Taking a fresh look at 5G – Biz and Market Implications III

The explosion of Apps, that started with the opening of the smartphone and creation of app stores in 2008, completely stole the service business from the Operators. 5G might lead to a similar situation determining the loss of access revenues to Operators. Image credit: SweetLabs App

The disintermediation of Operators

In the coming decade, connectivity will be commoditized and part of the connectivity will slip out of the hands of today’s Operators. It will be similar to what has been happening to services in the wireless world. Starting in 2008 the opening of the smartphones to third party applications, the (relative) ease of developing applications and the increased processing and storage capacity of phones completely disintermediated Operators in the provision of services. The explosion of service offering (and competition among service providers, OTT – Over The Top) dramatically decreased the price of services to the point that it became not economically sustainable for Operators to develop services. A service (an app) generating 5,000$ in revenue may be worth the effort of a 17 years old student, but would be a total loss of money for an Operator that has to face fixed cost making unaffordable any sales below several hundred thousand $ (and sometimes under a million $). By 2013 the game of service was over for Operators.

Today almost all services we are using daily on our smartphone do not generate any revenue to the Operator providing us the access (although one might claim that it is thanks to this explosion of services that users are willing to pay extra for data access…).

The loss of the service business was a direct consequence of the shift from analogue to digital, of the increased processing and storage capacity of smartphones and of the opening of the market of services at the edges. A similar situation will occur as consequence of the increase of connectivity offer, the shift of the control from the network to the edges, and the presence of a multitude of players offering access and connectivity as cherry on the cake that is their real business. Shops are more than willing to offer access to attract potential clients. They are seeing that cost au pair to advertisement and coupons… Their real business is in selling shoes or coffee.
For an Operator this is not the case. They are in business to sell connectivity, if that is not generating revenue they are left with the cost.

This evolution is in synch with the ongoing transformation seeing an increased “softwarization” of products (able to create and sustain a variety of offers continuously changing over time) and the transformation of products into services.

5G by exploiting more spectrum can multiply the capacity offered thus decreasing its unitary value, by allowing the control of the transport and session at the terminal side is making the network a pure empty pipe.

About Roberto Saracco

Roberto Saracco fell in love with technology and its implications long time ago. His background is in math and computer science. Until April 2017 he led the EIT Digital Italian Node and then was head of the Industrial Doctoral School of EIT Digital up to September 2018. Previously, up to December 2011 he was the Director of the Telecom Italia Future Centre in Venice, looking at the interplay of technology evolution, economics and society. At the turn of the century he led a World Bank-Infodev project to stimulate entrepreneurship in Latin America. He is a senior member of IEEE where he leads the New Initiative Committee and co-chairs the Digital Reality Initiative. He is a member of the IEEE in 2050 Ad Hoc Committee. He teaches a Master course on Technology Forecasting and Market impact at the University of Trento. He has published over 100 papers in journals and magazines and 14 books.