Consumer Broadband and Content Delivery to Fill The Revenue Gap from 5G Delay

May 11, 2020

Jonathan Kriegel


Richard Beaton


Recent attacks on the fifth-generation (5G) telecommunications infrastructure mistakenly linked to the COVID-19 pandemic are arguably the least of the industry’s problems right now. More severe delays to the rollout of 5G networks caused by a combination of staff shortages, lockdown restrictions and budget constraints are adding to the surge in bandwidth consumption and the resulting demands on telecom infrastructure worldwide. This pressure will compel telcos to look at creating revenue streams from digital services such as the surging over-the-top (OTT) and gaming segments.

Yet to fully capitalise many will have to accelerate the development of their payment infrastructure and deliver flexible billing options to suit different geographies, budgets and demographics while forging closer relationships with multiple OTT content providers and games’ publishers.

US telco Dish provides an excellent example of the sort of problems which now face aspiring 5G operators everywhere in the world. The company paid US$3.6bn for spectrum and US$1.4bn for Sprint’s pre-paid mobile business. It is also committed to building a 5G network as a precondition of its purchase of Sprint’s 800MHz spectrum following the latter’s merger with T-Mobile to satisfy the competition regulation in the country.

Yet the company has been losing subscribers to its pay-tv services, also referred to as “cutting the cord”, as more consumers sign-up to streaming video packages like Netflix, Amazon Prime Video and Disney+. This transition has inevitably accelerated since COVID-19 took hold and there are no more lives sports tournaments being broadcast. Banks have pulled back on the loans Dish needs to continue funding an ambitious 5G rollout scheduled to roll out 10,000 sites by 2020. And its engineers face logistical issues thrown-up by lockdown restrictions on access to the sites earmarked for mast erection.

Cancelled auctions, supply chain problems and handset postponements

Political decisions driven by the urgent need to tackle the pandemic are also taking their toll. A host of governments in Europe have postponed auctions of the wireless frequency spectrum which 5G uses to transmit data. Spain has put its upcoming 700MHz frequency 5G auction on hold indefinitely with the Czech Republic has postponed its auction of 700MHz frequencies and 3.5GHz wavebands until the middle of 2020.

Austria’s Telekom-Control-Kommission and France’s ARCEP have postponed their second 5G spectrum auctions as has the telecoms regulator in Poland. Health concerns have played their part in delaying 5G installations in Switzerland, where protests and political opposition have led local telcos to halt antennae and mast deployments until more research data on any potential risks is gathered.

Chinese telecoms equipment manufacturer Huawei has already reported that its customers’ implementation plans around the world will be put back for various reasons, likely to include supply chain issues which have disrupted both the manufacturing and shipping of hardware coming out of China.

Nor is it just disruption to the supply of backbone infrastructure equipment which is paralysing 5G service rollouts. The cancellation of the showcase Mobile World Congress event in February had already set 5G back even before reports that smartphone makers like Apple will delay the launch of 5G smartphones scheduled for this September first emerged. A study by Strategy Analytics based on a survey of 1,300 consumers in China found that 37% have delayed buying a new smartphone, and 32% had put off adopting 5G. That lack in demand could, in turn, prompt smartphone makers like Huawei, Xiaomi, Vivo and Oppo to put plans for new 5G handsets on hold at least for the next two quarters.

And though it would not impact consumer 5G services, it is believed that the deferral of the 3GPP’s standardisation framework until at least June 2020 is likely to delay commercial rollouts of industrial Internet of Things (IoT) networks based on the technology until at least 2021.

Telcos and MNOs under pressure to fill the gap

Any lengthy delay to the launch of their 5G networks spells bad news for telcos which have invested significant capex in 5G development that needs to start paying dividends as soon as possible. Innovative applications which exploit the greater reach and reliability and lower latencies offered by 5G were expected to start bringing in new subscribers and revenue streams this year and expand into next.

Some of those use cases involve precisely those vertical sectors that need assistance during the pandemic – healthcare through remote consultations and high definition conferencing for example, and enhanced automation in agriculture and transportation to lessen dependence on scare labour during lockdown restrictions.

Others involve immersive online gaming and social virtual reality. Facebook’s Horizon platform has already launched in closed beta, for example, but its full commercial launch could now be delayed. The paralysis of multiple industry segments around the world – including manufacturing and retail – are likely to see planned investments in IoT, and other 5G enabled applications like augmented reality put on hold. With individual organisations struggling to stay afloat, the potential customer base for new 5G technology in the enterprise and commercial space is likely to be significantly reduced.

And ironically, the greater capacity of 5G – which will offer download speeds of up to 600Mbit/s in the short term and eventually 1Gbit/s – could also go some way to alleviating the strain on wired broadband links caused by a mass shift to remote working by offloading traffic to wireless cellular networks. However, backbone infrastructure is still likely to aggregate data from both.

Priority shifts to existing consumer service revenue

The yawning gap in finances left by any moratorium on 5G will put additional pressure on telcos and MNOs to find revenue elsewhere in the meantime after Analysys Mason already predicted that COVID-19 will cause a sharp decline in turnover from fixed and mobile business service revenue in developed markets.

The research firm expects consumer services to stay resilient this year, however. Any decline in pre-paid mobile subscription spend and roaming revenue could be offset to a certain extent through upgrades to post-paid wired, and wireless broadband packages as workers and families find themselves sharing bandwidth in lockdown impacted households. Vodafone reported seeing 40-50% in fixed broadband traffic and a 15% increase in mobile data usage in Europe during March after the pandemic hit the continent.

Nor is it just demand for additional data capacity which will drive consumer spending. There is strong evidence to suggest that people around the world are turning to video and gaming content to help them cope with the pressure of being restricted to their homes. A surge in registrations to Netflix’ over the top (OTT) video streaming services added 15.8m new paying subscribers in the quarter ending March thirty-first 2020 as the virus began to take hold according to the company’s own earnings statement. Verizon’s latest Network Report for April shows a 36% increase in movie viewing compared to pre-COVID-19 levels and an enormous 115% expansion of gaming activity.

With other telcos are seeing similar trends in network usage patterns, the opportunity to bring in incremental revenue from distribution partnerships with content providers cannot be missed. One way to do that is through direct carrier billing (DCB) platforms which are already closely aligned to fixed and mobile post-paid data subscriptions and offer simple click-through payment convenience for consumers themselves, especially in countries where credit and debit card ownership and usage is low.

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