5G disaggregation requires new business models
Hardiman Telecommunications on why traditional MNO business models are becoming untenable.
Traditional Barriers to Entry are Disappearing
Sometimes events occur which, while passably interesting in their own respective rights, are actually harbingers of major changes to come. Securing of 5G spectrum by Citymesh in Belgium and by Adani in India might be considered in that light. Possession of exclusive access to spectrum by ‘Traditional’ mobile network operators has long been a defining source of strategic advantage. It has also constituted a major barrier to entry to aspiring mobile carriers that do not hail from the traditional mobile fold. Choosing to whom to allocate spectrum, and on what terms, has also long been a major element of market regulation.
It is also the case that the capital cost of constructing mobile networks has functioned as a barrier to entry. Radio Access Networks, Core Networks, and in some measure Transmission Networks defined a vertically integrated hierarchy. It was sensible for single organisations to own all.
Disaggregation Eliminates the Case for Vertical Integration
The advent of 5G significantly alters this vista. Previously integrated functions are now open to disaggregation. Business cases for private 5G networks are taking shape. The traditional business models of mobile network operators are becoming increasingly untenable. New regulatory paradigms will be necessary. The evolving vista over the next 10 years will alter the industry considerably.
It is of course a nostrum to state that 5G benefits from software virtualisation. It is not a nostrum to state that opportunities are thus opened for new market entrants. The matter may perhaps best be illustrated by consideration of industrial automation. Industrial automation requires three major logical components. A very obvious one, from a mobile operator perspective, is provision of information transport by radio. In the case of 5G, this may be optimised through network slicing. Network slicing allows network functions to be optimised according to specific application requirements.
Applications however, come in two distinct flavours, neither of which is within the purview of current mobile operator business models. The first of these is implementation of sensors and pre-processing units on factory floors. The second is implementation of datacentre resident data processing and analytics. To play a meaningful role in these, mobile operators need to develop new skill sets, or, alternatively, need to partner closely with sector-specific systems integrators. These matters are by no means confined to industrial automation. Similar points hold in transport management, medical information processing, media content production and other areas in which 5G is held, correctly, to be applicable.
New Business Models and Regulatory Paradigms Are Needed
This posits questions regarding mobile operator business models. Perhaps the most fundamental of these is – Who is to ‘Own’ and have the billing relationships with end customers? A case could be made for such to be the domain of systems integrators/sector specific operators who contract transport services from network operators. Equally, a case could be made for network operators who define network slicing as a core offering, and contract specific applications from systems integrators. To go back to our initial comment regarding spectrum, it seems that there is some appetite on the part of aspiring new market entrants to address specific sectors end-to-end.
Regulators thus need to decide how much competition is a good thing, and how much may fragment markets to the detriment of cohesion and good quality of service.
Ensuring of cohesion and good quality of service has even wider implications. Virtualisation has eliminated previous demarcations in a manner that is quite profound. Even now, Amazon and others are offering full core services on a contracted basis. In the limit, these can extend right down to the demarcation point of physical implementations of radio access nodes. Regulators need to consider what actually constitutes a mobile operator. Neither is spectrum allocation as clear as used to be the case. Spectrum sharing between current operators is commonplace. Who may be allowed to share, or use spectrum and to what end is another question for regulators.
The New World Needs New Approaches
In the 5G world, exclusive access to spectrum is unlikely to be durable. Ownership of other than minimal infrastructure will not be necessary. Major players may not even need to own any physical infrastructure at all. Current mobile operators need to give urgent consideration to the role, or roles that they wish to play forward. Traditional barriers to market entry have been eliminated. Traditional strengths will not be adequate.
Enda Hardiman is Managing Partner of Hardiman Telecommunications Ltd., a consultancy specialized in strategy, due diligence and valuation globally. The company’s recent activities in 5G include new business model development in Europe, South Asia and South East Asia. Other assignments include assessment of the potential for 5G in business park and campus strategy, in implementation of smart cities and in natural resources automation. Established in 1997, Hardiman Telecommunications operates from facilities in London, Hong Kong and Singapore.