How Communication Service Providers Can Drive Change in the 5G Market and Reap Rewards beyond the Value Chain

Communication Service Providers (CSPs) are probing new 5G growth avenues and business models that look beyond where the money is in the value chain, to where it will be in the years to come. To seize this enormous market opportunity, CSPs will need to focus on both the upside and downside, laying out and assessing clear trade-offs, and setting their organizations on a path that flexibly drives change in line with the ecosystem dynamics covered in this resource.

Market Overview

• ABI Research estimates that overall consumer Mobile Broadband (MBB) software revenue is forecast to increase from US$678 billion in 2020 to approximately US$1 trillion in 2027, at a Compound Annual Growth Rate (CAGR) of 8%.
• The consumer domain provides short-term growth, but CSPs seek to go beyond consumer revenue streams. The challenge, therefore, is how CSPs can consciously shape a process that, if not successful, does not cannibalize existing consumer business.
• ABI Research projects that 5G private networks (enterprise) revenue is forecast to increase from US$992 million in 2022 to approximately US$45 billion in 2030, at a CAGR of 8%. The value at stake includes hardware and professional services for the Radio Access Network (RAN), core, and edge.
• Today, broadly speaking, the Business-to-Business (B2B) domain makes up 20% to 30% of CSPs’ overall revenue. The expectation is that 5G private networks will add to that share significantly in the coming years.
• ABI Research estimates that overall 5G network security revenue for CSPs is forecast to increase from US$1.1 billion in 2021 to US$3.1 billion in 2026, at a CAGR of 23%. In the enterprise domain, 5G network security revenue is forecast to increase from US$850 million in 2021 to US$6.1 billion in 2026, at a CAGR of 48%.

“The marketplace increasingly demands that Communication Service Providers (CSPs) accept software innovation, take prudent risks, and pursue new growth by expanding existing consumer footprint (increasing scale) and/or venturing into new digital and software growth areas (increasing scope).” – Don Alusha, Senior Analyst at ABI Research

Key Decision Items

Invest While the Base Business Is Healthy

Broadly speaking, success stories of corporations that have transformed themselves follow the same trajectory. They do not capture new revenue streams by reshaping the business models of existing business lines. After all, no product grows forever. Even healthy existing business lines should be readjusted eventually as the underlying ecosystem matures. Therefore, standing still in existing business is not an option. Rather, to keep the growth engine running continuously, there is a need to establish iterative growth processes in the base business and, importantly, outside of it. CSPs must start investing before there is a need to. Elisa, Telefónica, and TELUS are among a growing group of CSPs that have launched new-growth businesses while the core is still healthy.

Start Early, Start Small, and Demand Early Success

In business, as in most other undertakings, nothing big starts big from the onset; tomorrow’s whale is today’s minnow. Offering high-value digital and software solutions is no doubt tomorrow’s whale for CSPs, but it is one that will require time and effort to yield results. CSPs must start early, start small, and be patient for growth, but impatient for profit by demanding early modest success as they commercialize new digital offerings. For example, as contemplated in this ABI Research market intelligence report, CSPs need a clear sense of the commercial boundary(ies) they currently serve and new revenue growth opportunities that fall within—and outside of—it. CSPs must take a big fish, small pond approach to generate growth in new avenues outside of their existing consumer domain.

Plan from the Bottom-up and Innovate the Operating Model

With 3G and 4G, there are a few touchpoints with consumers, and they are often viewed as an abstract entity. By contrast, with 5G cloud and software, CSPs’ prospective customers define quality within the context of specific outcomes they wish to achieve. For example, in the retail industry, for Sainsbury’s, the second largest chain of supermarkets in the United Kingdom, the requirements are speed of checkout and increased digital shopping. Consequently, CSPs must learn how to drive value bottom-up and innovate their operating model. What customers need is the starting point. Their business outcomes set CSPs’ tech agenda.

Stand Astride the Mainstream/New-Growth Interface

CSPs face challenges with how to drive new growth in tandem with their base business. It is hard for a commercial entity to continue to compete in its traditional mission, and at the same time take a position to create value in a new mission. CSPs must acknowledge that processes honed for the mainstream consumer domain are not sharpened to make judgment calls outside of it. CSPs must come to grips with how to separate the interface between mainstream and (new) disruptive growth business. The idea is that new growth forays should fit the organization’s operating model, or they may hit a roadblock.

Reframe the Approach to Risk

The CSPs of the future will be defined by how they act now to potentially lose out on low-risk, short-term gains to seize high-risk, long-term growth. CSPs should lay out and assess trade-offs by evaluating risk across two dimensions: sustaining innovation and disruptive innovation coming from 5G and the cloud. The former does not require a change in behavior, but it does not create new markets. The latter holds the potential to create new markets, but the opportunities it introduces go far beyond disruption. It is about new behavior and overall organizational maturity. CSPs must use 5G and cloud innovation to reframe their approach to risk and drive their own organizations to question the existing way of doing things.

Assert a Position, Do Not Derive One

First, it is not so much about the technology CSPs have at their disposal for revenue diversification. Rather, it is about vision and a clear sense of direction. If CSPs do not know where they are going, they will end up somewhere else in the emerging robust marketplace. In terms of achieving new growth beyond MBB, CSPs must be change agents, constantly driving their standing in the market. CSPs must be proactive in asserting the position they want in the ecosystem, as opposed to deriving one from what the market provides. It takes courage, it takes time, but above all, it takes superb execution. Getting it done, getting it done right, and getting it done better than their competitor will be a defining success factor for CSPs.

Key Market Players to Watch

• Airtel
• BT Group
• China Telecom Corp Ltd
• Deutsche Telekom
• Elisa
• Google
• IBM Corp
• Lenovo
• MTN Group Ltd
• Orange Business Services
• PCCW Limited
• Telefónica
• Telenor Group
• Telstra Corp Ltd
• TELUS Corporation
• Turkcell
• Verizon
• Vodafone Group

Dig Deeper for the Full Picture

Gain a richer, action-oriented analysis surrounding the 5G market by downloading ABI Research’s Operator Growth Strategies: 5G and Network Automation Beyond Consumer Markets report.

Not ready for the report yet? Check out our 5 Ways for CSPs to Succeed on the 5G Core (5GC) Network Front Research Highlight. This content is part of the company’s 5G Core & Edge Networks Research Service.