Telecoms Growth – Enterprise Not Included

October 17, 2022

Written by Alex Lawrence

Omdia released a telecoms market forecast last week, looking ahead at global telecoms revenues for the next five years. The headline figure is that overall income is predicted to grow 14% between 2022 and 2027, but Average Revenue Per User, or ARPU, will drop by just over 4% in that time.

This might be cause to worry, given that the IMF’s October World Economic Outlook predicts global inflation of 8.8% for 2022 alone, with 6.5% and 4.1% predicted in the coming two years. It’s an expensive business, too; while NYU Stern’s figures for gross profit margin in the global wireless industry stood at over 56% for 2022, that drops to a mere 4.8% for net profit. Although there are quite drastic differences between operators and opcos around the world, we can see thin margins being squeezed for most CSPs.

“We don’t forecast inflation in our model,” report author Ronan de Renesse commented in a conversation with 6GWorld. “But we think mobile and broadband will be quite resilient to inflation and recession. Maybe less so in prepaid markets where people can cut back on usage to economise, and also in terms of handset upgrades. I think we’re quite realistic in terms of growth opportunities, however.”

Those growth opportunities are driven by three elements, according to de Renesse.

“We see this mainly being driven by the transition from DSL and cable to fibre broadband worldwide,” he began.

“Developing markets in Central and South Asia – Principally India – along with LATAM and of course Africa together make up about one-third of net additional revenues in the next five years. We see about 20%-30% growth.

“The third element is IoT, which makes up about 20% of the world’s connections today. Connections and revenue is growing at about 14% year-on-year, but still accounts for less than 5% of revenues. So maybe that will be an additional couple of percent in the next 5 years.”

Despite the hype and attention given to enterprise services in 5G, de Renesse is cautious.

“I know there’s a big question mark on enterprise. I have yet to see evidence of use cases driving growth,” he explained. “Enterprise is not the reason for growth in revenues in the next five years.”

Enterprise Challenges

This has to be doubly an element of concern for operators aiming to leverage an increasingly-connected environment to open up very different business models. Firstly, there is the striking lack of impact that 5G has had on the enterprise market so far. While it was largely expected that consumers would not pay more for 5G than 4G, new enterprise revenues from a more flexible generation of telecoms were a fundamental part of the business case.

Second, while IoT connections are growing, which must pertain to enterprises at least in part, growth is connected specifically to the number of connections. Enterprise services arguably can and should encompass data management, security, service management and much more, breaking the association between connections and revenues.

At last week’s 6GSymposium concerns over how to create and monetise new enterprise business models cropped up repeatedly, underlining the fact that the ‘build it and they will come’ approach to technology development cannot continue. Instead, the industry needs to be aligning technology endeavours with business and models

Stephen Rose, General Manager for Telecommunications at IBM, pointed out one of the greatest hindrances to telecoms sales of advanced enterprise services to date: the career path of telecoms sales professionals. Good consumer salespeople are accustomed to selling packages of data, texts, voice and phones. From there they progress to lead consumer sales teams, and then are moved to enterprise sales.

“Of course they’re going to sell what they know how to sell,” Rose commented. “How can we ask them to help propose and manage a company’s digital transformation?”

As a result, many telcos are partnering with the likes of consultancies, systems integrators and enterprise cloud providers who are better positioned to manage these processes; but in so doing are taking smaller shares of the market and of mindshare for the enterprise client.

Enterprise Service Creativity

The need for creativity in business models was a repeated factor in conversations. Verizon Robotics’ Chris Sherrick emphasised that, while new revenue opportunities are proliferating, the total revenue from any given new opportunity is incremental.

While the industry has discussed network slicing and guaranteed quality of service parameters for several years – capabilities which are still being developed – we shouldn’t overlook possibilities currently available to support applications with relevant data culled from the network. Amit Ganjoo, CEO of ANRA, a provider of ‘virtual drone traffic lanes in the sky’, was quick to give an example.

“There are some unique datasets available in the carrier network that can be monetised as a supplementary data source,” he pointed out. “We would be willing to pay a subscription service on a monthly basis for access to, for example, coverage data, which I can use for route optimisation.”

Meanwhile Ciena’s David Krauss highlighted the role that automation can play, and which is starting to gain traction. “I’m not going to go as far as AI/ML yet, but there are lots of tasks that need to happen which were traditionally done by people, such as provisioning, which are beginning to catch on because these really do make a difference.”

Looking ahead beyond 5G Dan Shey, VP for IoT at ABI Research, summarised the challenge ahead: “We have all these capabilities in 6G – all these knobs to dial up and down. How do we translate those into services? And when we look out at the ecosystem who’s going to be providing the capabilities to turn the knobs, and who’s going to be the big winner?”

Jesse Alton, Chair of the Open Metaverse Interoperability group (OMI) emphasised the flexibility of blockchain in a decentralised market to revolutionise the nature of B2B2C business models.

“If person x sells you a sword in the metaverse, person x can get a share, the maker of person X’s metaverse avatar can get a share, the maker of the sword can get a share, the maker of the environment you’re in can get a share, the host of that environment can get a share, and whoever else,” he explained. “Transactions which are impossibly complex in real life become simple matters on a blockchain.”

This creates scope for operators to engage in billions of microtransactions but requires them to offer something to metaverse participants. Security, quality of experience, identity management, location and much more are all candidates, especially where we reach into XR. However, operators will need to engage in a timely fashion with the people developing key elements of the metaverse, in order to have a stake beyond being the carrier of data.

However, this brings us back to the fundamental challenge in 5G, which thought leaders are emphatic cannot be replicated in 6G: the lack of a clear service proposition for enterprises, and especially smaller enterprises, as this article highlighted and which underpins Omdia’s predictions out to 2027. Four years since 5G deployments began, the enterprise market is still embryonic.

“When we look at 5G, and in future 6G, you have all of these services based on exposing APIs for functions,” Krauss commented. “5G is really just being rolled out [for enterprise] now; I don’t think people have had enough experience with what kind of services that might offer.”

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