BY MIKA SKARP
The Multi-Headed Beast that is the 5G Business Case
Over the last few of weeks we’ve heard a good number of skeptical comments from the C-suite about 5G and its apparent lack of a clear business model, or more correctly business models. Certainly time is ticking if the 2020 mile marker is still in the cards. Investment decisions will have to made in early 2018, and roll outs rapidly there after. It’s no wonder then, that we are seeing something of a brass level air war of messaging between the would be buyers – mobile operators, and the sellers, the big infrastructure providers and folks like us.
This is the kind of dicey family dinner table conversation you don’t want to be having right before the family buys a new house. Where are we going live? Will the neighborhood be safe? Will the schools be good? Is it a good, solid investment, or will we lose our shirts? These are not always easy answers, but in situations like this the family need to come together, confidence in the knowns, and fearless in the face of the unknowns. Yet, that’s not quite the tone struck over the last few weeks. Take BT CEO’s Gavin Patterson and his frank confession (https://www.mobileworldlive.com/huawei-mbbf17-articles/bt-chief-warns-on-5g-business-models/#.Wg2kAzG0MzU.linkedin) this week “I talk to other CEOs around the world in this space, and we’ve all been struggling a little bit making the business case work.” Meanwhile, and stiking closer to the bone, Bruno Jacobfeuerborn CTO of Deutsche Telecom admitted that his finance department was voicing skepticism (https://www.mobileeurope.co.uk/press-wire/tim-ceo-heralds-third-wave-of-internet-amidst-slew-of-tech-demos) about some of 5G’s core technologies including network slicing.
Adding to the heap of this particularly sanguine thanksgiving feast, Qualcomm senior exec, Ben Timmons said that though the technologies and business models looked good, the investment community remains unconvinced (https://www.mobileeurope.co.uk/press-wire/qualcomm-cites-investor-scepticism-as-5g-stopping-block), fearful of the hype and awaiting a clearer case.
At the opposite end of the table the hypsters including Ericsson, Nokia Huawei have responded with a flurry of pie-the-sky story lines for 5G, a vertible virtual buffet of demonstrations and PoCs and lots (https://resources.ext.nokia.com/asset/201152) and lots, (https://www.ericsson.com/assets/local/narratives/networks/documents/scalable-network-opportunities.pdf, and lots (https://www.ericsson.com/assets/local/narratives/networks/documents/report-bnew-17001714-uen-rev-a.pdf) of promising papers.
Amid the din of dinner table talk, 5G will happen. The family needs to move, and the longer it waits before the next school year the more difficult it will be. But like the new house analogy, if the bank isn’t convinced they may end up right where they are, or worse, moving into a money pit on the wrong side of town.
Perhaps one of the signature miscalculations in the selling or buying of 5G is that it amounts to a cost reduction exercise. Certainly the move away from costly hardware to inflinitely scalable software thanks to SDN and NFV, savings are not far behind. But even if the cost of an Mbps is lower thanks to virtualization and higher modulation, this is not the beef of 5G. Not only would no new revenues find their way to carrier coffers, the whole exercise would have next to zero societal impact. Hype to no hype, the case for 5G is all around us, in everything we touch and do, and a great many things we will be doing once our networks can finally support our grand ambitions as consumers, businesses, industry and government.
To begin to understand 5G, and as relayed in these pages, we need first to address the essential differences in the traffic on our networks. Though all treated as equal today, we already have the three categories of Best Effort (B-Class), Capacity-Sensitive (C-Class) and Delay-Sensitive (D-Class) in play in our networks even if the last two are woefully underserved. Thus the first and most important point to make about the 5G business model writ large, is that the moment that these traffic classes are decoupled and served individually is the moment that different price points can be attached to them. This, in the language of the Ericsson whitepaper “The 5G Business Potential” (https://www.ericsson.com/assets/local/narratives/networks/documents/report-bnew-17001714-uen-rev-a.pdf) cited above is the Service Enablement phase, estimated to deliver 642 Billion of 1.307 Trillion expected from this transformation by 2026. As service enabler, even in this passive role the business of 5G will come into play, particularly across key industries like manufacturing, energy, public safety and healthcare.
But before moving on to the filet minion, let’s take a look at this starter and the essential value created by way of traffic class differentiation. As we’ve noted, in our current mobile networks, all traffic is Best Effort (B-class) and is priced flat based on volume and maximum speeds. And while there are no SLAs to be had, it works very well for email, social media and all other non-continuous traffic. That said, if you do lot of buffering in a given application you can also do video streaming fairly well, though it’s not ideal.
Capacity sensitive (C-class traffic) is in one way defined by the amount amount of capacity that must be delivered in a certain time. That is to say, there is no requirement for maximum speed variation within a certain time interval. A good example of this kind of traffic is the ever voracious beast that is OTT/IPTV Video-on-Demand and within that category you have different capacity classes moving from SD to HD and all the way up to 4K. In a nutsehell, if we can deliver capacity quickly and reliably all video applications will start quicker and work better. That’s not to say there isn’t a challenge before us. The amount of time the average connected human is willing to wait for a given video service to start is between 1-2 seconds. If takes longer that that, then the assumption is that something is broken.
Delay sensitive (D-class traffic) is defined by the requirement that a certain amount of capacity needs to go through the network with a pre-set standard delay variation. Because most categories or use cases for D-Class traffic involve a two-way, symmetrical connection between sender and receiver as in voice traffic, no buffering can be done. More advanced categories of this class include on-line gaming, web conferencing and of course, most critically, public safety.
So right out of the gate, baby steps will allow us to introduce different B,C & D traffic classes and sub-classes that can be offered right away. For the “sensitive” classes, namely C and D SLAs can be attached regardless of the particular application can be delivered as either an on-demand or all you can eat service, but most importantly at a different price point from Best Effort. In our market studies polling average mobile users, we have learned that the vast majority – some 75% are willing to pay an additional 4 Euros per month on their mobile bill each month to take advantage of these kinds of guaranteed performance improvements. Though simple, this is the first business model that carriers can look at and take to finance and the investment community.
In the future, when MEC (Mobile Edge Computing) comes available more services can be offered to applications specifically, and that’s where we begin to enter the Service Enablement phase and the additional 400+ Billion in revenue that will come of application-aware service provisioning.
But first, baby steps.
There are three easy areas to start with when it comes to rolling out 5G-like services and Network Slicing.
- Existing Proprietary Networks: In many industries like transport, energy, manufacturing and broadcast there remain scores of proprietary radio networks that are both typically redundant and out of date. As the use of video for surveillance and security, communications, automation, content and information is on the rise carries will be able to offer auxiliary bandwidth to these industries to compliment and support their private networks.
- Fiber-Over-the-Air Service to Areas Un-Served by Fiber: Also known as Fixed Wireless, or Fixed Mobile Convergence, this use case is dead simple to deploy and actually expands and enhances traditional fiber access with additional consumer-friendly features. And because network slicing allows us to differentiate within a given connection, these services can be rolled out to homes and businesses in different classes with different price points from light, to standard to ultra at the carrier’s discretion.
- Special Tiers for On-line gaming & Video: Here the goals is to galvanize customer loyalty and raise ARPU by way of real and perceivable improvements in Quality-of-Experience. From the user’s perspective videos will start faster and on-line gaming will be more reliable and enjoyable will low delay variation.
These last two business model opportunities quickly moves the sliced network operator beyond pure enablement to the service creation phase and increasingly so as specific applications are served based on their established requirements.
The next level of opportunities that touch both the service enablement and the service provisioning phases and all require a some additional development to come to life.
- Augmented & Virtual Reality: While the tech press and indeed many of the PoCs we’ve seen to date tend to focus on the consumer use cases in this category, it’s the industry has focused on the consumer, the business, particularly industrial applications of these technologies which promise to make up a large chunk of the predicted revenues within the manufacturing, energy, public safety and healthcare verticals. Here the primary requirements will be around delivering rock solid SLAs around ultra low latency. While these use cases are almost there, they require at once concerted efforts on the technology, business and user-demand sides of the equation. Nonetheless it is not a matter of if, but when.
- Public Safety & Critical Communications: Estimated to deliver nearly 80 Billion of the forecasted 1.3 Trillion by 2026, Public Safety is not only a promising business opportunity but may soon (and this is already the case in the US with FirstNet), become a mandated component of the public safety communications infrastructure. Here Network Slicing must be application-aware and finely tuned rapidly requirements of real-time situations in the field. While this is still in the very early phases in some countries the first use cases will most certainly revolve around the use of body and vehicle mounted cameras and online evidence collection systems. This will quickly evolve to support real-time situation analysis and complex team communication protocols. However, baby steps. Because many jurisdictions, particularly in Europe still rely on proprietary networks like TETRA, there is an opportunity for carriers to provide auxiliary air support for First Responders when these networks – confined largely to voice communications, fail to deliver the goods. Already field agents use 3G and 4G devices on a Best Effort basis for data applications. These applications could easily be the first to be sliced to introduce a FirstNet lite type of service right out of the gate.
- Healthcare: Pegged at 76 Billion, the Healthcare play for 5G which covers everything from remote patient monitoring and care to health monitoring devices and even AR guided remote, robotic surgery will touch every slice category and sub-category and will most certainly have a dramatic impact on rising healthcare costs, bringing the back down to earth at a time when a growing percentage of its inhabitants are closer than ever to the exit and in need of constant care and intervention.
- Cableless Factories of the Future: Having an immediate and dramatic effect on Capital Expenses the ability to freely design and reconfigure the physical layouts of large facilities unhampered by costly wiring throughout creates and enormous opportunity for partnership with carriers set to deploy hybrid large and small cell grids throughout. This will not only effect current facilities and help them immediately improve efficiency by being better laid out, but liberate the designers of next generation factories to literally think outside of the box when it comes to core of the business, and less about the communications infrastructure that used to lurk behind its walls.
- Automotive: From simple connected cars to fully autonomous vehicles and a burgeoning vehicle based business ecosystem in between this category is estimated to bring in close to 50 Billion by 2026 while opening the door to a new business model with the industry. The ability to parcel the network for specific verticals lays the foundation for a new business relationship between mobile operators and the automotive industry under the guise of B2B2X. In this paradigm carriers sell slices to car manufacturers who in turn resell those to car buyers in the form of Quality-of-Experience across the gamut of emerging applications from telematics, to vehicle recovery, car sharing and system updates. It’s no wonder that all major vehicle manufacturers have mobile divisions who are well represented at our industry’s biggest events, with Ford as a clear leader. This alone should send a message to carriers that the business case is clearly there. It’s really just a matter of the rubber hitting the road, and eventually pens hitting paper to make this a win-win-win for the entire sector.
As we can see from these examples and many other, there are opportunities available today that are poised for high-visibility Proofs-of-Concept and ultimate new service enablement and provisioning on the part of carriers. Critical to this is to attach a pre-baked or suggested business model with each PoC so that the industry at large, and particularly the investment community and finance department can see the short and long term value of the opportunity. Certainly this presupposes that we understand the use case thoroughly, what the requirements are and how these services will at very least be enabled and better yet productized. But the first order of business is to get over the psychological hurdle of where to start. Which use is the best to commence with. As one wise Philosopher in our extended family said “If you don’t where to start, that’s good thing. Start anywhere.” The main point being, just start and that alone will provide the learnings of how to sell and manage it.
We’re pleased to announce that Cloudstreet will be hosting a webinar next week (http://www.cloudstreet.co/the-business-case-for-network-slicing-webinar) all about the many headed beast known as the “the 5G Business Case” November 29th 10 am CET. We welcome you to join in the discussion.