Operator's (5G) Destiny: The 4th Wave

We are very excited to release our next 4th Wave series paper.

https://www.chetansharma.com/publications/operators-5g-destiny-4th-wave/

The 2012 paper “Operator’s Dilemma (and Opportunities): The 4th Wave” outlined how the wireless industry is likely to evolve over the next decade. In the subsequent years, the 4th Wave thesis shaped operator strategies around the globe. It has been one of the most remarkable periods of disruption and innovation. The impact of 4th Wave has been far and wide.

In the paper, we wrote,

It is inevitable that the 4th Wave growth curve for the wireless industry is going to bring in disruption in the industry structure, technologies used, revenue models, and at some point, the regulatory framework itself. An operator’s ability to recognize the importance of the 4th Wave in its long-term survival plans will define their role in the ecosystem. Many will fail and get assimilated by the tides of consolidation. But some will move and adapt, either forced by the financial climate or the desire to innovate and launch new services that fuels their growth for the next decade. Indeed, their future will be defined by how they react to the 4th Wave of mobile.

Most of the analysis from a decade ago has come to fruition. Operators, who have invested in the 4th Wave have reaped the rewards, are better prepared, and are likely to do better in the 5G cycle that is upon us.

So, how should operators think about the 5G cycle and the role of the 4th Wave in defining their place in the 5G ecosystem. There are clearly several important trends at work. One of the clear one staring in the face is that of economics. 5G arrives at an interesting point in industry’s evolution. For the first time, the network upgrade cycle is taking place amidst declining or flat service revenue growth for the operators. In the US, the service revenues declined for three straight years before returning to modest growth in 2018/19. The story is same for other mature markets. Even operators in developing markets are facing challenges. It is time to rethink the operating model. There is a path to revenue growth and EBITDA expansion, but it is complicated as it requires new business models, infusion of software-driven network management, investment in vertical expertise, and rethinking the business from the ground-up

Over the last decade, the capex and revenue grew in similar proportions. For the global wireless industry, the operator capex grew 75% and revenue grew 71% during the last ten years compared to the decade prior to it. In the US market, which has been the envy of the world due to relatively high ARPUs, the growth in revenue was even higher.

During the past cycles, there was a clear line of sight to revenues that was generally based on the current subscriber base, available market size, expected growth of new services, and the market environment (competition and regulation). One could easily build the models to make the case for the required CAPEX. The LTE cycle that coincided with the 4th Wave started to change that. It required a different operating model that necessitated creating emerging business units to go after the new type of business opportunities.

Mobile Operators built upon their traditional access business to dabble into IoT, Security, Video, Advertising, IT, Cloud, Telematics, Smart City, etc. They built capabilities across industry verticals and sometimes across geographies. While some of these efforts failed, there have been many that have succeeded and are contributing handsomely to the bottom line. We have outlined the basic framework of the 4th Wave thesis in the original paper and the implications of changing dynamics in the industry.

Most of what the paper projected has come true.

5G moment also marks another critical shift in the industry from consumer (which is inherently emotional) to enterprise (which is more rational). One is rooted in the new and the glitzy while the other in accountability, process, and the ROI. Will the industry adjust to the shift by inventing new business models and new collaborative approaches to unlock revenue streams? It is possible that the first phase of 5G is going to be about enhanced mobile broadband that gives consistently higher speeds. The revenue generated during this phase is likely to fund the expansion of the 5G network nationwide and investments into vertical industry solutions. So, it is critical to get the strategy, business models, and the economics right.

So, where do we go from here? How would 5G shape 4th Wave or rather how will the 4th Wave shape 5G? Can operators return to the traditional access revenue model of the yesteryears or do they need to adapt to prepare for an even more disruptive decade? We make the case that Operator’s (5G) destiny over the next decade is inextricably tied to the 4th Wave. By benchmarking the various revenue streams, we can learn where the puck is going and help shape the ecosystem investment strategies. If Operators don’t succeed on the 4th Wave, their position in the ecosystem will become tenuous. However, by building a sustainable 4th Wave business can deliver growth and new revenue.

This paper builds upon previous 4th Wave research work and expands on the 4th Wave in the 5G era and its critical contribution in shaping the next decade. The paper presents four years of benchmarking data for the top 18 global operators and suggests areas of investments and strategies for the coming decade.