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

Free Mobile is offering free connectivity, 2h per months, for call in France and to 100 Countries, unlimited SMS and 50MB of data in 4G. Of course their model is to make money when you exceed those limits… Credit: Free Mobile

A lost battle

Obviously Operators don’t like this scenario and will (are already) build barricades to stop this evolution. They did it in Europe (with some success) to keep the charge on roaming but the battle is lost, as it was lost the battle on custom dues at the border of cities several decades ago.

Protectionism cannot last, particularly in the digital economy where the boundaries are feeble and easy to overcome. The technology evolution crumbles the protectionism walls, the faster the evolution the shorter lived are protectionist barriers.

For several years Operators have sung the mantra of “quality”, saying that only an Operator owning the network can deliver quality. It is not true with the present network, just imagine what will happen with an evolution, like the one expected from 5G, that will increase the capacity. Quality of Voice over IP was very bad 15 years ago. Skype was considered a marginal competitor since it could not control the network resources. In a few years the capacity of the network(s) has grown so much that the quality delivered by Skype is as good as the one delivered by Operators (and anyhow the low price charged to users – sometimes as low as zero!- as proved to be a convincing selling point for users).

On the other hand, 5G is not responsible for the crumbling of today’s Operators business models. These models have been deteriorating over the last several years. I am writing this post on a high speed train providing me with free WiFi connectivity. Curiously, when you connect to the WIFi on an Italian train you get a message saying: “connectivity is free during this trial period”. Well, the trial has been going on since 2012 and there is no sign the trial will terminate any time soon.

As a matter of fact you pay for that connectivity by buying the train ticket, and you pay for it even if you are not using it.  Its price is embedded and hidden to your perception. The Operators makes some revenues out of offering the connectivity service to Trenitalia, but it is peanuts in comparison to the possibility of charging access to individual users.

Likewise for the access provided by hotels. It started with the big international chains and it is now the norm wherever you go (at least in Italy). On flights you have to pay, although some airlines have started to offer free WiFi on their planes, like Jetblue and Norwegian. And it turns out that even on those airlines that want to charge you there is the possibility to “cheat” by using the gogo app and pretending to download a movie.

The point is that we are transitioning from an economy based on scarcity (of resources) to one based on abundance. You cannot duplicate atoms, it costs to procure atoms and to assemble them in the right way. On the other hand bits can be duplicated at will with (basically) zero cost and aggregating them in the desired way cost just for the first time, than it is free.

If you are in the business of selling bits you are not facing more cost as you are selling more bits. Hence, you can sell those extra bits at a low price since it will be pure margin. What you want is to sell tons of them, the more you sell the less you need to charge to make the same amount of money. But of course, the less you charge the more you will sell, hence the trend to a continuous decrease in price to the point of giving them out for free trying to capitalise on your ties to the users of your bits to generate revenues in other ways. And, in fact, this is what is happening. Of course, if you cannot find an alternative way to generate money you lose the game.

The 5G is an offspring of this evolution. Even the investment needed to create the infrastructures are no longer borne by few (Operators) but are shared among a multitude of players that are investing in those infrastructures for a variety of different reasons, not to generate revenues from the offer of connectivity and access.

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.