The Changing 5G Value Chain and What It Means for Mobile Service Providers

While commercial 5G is being deployed in more and more countries as we head toward 4Q 2019, associations and regulators across the globe are working on how to make 5G more attractive to enterprise verticals. One of the central demands coming from potential implementers, as well as associations like the 5G Alliance for Connected Industries and Automation (5G-ACIA) and the 5G Automotive Association (5GAA), is the provision of a dedicated spectrum band for 5G so that enterprises would not have to use public network frequencies for their deployment projects. Since more and more regulators are realizing the gravity of this demand, there are now different models for how to satisfy the need for a different spectrum allocation for cellular networks.

One of the first cases of this was the German regulator Bundesnetzagentur (BNetzA) announcing that it would dedicate a 100 MHz spectrum band (3.7 GHz-3.8 GHz) to enterprise use cases exclusively. These frequencies would not be auctioned to network operators, but rather given to enterprises directly through the BNetzA upon application. This model is becoming increasingly popular and being copied by a number of other European countries. Another example is the Citizen Broadband Radio Service (CBRS) in the United States, which was the first of its kind globally: a 150 MHz spectrum band (3.55 GHz-3.7 GHz), traditionally used by the U.S. government for radar systems, is now being made available for enterprise use cases by the Federal Communications Commission (FCC). While these developments have been unequivocally welcomed by prospective technology implementers in different enterprise verticals, it is interesting to look at how these spectrum allocations affect the value chain associated with 5G and what this ultimately means for Mobile Service Providers (MSPs) and their business models. 

While all of these spectrum dedication policies differ in their specific characteristics, they have one common attribute: they all change the landscape of the 5G value chain. In other words, they put technology implementers into a more central position in the 5G value chain. Looking at the German case, for example, an implementer in the Industrial Manufacturing vertical can apply for the spectrum band at 3.7 GHz, set up its own network with the help of network infrastructure suppliers, and then operate this network completely independently from any public network and any network operator. Yes, this might be a very extreme example, but it illustrates a key point: with these new spectrum assigning policies for enterprise verticals, network operators can not solely rely on their business models to sell connectivity—i.e., Infrastructure-as-a-Service (IaaS)— and might therefore lose their guaranteed spot in the 5G value chain (which is a much different situation than the one in the consumer market, where MSPs will remain in their central position because they can continue to rely on selling connectivity).

In fact, we can see this happening in recent 5G deployment projects already: German car manufacturer Mercedes Benz is currently working on setting up a standalone non-public cellular network (prospectively running on 5G) with the help of Telefonica Deutschland. After commencement, however, the operation of the network will be handed over entirely to Mercedes-Benz Cars, so the involvement of network operators will end at this stage.

In order to preserve their spot in this changing value chain for 5G, MSPs need to adapt their business models. For, trying to replicate the business model from the consumer market—providing connectivity (IaaS)—and therefore forcing enterprise verticals to use the public cellular network might well be the end for 5G in the enterprise verticals market, as it is has been said within the industry. Consequently, this would not be in the interest of network operators.

Instead, MSPs need to adapt to this changing landscape and accept their role as a partner to implementers in the enterprise verticals. In other words, MSPs need to put the implementers’ requirements on a 5G network at the heart of their efforts. One way to do this is to accept a partner role in setting up the cellular network (as Telefonica Deutschland has done with the Factory 56). A much more durable way, however, to ensure network operators’ continuous enjoyment of profits from the 5G value chain is to utilize network slicing: installing a public network and dedicating one slice entirely to use by an enterprise client creates what in some literature has been coded as a “non-public network hosted by a public network”. Deutsche Telekom is on the forefront of this development with its deployment of the first of the so-called “campus network” on a factory floor at one of lightbulb manufacturer Osram’s production sites in southern Germany earlier this year. All of this requires a close connection between MSPs and potential implementers to determine exact requirements for the non-public network slice as well as possible deployment solutions.

MSPs have not lost their position in the 5G value chain yet. However, it is crucial that they move toward these enterprise verticals to understand their specific needs and enable them to tailor network architecture to those needs.