Correctly timing your speed-tier 5G mobile plans will help telcos win the customer experience prize

Bio

I was with Spark New Zealand for ten years as a member of the enterprise pursuits team and finishing as business development director running a business unit within Spark Ventures. He was with the New Zealand Government in 2014 and 2015 as the founder of the Innovation Lab and member of the $1.1bn Telecommunication as a Service design and procurement team.

Today, I am a start-up founder of a company that specialises in audience profiling by tying together identity and location data in the physical world and often get asked “what is the future of WiFi in a world with unlimited 5G data? I thought I would write a go-to-market strategy opinion to shed some light on my answer to that question.

Why the blog

This blog exists because someone I highly respect working in the global telco space challenged me to think about the economic and competitive impact of unlimited-data and speed-priced 5G plans. My research was not a paid gig, but the personalised version of this strategy has had the juicy insights removed and changed to generic attributes of the industry.

Hopefully, you will find some of this blog useful when considering your go-to-market 5G strategy. These are my own opinions based on experience working inside and out of the telco market.

Should Telcos release 5G speed-tier plans in 2020?

No. I think it would be a mistake for telcos to move to a 5G speed-tier personal mobile plan until 2023. This paper will explore competitive and commercial reasons for this recommendation, and suggest a strategy to increase new services revenues while 5G deployment reaches, and hopefully exceeds parity of 4G coverage.

I’m incredibly passionate about seeing telco transformation take place. It is essential telcos focus on new services revenues, using existing assets to implement products and services that depend on each other to win more customer IT and non-IT wallet share.

I believe there is a three-step revenue opportunity for telcos to consider:

1. Enhance the wireless proposition for the SME market with an infrastructure and software product paid for as a monthly rental with upgrade paths clearly defined
2. Add advanced analytics and audience profiling services attracting lucrative recurring license revenue for your Enterprise and Government wireless portfolio; and
3. Invest in public WiFi to pilot advertising revenues by making the access free for your competitor customers.

Throughout this paper, I look at what 5G might be to a consumer, what we can learn from existing products and what problems and opportunities exist when launching 5G to consumers and enterprises.

Why should consumers care about 5G?

5G is a step-change in speed, but to the general consumer, they care about uninterrupted streaming of music and media for the lowest cost.

Let’s look at the existing alternative to 5G. For the majority of consumers, their current device and 4G connection do the job at least 95% of the time. Therefore it is a good-enough existing alternative. I made the 95% number up, but the difference between that number and 100 is your target market for 5G.

Consumer Predicament

If your current device and 4G experience are good enough, what are the reasons, incentives or value of upgrading to 5G in 2020?

1. Devices are being kept for longer because desirable models have increased in cost compared to 3 years ago. The insurance market has evolved, so consumers often pay for coverage, extending the upgrade cycle.
2. SIM-only special offers and their large data plans are growing in strategic importance as the device, and network plan is increasingly separated, reducing the incentive to change your phone.
3. WiFi is still a faster and free go to when inadequate mobile coverage reduces the speed of the mobile connection. Incentivising customers to invest in a new phone for 5G for higher data speed won’t solve their problem when below-par coverage means reverting to 4G too often increases complaints and reduces NPS-scores.

Good thing customers are not paying for speed or they’d complain every time there is a drop in speed, which is actually just poor coverage

1. Millions of devices from printers, PCs, tablets, TVs, sound systems to smart home devices and mobile phones all have a preference for WiFi connectivity. WiFi is a brand consumers associate with free and fast, which should build on by using 5G as backhaul for home broadband services.
2. Apple does not (yet) have a 5G device, and assuming they release one in September 2020, it will take two years (two upgrade cycles) to get most of their high-value customers on a device that uses 5G.
3. Some Android devices are 5G capable, but even Samsung decided to release a different 5G version of its flagship S10 recently. It may be three years (three upgrade cycles) to move the majority of Android customers over to 5G.

No Frills & MVNO

The success of no-frills and MVNO networks support the case consumers will move to the cheaper ‘next-best’ alternative, which is currently a balance of price and data use. Moving to a speed tier plan for 4G or 5G will likely result in a large number of consumers moving to the cheapest speed-tier that delivers uninterrupted streaming. If the market decides the lowest 5G speeds are sufficient, this will lead to an unrecoverable loss of margin for some high-value customers and all mid-value customers.

Price Wars

Removing data caps means a customer dollar buys speed, not consumption which means downward margin pressure in a price war is the only viable short-term option to every telco offering speed-tier plans.

Strategic Moves

…speed is the only value being paid for. You are essentially guaranteeing coverage. Ouch!

At the moment Telcos compete on price, data cap, speed (experience) and coverage but are constantly being hammered by negative experiences in customer service caused by billing issues and low data-speed in weak coverage areas.

If your telco removes the data cap from the market, inadequate coverage is not going to be an acceptable reason for a loss of speed, because the subscriber will only value paying for speed. You are virtually guaranteeing coverage. Ouch!

Coverage can only be improved with significant increases in investment in both rural and urban centres, therefore resulting in reducing NPS score and an increase in churn. Today, a telco can respond by increasing data caps (e.g. new unlimited plans for higher ARPU) to win and retain customers.

Removing the data cap requires speed to be more consistent to avoid poor customer experience, which is already a challenge for many telcos. Delivering consistent coverage is achieved by balancing time, expertise and budget and generally cannot be executed quickly or in the short term.

I think there is a strong case for moving to unlimited plans across the board and charging based on speed. However, it is only once the telco is satisfied coverage can deliver a consistent speed experience across the country, which I do not believe to be before 2023 for first-mover 5G telcos.

Health

5G expansion is subject to even further scrutiny created by speculation that mobile networks are a risk to personal health. Despite science and logic, there is a vocal minority who protest the expansion of communications infrastructure.

The same suspicion and scrutiny do not apply to WiFi connectivity; therefore, an expansion of coverage using localised WiFi to improve the experience in the short and medium-term is an option available to many telcos.

Spectrum

Higher spectrum wavelength >6GHz has weaker in-building penetration forcing revised infrastructure deployment strategies. If your telco operates a public WiFi network using payphones booths or customer sites, then a deployment strategy to utilise these locations to infill 5G coverage should be explored.

Are spectrum sharing technologies used in Switzerland and the US being considered in your market? Sharing of bands above 15GHz would support an inner-city deployment strategy. Competitors without a digital signage network (or partner) or a legacy payphone network to mount small-format 5G infrastructure cannot match the speed and density of your access point deployment, providing you with a competitive edge.

Are Telcos solving the correct problem?

Across the industry, we all know customers complain when inadequate coverage impacts the speed of their connection when streaming media or attending a high-density venue. Great coverage means high speed; therefore, it is necessary to improve coverage to ensure consistent speed to avoid complaints and increase NPS scores.

Inadequate coverage and speed today, will not make a consumer want to pay more for data-speed despite their answer if asked if they want more speed.

Without realising it, customers are actually willing to pay for better coverage.

Therefore wireless speeds must be good enough to stream music and video during their commute when coverage and density i challenged, which leads to a strategic fork.

Strategic Choice One

Use 5G investments to make connections so much faster to cover up the inadequacy of speed in weak coverage areas. This strategy throws up two new problems:

(a) Consumers will expect increases in data speeds without an increase in price

(b) Telcos will not earn revenues from third-party apps requiring the higher data-rates to operate, setting a precarious expectation. In a few years, mediocre coverage will drive customer complaints.

Strategic Choice Two

For the next three years, use 5G to backhaul WiFi to supplement 4G in weak and high-density coverage areas so connected devices are sharing a smaller load on the nearest base station, potentially reducing the cost of 5G deployment. Maintain subscriber growth by improving coverage and partner with more value-add services to win business customers.

Creating Value in the Wrong Place

The relationship with customers has eroded in the last ten years by OTT apps that have continued the general unbundling of telco services. Paying a bill and complaining are the two primary reasons for a consumer engaging with their telco, of which neither are a happy event. All around the world telcos are turning to traditionally TV content strategies to restore the value proposition, however, converting this investment into the growth of EBITDA is proving a challenge if a telco is doing so for the same customer who is paying the monthly mobile bill.

Seriously Consider this:

Therefore, a long term strategy to create a new value proposition must:

(a) Not be linked to the price paid for data. I.e. stop bundling added value, as each one erodes the individual value; and

(b) Utilise the existing assets of a telco and create a product for a different paying customer

Learning from other Business Models

A move to speed tier plans in the home broadband and business market has been successful because their use-case is for a one-to-many (devices and people) purpose. Unlike these markets, a personal mobile plan is a one-to-one or at most, or one-to-two when tethering takes place.

Let me take a step back; based on my experience, there are subtle differences between the speed tier proposition in home and business.

Home-based

The gap between speeds on offer are quite large, but pricing gaps are closer together to make it appealing for a consumer to pay just a little bit more for a big step up in speed. Consumers making a top-down decision will mitigate their ‘viewing experience’ anxiety by starting with the most expensive plan and settling at the top end of affordability. Observations to support my analysis:

1. Consumers affected by ‘viewing experience’ anxiety are doing so because the fear of buffering is greater than the fear of price each month. The number of devices and more importantly the growing streaming requirements of HD gaming and video content, often to more than one device at a time, is heavily influencing buffering anxiety
2. Consumers not driven by streaming fear will always choose the cheapest, irrespective of speed because they don’t apply performance logic to their decision

Business-based

This proposition is a bottom-up price and performance decision. What is the lowest price I can get away with to deliver the experience needed to run my business is the question asked by decision-makers. As the performance of connectivity continues to increase, companies will assume they can drop to a cheaper plan. An unfortunate position has emerged for telcos who unfairly take the brunt of cost-cutting focus by IT departments. Connectivity is an enabler-cost, not an enabler-revenue line like software that businesses use to track and create revenue-generating activities

The loss in value telcos experience is in part due to the rise in over-the-top applications that have won the value and relationship of paying customers.

What is the 5G killer app?

The 5G killer-app is not on the market. The poster child is the autonomous car; however, a few variables need to align for this to be the case.

1. Regulators defining and enforcing their rules require multi-agency co-operation and many changes in legislation which ministers may not see as a voter priority.
2. Car-makers need to deliver a product the market wants and values at a profitable price; and
3. The general public needs to be ok with relinquishing control for their safety to a computer, which even if you managed the two points above, may still not be enough.

Mass adoption is likely to be more than ten years away. Therefore the risk of basing today’s 5G investment on autonomous vehicles is too substantial.

What else?

Based on recent commercialisation cycles of mobile network technology upgrades, it may well be a ‘6G’ network technology used. Further potential 5G applications are:

1. Smart lighting, bins and sensors on a ‘thing’ are excellent applications, but none are going to generate revenues that justify 5G deployments in their own right.
2. Upgrades to machinery and new platform services to support large scale IoT usage in the commercial world are gathering pace. Still, many countries will find beyond agriculture, mining or manufacturing there are only small, niche opportunities available to sales teams.
3. Consumer mobile plans continue to be the single most significant revenue stream and value proposition from mobile network deployment. However, consumers are unlikely to welcome paying much more than the current costs for a mobile plan and on the whole, are satisfied with network speed, but not coverage.

What is the killer 5G app

The 5G killer app is going to be aggregating physical and digital locations using a hybrid-solution made up of Satellite, LTE/5G network, WiFi and Bluetooth technologies. I believe mesh-network technologies, not currently utilised for LTE, though available, will find a business model to support device to device location awareness. This product will be delivered via API to developers of applications and services to improve wayfinding, advertising, deliveries, safety and security.

Pricing Strategy

Here are the pricing strategies I think will improve return on capital employed for your 5G rollout, and set the right conditions for 6G investments. Similar to the 3G to 4G transition, 5G could be as transformational for the enterprise as wired MPLS networking.

5G is step-change for enterprises and incremental change for consumers. 6G will deliver step-change for consumers (transportation). Therefore a focus on new services revenues is needed to diversify up to 25% of existing revenues by 2025 to create the right conditions to justify your 6G investments.

In Summary

1. Telcos shouldn’t consider a speed tier personal mobile plan before 2023 but should test the market in mid-2021 with a high and low-speed hybrid wireless broadband, WiFi & 5G tethering solution. A strategy to build a large cafe ‘Telco WiFi’ footprint will help.
2. If your telco switches to speed tiers plans too soon, the market is more likely to go the way of the business broadband proposition between 2023–2028. Price reductions AND expected performance increases will erode the average margin in a price for performance war spearheaded by the no-frills and MVNO networks. I do not recommend relying on new speed-tier plans using premature 5G coverage to secure a larger market share and justify future investments in network performance. Therefore, revenue diversity is needed to develop new recurring service revenue streams from the assets your telco is already investing in
3. I don’t believe many mobile markets in the world are growing enough to deliver a significant increase in consumer mobile market share for your telco to offset a likely reduction in operating margin. Due in part to device and subscriber saturation and low organic growth, only a red-ocean competitive strategy is available to all competitors in the mobile consumer market.
4. The enterprise market through 5G will be transformational if the right problems are solved using 5G price, technical and perception strategies.
5. If your telco has an existing public WiFi network, those locations could serve as a competitive advantage for 5G deployment to achieve denser deployments needed in urban areas. Increasing the presence of WiFi equipment will help overcome irrational health fears when 5G equipment needs to be closer to people.
6. Develop new products and services that use your existing assets to improve consumer and enterprise margins by leveraging the robust brand most telcos have

While Coronavirus wreaks havoc across our world, I find myself with a lot more time on my hands. Should you be reading this and be interested in working with me to refine some of these ideas and help you apply them at your telco, please email or find me on LinkedIn.

Email: [email protected] | linkedin.com/in/nicolaithomson