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Upgrading to 5G: Revenue Opportunities for Telcos

Experts predict that 5G—the next generation of mobile broadband—will revolutionise the way our world connects, allowing greater numbers of connected devices to transmit data at unprecedented speed.

In addition to delivering faster data to phone connections, 5G is likely to have a material impact on a number of sectors, such as automotive, manufacturing and healthcare. The increased demand for connectivity may present significant revenue opportunities for telecommunications companies (telcos) in both the industrial and consumer markets.    

What is 5G Technology?

5G technology utilises a higher-frequency band of the wireless spectrum called millimeter wave that allows data to be transferred much more rapidly. The key benefits of 5G are:

  • Extremely high bandwidth, which increases the amount of data that can be transmitted in a fixed amount of time

  • Ultra-low latency, which decreases the delay in data communication over a network.

  • Higher reliability, which provides uninterrupted connectivity.

However, the drawback of millimeter wave signals is the shorter distance over which they can travel, which requires capital investment for additional infrastructure.

5G Use Cases

Beyond providing a better experience for traditional smartphone connections, 5G will support a set of brand new applications, which can be classified into three key categories with cross-sector impact:

  • Enhance mobile broadband, including enhanced indoor and outdoor broadband, enterprise collaboration, and virtual and augmented reality (VR/AR)

  • Ultra-reliable low latency communications, including autonomous vehicles, smart grids, remote patient monitoring and telehealth, and industrial automation

  • Massive machine type communications, including IoT, asset tracking, smart agriculture, smart cities, energy monitoring, smart homes and remote monitoring

Here we take a closer look at seven use cases for 5G:

Smartphones. The 5G smartphone business model will be similar to 3G and 4G, with telcos charging monthly fees for much faster network speeds. The first batch of 5G handsets is expected to hit the market in mid or late 2019. Telcos may charge higher monthly fees, but competitive pressures will play a significant role in pricing. From the perspective of telcos, 5G technology will enable them to expand network capacity in hotspots such as stadiums, exhibition centres and business districts.

Cloud gaming and VR/AR. Premium VR and AR experiences demand higher network speeds and lower latency than is possible on existing 4G networks. As current VR/AR content is skewed to gaming and video, the business model is expected to be similar to existing online video platforms with a combination of subscription fees and advertising revenue. For telcos, the consumer opportunity lies in migrating subscribers to faster speed networks, while the corporate opportunity lies in selling bandwidth.

Autonomous driving. Autonomous vehicles are still in their infancy, but the low network latency and good mobility features of 5G are expected to be key enablers of autonomous driving. In fact, autonomous vehicle data could increase global wireless by 40 times over current levels, delivering a boost for telcos.

Smart manufacturing. The massive number of connections and low latency of 5G will enable manufacturers to evolve to cloud-based control, which is critical for the seamless incorporation of AI or machine learning into smart manufacturing. In its early stages, smart manufacturing may only need network coverage in a certain area, but will require wider coverage when it evolves to end-to-end solutions.

Remote healthcare. Telehealth services such as remote diagnosis, real-time health tracking and medical robotics require uninterrupted connectivity and low latency, which can only be met by 5G technology. Beyond providing connections, telcos may play an expanded role in cloud-based big data or AI analytics services.

Drones. 5G will help drones transmit real-time HD video when moving quickly, adding value in the security, construction, energy, agriculture, transport and content production fields. The revenue opportunity for telcos ranges from pure connection service provider to integrated drone-as-a-service solutions provider.

Energy. The use of renewable energy will increase over the next 10 years, however solar, wind and hydro-electric power lack stability and are often unreliable. Only low latency 5G networks can support the intelligent distributed feeder systems needed to control grids accurately and quickly at a low communication cost.    

Keeping Tabs on Drivers of 5G Value

5G is expected to be the main share price driver for global telcos over the next decade, opening up new markets, triggering major changes in market structure and offering different pricing models. While the potential revenue opportunities in the use cases discussed above are still uncertain, 5G provides the potential return of pricing power for global telcos, and it is worth investigating which companies look likely to capture this value as 5G is rolled out across the globe.    

 

For more on 5G use cases for global telcos or a copy of our research report, speak to your Morgan Stanley financial adviser or representative. Plus, more Ideas from Morgan Stanley’s thought leaders.