Who will capture the new value in the 5G Future X network era?
Networks hold the power to re-write future economics, and businesses that fully embrace the potential of 5G will have the best chance of increasing profits.
There’s a lot at stake for communications services providers (CSPs) as industry and businesses automate and our physical and virtual worlds converge. Today, industries are at varying stages of their digital journey — all sectors will be massively transformed as they become automated and exist independent of physical space and infrastructure. These changes open up a broad realm of future possibilities and re-configure economics to enable new growth, all driven by services with stringent requirements around performance, reliability and trust.
A foundational digital network fabric will make this realm possible by enabling intricate alliances and a techno-economic collaboration among global-local market players. In this new industrial world order, fresh roles will emerge around service creation, control and contextual service delivery. CSPs will have to adapt their monetization schemas and commercial models in order to win.
Rethinking strategic business value
We see this shift as the advent of the 4th industrial revolution. The laws of business survival are being redefined, and new competitive market models are being assembled. The question is: Will it change the game for CSPs, and what will the network’s role be in enabling new value?
We must accept that today’s CSP DNA is coded to provide network connectivity and services. So it’s hard to think about enabling new markets with enterprise and industrial services. Deploying automated end-to-end, pre-integrated, highly reliable cloud networks at scale can be costly and challenging. But it’s still critical for CSPs to look beyond the dumb pipe model and discover how to create new value in a 5G world. Without the right anchor, competitive playing fields will remain uneven, and the same old value paradigm is likely to prevail, where platform companies continue to extract the lion’s share of value.
Figure 1: Platform companies have outpaced CSPs in ROC
But there is hope! In the world of the 5G Future X Network, devices, platforms and services are all becoming one thing, or in other words, we will see the rise of cloud integrated networks that will reside at the edge. This transformation will present CSPs with opportunities to be part of the value, because — for the first time — the value resides in the network. That is, it sits on CSPs’ infrastructure, not running over the top. But who will own and control this future network, the ingested traffic and data, and what cost structures will make this vision viable?
Figure 2: Future X Network enables higher value creation
Quantifying the costs and rewards of advanced end-to-end network architectures
To gain insight into future 5G networks and cross-technology domain interworking, Bell Labs Consulting used techno-economic models to quantify the potential impact and outcomes of automation and the 5G end-to-end technology transformation. Our models predict that, despite brisk growth in network traffic, CSPs can reduce their overall TCO and significantly improve their time to market by adopting a pre-integrated, end-to-end automated network solution. In addition, CSPs can increase their overall profitability by providing digital value services on top of their traditional connectivity services.
Figure 3: A single-vendor, pre-integrated solution outperforms a multi-vendor solution
Predicting market winners with game theory
Using “economic game theory” formulations, our models also examined how differing network deployment strategies affect market performance and long-term success. We started with the understanding that virtualization, cloud technologies, unlicensed and shared spectrum, and new 5G network architectures have lowered the barriers to entry, giving platform players — or digital value players — an opportunity to compete with CSPs by providing edge cloud infrastructure and services, as well as the required connectivity services. On the other hand, CSPs can leverage the same suite of technologies and architectural options to access new value pools and drive growth
Our findings showed an important opportunity for CSPs to reshape future profits. However, conservative deployment choices, such as inaction and slow transformation, will lead to sub-optimal outcomes.
Figure 4: Recipe for success
As an alternate disruptive option, we modeled a new entrant in a given market, competing with CSPs that have differing levels of aggressiveness, when it comes to deploying an end-to-end, pre-integrated automated network and offering digital value services. Our goal was to discover how these choices shaped future profits in a competitive market.
The new entrant is assumed to be a platform company with various cross-sector digital businesses. It initially invests in new Future X Network infrastructure — and eventually dominates as it enhances control of the end-to-end value chain and leverages connectivity business to maximize the digital value proposition across markets and its eco-system. The two incumbent CSPs will see their overall network cost/GB drop, as they start migrating customers from their less-efficient 3G and 4G networks to the 5G Future X Network. However, the new entrant will operate at a much lower overall cost point. Moreover, the new entrant can get more value out of the digital value play from the start, compared to the incumbents who must set up the right partnerships and establish themselves as digital value providers.
Figure 5 shows a possible strategy for using a pre-integrated, end-to-end solution, which enables additional cost savings and deployment efficiencies. With this option, the digital value player can take a market profitability lead in year 5. This analysis is promising, because it shows the value of subscribing to a new recipe — existing market players can benefit from bold strategies to boost their own relative positions and promote economic growth.
Figure 5: A single pre-integrated solution promotes long-term success
Choosing market strategies that maximize new value creation
Clearly, CSPs must carefully define their market strategy, in terms of network platform evolution, business models and partnerships and/or acquisitions, relative to the competition. The choices they make will directly determine their ultimate market position and long-term financial success. Critical factors include how quickly and efficiently they evolve to a Future X Network architecture with high levels of pre-integration, virtualization and distributed cloud infrastructure, as well as dynamic end-to-end automation. A willingness to embrace new business models and abstraction of new 5G capability sets for start-ups and businesses can also play a crucial role in value creation.
 Gross profits only and does not include non-network related expenses such as SG&A, R&D, etc.