have launched worldwide, speed tier offerings for smartphones have become increasingly popular and are currently used by around 27 percent of service providers.

Consumers tend to equate speed with quality, making this an excellent motivator to pay more, which is a vital step toward providing quality of service (QoS) oriented offerings.

Speed tiers, in combination with existing models with buckets and unlimited data, also represent a tool to guide users toward a desired package or proposition. This may be a way to exit from unlimited propositions and to adjust bucket plans to appropriate sizes.

Examples of this can be seen in select markets, where unlimited data plans are offered with lower, less attractive speeds than those for data buckets. Similarly, speed tiers are used to support a reduced set of data buckets that are better aligned with usage than existing plans that have grown too big, too quickly. There are also examples of service providers using AI to adapt the data bucket, and the related price, to the usage pattern of each user.

Service aggregation grows revenues further

Traditionally, service providers have bundled media content and other services into what could be called hard bundles, meaning some subscriptions, typically top-tier packages, include some added value or bundled service. It may simply be 24-hour phone support or virus protection software for the device. But the most attractive bundles are those leveraging video or music streaming services provided by third parties.

Service aggregation means offering both a large number and a variety of services, typically to all subscribers, regardless of which tier they are on. The content offered generally goes beyond streaming services into areas such as lifestyle or well-being.

Among the first mobile service providers to do this was a service provider in the Oceania region. On their website, a user can find more than 15 different services to which they can subscribe. As applied in other markets, a service that a subscriber adds to their bill also generates some revenue for the service provider, based on retail agreements made with individual content owners. Besides the direct revenue generated, subscribers who add one or more of these services are less prone to churn, especially if there is a discount incentive for adding two or more services to the monthly plan.

There is a considerable difference in data usage between some of the services, which makes optimal alignment of packages challenging. Being able to separate connectivity, at least for some of the most data-hungry services, makes sense, and many service providers do this with what is often called service-based packaging or zero rating, which is allowed by regulators subject to certain conditions.

Service-based packages are commonly available as add-on packs on top of a basic data plan, and target a group or category of services, such as video and music streaming or gaming. These packages allow the consumer to use services within the selected category, without consuming data from their base subscription or data plan. A key condition stipulated by the regulators is that the service-based connectivity must cease once the base subscription runs out of data.

Zero rating doesn’t necessarily mean the service can be used indefinitely. There are versions where the package has a limited amount of data, or time (bucket of hours), that can be used only for the services it targets. However, the most important aspect of this is the ability to grow revenue with increased usage, while providing customers with affordable pricing and packaging.

Service aggregation lays the groundwork for the next step. Service providers that do this today have spent considerable effort in building marketplaces through which they position and sell services. Such marketplaces, if found and accessed by subscribers, are a great tool for selling any add-on services. Yet these marketplaces need to be efficient and part of a wider digital integration and transformation, in order to handle a multitude of services from a variety of ecosystems in a cost-effective way. Optimally, the marketplace becomes a highly productive machine and a platform for any future offerings and packages that a service provider would like to monetize.

Experience-based connectivity addresses user experience

The third step uses the 5G toolbox fully and starts addressing user experience. Service providers can now offer new and differentiated levels of performance for specific use cases or applications. Examples include guaranteed throughput speeds, increased reliability, security and low latency, which can form the basis of service level agreements for consumers and enterprises. This is something that previously has been challenging or even impossible to implement in mobile networks.

Early differentiations launched in some markets have typically been add-on offerings targeting specific applications or user segments. The services offered are packaged with a clear use case that involves some form of performance promise. For instance, a service provider in Singapore used network slicing to provide visitors to a Formula 1 racetrack with a better experience when following the race on a smartphone. Other service providers charge for better uplink performance, with offerings targeting influencers or people wanting to share live moments. The technical solutions vary slightly, with some using network slicing and others simpler priority functions. Other examples are complete packaged solutions which may include hardware and software, as well as some performance guarantees for which the service provider charges a premium.

Since experience-based services and packages are targeted toward more specific use cases, customer segments or locations, there can be significant differentiation in the value and prices for the underlying solutions. Consider a network slice guaranteeing a maximum latency of 40 ms, which is packaged and sold toward two very different user segments. One fairly large segment, known to be interested in low-latency connectivity, is gamers. For them, the cost of such an offer is still weighed against the potential advantage they may get over their friends when playing online. The same slice offered to a day trader may instead be considered an opportunity to increase earnings, and thereby have far greater value to that user.

Service providers may ultimately want to address every individual and their needs at almost any given moment. In reality, some segmentation is required. That said, it will become possible to differentiate in completely new ways when there is a correlation between the application being used, the location of the user, and factors such as network load and time of day, in-app/content-based marketing, opt-in and opt-out choices, or embedded service charging. APIs will allow applications to request specific functions of the network, for which the service provider will be paid: either by the user, the app developer, or both. Another exciting tool is the ability to communicate with the user in real-time, either through in-app communication or the operating system.

Service providers who have tested versions of in-app purchases and context-based marketing describe this method as being far more effective than traditional methods. Everyone gains, including users who no longer feel overwhelmed by marketing messages.