Analyst plays down IoT revenues for operators and 5G hype

Written by on June 29, 2016 in Features with 0 Comments

internet of things IoTEven as Telstra announces an Internet of Things play for the consumer market, New Street Research principal analyst Andrew Entwhistle has cautioned that telco operators may find it
 hard to translate IoT hype into revenues – and in particular, that the emerging narrative around linkages between 5G and the IoT may be overblown.

And Entwhistle also sounded some warning notes around other aspects of 5G, most notably that it could terminally disrupt existing cellular business models.

Speaking at a 5G seminar in Sydney hosted by 
the Australian Communications and Media Authority and the International Institute of Communications, the UK-based analyst acknowledged that the IoT “is extraordinarily interesting to equipment makers and vendors, to systems integrators, to policymakers and to people concerned from the social role of communications services in our lives.”

“[But] there is an awful lot of noise about the IoT that doesn’t actually translate into, to put it strongly, a whole hill of beans to a telecoms operator that’s looking to sell services to achieve revenue per customer or revenue per device,” he added. “We’re essentially trying to help people strip that away from what we see as the key issue from an operator perspective, and therefore from an investor perspective in operators, which is the radio access network and the evolution of mainstream cellular services.”

“Every single area of human activity has some sort of IoT dimension attached to it now… I don’t want to be dismissive of those, but not many of those translate into a favourable opportunity for… telecoms operators.”

And while a number of large industry players – particularly in the vendor space – have highlighted IoT support as an intrinsic part of the 5G future, Entwhistle challenged this notion, saying that the IoT would not be a key area of 5G for telco investors.

“We think the linkage between 5G and the IoT is often more lobbying and positioning-driven than actually technically driven; there are plenty of things happening in the IoT in the 4G world and in the proprietary world which have their own momentum and way forward, [but] we don’t see exactly why 5G reaches into these areas in any particularly striking way… although they will certainly exist alongside one another,” he said. “There’s a danger that the umbrella for inclusiveness in 5G becomes too broad, we lose focus on what we actually mean by it.”

“[For example], the roadmap for automated driving, assisted driving and fully autonomous driving is only quite loosely linked to the roadmap for 5G – and yet if you read a lot of policy papers on this it’s almost as though they’re in lockstep, and there’s a mutual dependence, you can’t have one without the other. I completely disagree with that; I can see why it’s convenient to put them together, but I think from the perspective that we look at it it’s a distortion and a distraction.”

Entwhistle told CommsDay that one unnamed operator had claimed “‘we will have a thousand times as many devices, and we’ll only need a thousandth of the ARPU in order to build a business that’s as big as our existing business. That’s not a business plan; that’s just multiplying two numbers together and making a brave assumption!” said the analyst.

“I’m not saying no operators will do it; there are plenty of operators that will have local opportunities… [but] what I don’t believe is that an operator that has struggled to monetise IoT in a 4G environment will find it any easier to monetise in a 5G environment.”
MORE 5G CHALLENGES: On 5G more broadly, Entwhistle highlighted some key prospective features and advantages including the use of higher spectrum bands and wider channels, more efficient spectrum re-use through techniques like higher order multiple-in multiple out and beamforming, much higher capacity and much higher latencies.

However, he also noted specific challenges with many of these developments, such as the poor penetration characteristics of higher frequencies, and a current lack of experience in utilising higher bands. He suggested that 4G and 5G services would co-exist for the long term, with 5G to be deployed for additional capacity rather than as a full re- placement.

Current business models may not survive

Entwhistle also said that 5G would hugely disrupt current cellular models, with new licensing arrangements and possibly shared access needed to support an influx of very large amounts of high-band spectrum, and a need for much denser mobile networks. Perhaps most importantly, he suggested that the fundamental monetisation model of the cellular industry would need to change.

“At the moment we just about survive with mixing paid-for cellular usage and free Wi-Fi usage, because we kind of know what we did last month and why we’ve paid over- age, because we forgot to turn our Wi-Fi on when we watched that movie or whatever,” he said. “In the 5G world, you will have no idea what your phone has been connected to, the decisions on your phone connection over the month will have been made by the phone and the network, and the opportunity to either charge overage to somebody because of those decisions or to upsell them to a bigger data bundle because you think they ought to be paying more… you could argue that’s failing in the 4G world, but 5G [will be] the nail in the coffin. Basically, in a little burst of usage at 1Gbps, you could blow your entire bundle in about eight seconds!”

“So we’d really go as far as to say that in the 5G era, we don’t envisage the current cellular business model surviving. We’re not saying there’s a crisis now, [but] the trans- formation is such that operators will not be recognisable in the form and shape that we’ve been used to over the last twenty years or so.”

This article was written by Petroc Wilton and reprinted here courtesy of CommsDay.

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