With an increasing demand for low latency connection, IoT devices, edge computing and streaming services, it’s estimated that global investment in 5G technologies could reach US$1 trillion by 2025. The world’s biggest telecoms operators have spent billions building their networks in recent years, but so far, most have little to show for their efforts. As the majority of operators in mature markets have given up attempting to monetize voice and SMS usage, data volume has become the latest price-defining parameter for most mobile users.
Worrying numbers on data usage have come from the latest Tefficient report, however. Mobile users across the 46 countries surveyed aren’t showing as much demand for data as they have in the past, and average revenues per user (ARPU) have fallen or remained stagnant in all but 9 of 21 markets. “Wireless carriers are all upgrading networking capabilities to the next generation of 5G, but that does not mean they are making money on the effort,” says technology industry analyst Jeff Kagan. “In fact, it may be surprising to learn that this upgrade is costing wireless carriers much more than they’re earning from it.”
As APAC is largely ahead of the pack when it comes to 5G penetration — representing 15.8% of mobile subscriptions in Hong Kong, 27.3% in China and 34% in South Korea — a closer look at telecoms activities and revenue here could be beneficial in predicting 5G, and subsequently 6G, ROI. Let’s take a look.
As the first country to roll out 5G services nationwide in April 2019, South Korea is perhaps best placed to give us an idea about 5G ROI. By September 2022, 72% of the country’s mobile data traffic was generated by 5G subscribers, despite them representing only 34% of the total SIM base. Data consumption per 5G subscription was 28GB per month, about 3.4 times that of the average 4G subscriber. Such news is impressive and bodes well for the industry, but how are the top telecom companies actually faring?
In its latest financial report, SK Telecom announced that consolidated revenue and operating income had increased by 3% and 18.5% respectively, with the number of 5G subscribers standing at 12.47 million, making up 53% of the total. Having seen growth in its Broadband and Media Business segments during the pandemic, the company released a number of new 5G pricing plans to increase customer choice and strengthen competitiveness. They’ve also launched a number of new products and services, ranging from cloud computing, to metaverse, smart factories and IoT solutions. SKT has pledged to continue developing 5G technology, infrastructure, products and services to “maximize corporate value.”
KT has also seen its profit margins grow, with revenue per user increasing by 1.9% from 2020 to 2021, mainly due to an increase in 5G subscribers. KT’s network covers the country’s key transportation routes, major cities, shopping malls and college campuses. By the end of 2021, the company reported 22.8 million mobile subscribers, 6.4 million of which were signed on for 5G. By Q3 of 2022, 5G subs had reached 57% of total handsets. In its annual report to investors, the company has been remarkably honest about its prospects for immediate ROI, however. Citing strong competition, the provider admits that it’s likely to incur significant expenses to implement the network improvements and acquire the additional bandwidth licenses necessary to keep up. Marketing expenses are also likely to fluctuate, while a class action lawsuits from hundreds of 5G subscribers alleging poor service could snowball further.
Hong Kong’s HKT is taking a softly-softly approach to further 5G investment after relatively subdued financial results. In its 2022 interim report, the company noted dampened consumer sentiment in the first half of 2022. The mobile business recorded 2% growth in services revenue to HK$3,647 million, driven mainly by strong demand for broadband services and growing adoption of 5G by both consumers and enterprises. Post-paid 5G penetration is only at 26%, however, even though HKT has extended its 5G services across the territory’s entire MTR network. While capital expenditure has dropped thanks to the completion of the territory-wide rollout, HKT is not planning to plough too much further investment into 5G. “The Group will… prudently invest in expanding its 5G network while taking into account the prevailing market conditions using assessment criteria including internal rate of return, net present value and payback period,” the report reads.
China’s three most established telecom providers China Unicom, China Mobile, and China Telecom are all making rapid progress with their 5G rollouts. China Unicom achieved mobile service revenue of RMB84.9 billion in the first half of 2022, representing a YoY increase of 3.4%, largely thanks to the strengthening of 5G products and services. Working in partnership with China Telecom, the two companies have built the world’s largest shared 5G network, adding 180,000 new 5G base stations to reach a total of 870,000, and 90,000 new 5G distributed antenna systems for a total of 200,000. China Unicom has also launched new 5G smart life and smart home applications as well as a 5G New Calling and elderly exclusive service. As of the end of June 2022, China Unicom had 320 million mobile billing subscribers, within which were 184.92 million 5G package subscribers, up by almost 30 million from the previous year. 5G penetration reached 58%, with APPU remaining stable at RMB44.4.
China Mobile sees its digital transformation services — namely the rapid growth of smart home, mobile cloud, information business services and 5G solutions for vertical industry sectors — as a key growth driver. The company’s digital transformation revenue grew by more than 39% YoY to reach RMB 110.8 billion, contributing 26% of telecommunications revenue. China Mobile has been investing heavily in augmented reality, cloud games and ultra HD for consumers while launching an additional 300 5G commercial projects across multiple sectors to reach a total of 11,000. China Mobile’s digital governance solutions are also being used in nearly 200 cities across the country. In the first half of 2022, 5G-related investment totaled RMB58.7 billion, and the company is already claiming R&D breakthroughs in more than 10 key 6G technologies. By June last year, China Mobile’s customer base reached 970 million, 511 million of which were 5G package customers, representing a net increase of 124 million. ARPU reached a very respectable 52.3 RMB, up 0.2% on the previous year.
China Telecom, meanwhile, has been working hard on enhancing its 5G network coverage and optimizing the experience of applications such as cloud VR/AR, cloud games and ultra HD while introducing new products such as 5G messaging, 5G New Calls and quantum-encrypted calls. Its industry applications have also been gaining ground, with the company focusing on backhaul transmission and remote control equipment to facilitate industries such as industrial internet, Internet of Vehicles and smart healthcare. In the first half of 2022, China Telecom secured more than 1,300 new 5G network project contracts, an increase of 80% YoY, bringing the total to 9,000. There’s no doubt China Telecom has been spending big, with network operations and support expenses amounting to RMB70,051 million in the same period, marking a 9.6% YoY increase. Marketing and administrative expenses also shot up 11.4% to RMB32,026 million. Revenue looks pretty healthy, however, reaching RMB99 billion, an increase of 6% from the same period the year before. China Telecom’s total number of mobile subscribers reached 384 million, including 232 million 5G subscribers, marking a penetration rate of more than 60%. ARPU amounted to RMB46, maintaining the company’s previous growth momentum.
Annie Morris, Editor in Chief of Canadian business magazine, Made in CA, recently interviewed 10 APAC business owners about ROI in 5G. She says the region’s telecoms companies are still unsure if the money they’ve invested will be recouped by the revenue streams they expect. “ROI from 5G may come directly and indirectly through increased customer engagement and uptake of services, such as streaming video content or the enhanced speeds brought by 5G coverage,” she says. “Whether or not it actually materializes is the critical question for many industry players as they consider whether or not to invest heavily in 6G cellular networks.”
The massive expenditure is perhaps just the cost of doing business. In order for APAC telecom companies to reap returns on their investments, they must ensure their 5G infrastructure is successful and efficient. Any carrier that doesn’t put up and keep up will lose market share of 5G, and, no doubt, 6G down the line. If anything can be learnt from the story in APAC so far, it’s that ROI of 5G is also dependent on enterprises, institutions and governments using the platform to support digital transformation. After such huge investment, it’s critical that 5G stakeholders across the world develop new value chain positions and business models that take advantage of the technology.
Even for those countries and companies at the forefront of 5G, however, the windfall may still be a way off yet. “At some point, 5G will earn more profit, but not today, not yet,” says Kagan. “First, we have to pave the road. Then we can use it to drive on.”
Historically we have seen generations of mobile follow this pattern – taking the best part of a decade to recoup the costs of deployment. However, there seems to be little enthusiasm to repeat this cycle with 6G – for example, last year the IET and OFCOM both called for 6G to be designed as a rolling programme of backward-compatible improvements to 5G networks, not a new start.
To pick up on Kagan’s analogy, this approach would enable operators to ‘upgrade roads’ where they see a demand and a business case.
Crystal Wilde is a journalist and content marketer with more than 13 years professional experience in Asia, writing and editing across a wide range of topics.