In the early months of 2020, the dark clouds of Covid-19 swept across the globe, and the International Monetary Fund warned of the worst global recession since the Great Depression. We now see several countries slowly starting to reopen after months of stringent lockdown measures. And despite the 4-month hiatus since the cancellation of MWC Barcelona, it’s time to get back to the important question of what CSPs will need to do to assure payback from their $1 trillion investment in 5G.
I believe that 5G will be an outstanding technology success. I’m just not sure it will be the CSPs who benefit from it? Whilst CSPs have proved invaluable during the Covid-19 crisis enabling communications and home working, moving forward, traditional connectivity services to the mass consumer market is not where the growth will come from. CSPs need to adapt to get their 5G strategy right which is a more difficult task during uncertain times. Below are a few thoughts on how this might be achieved:
Covid-19 has certainly put the brakes on the global economy, but not all industries have been hit with equal force. In adversity, telecoms have seen a bounce as they keep us all connected in lockdown. Organizations such as CSPs, network providers, cloud computing providers, collaboration tool suppliers, and many more are providing an essential lifeline to the enterprise, government, health organizations and households. In the first weeks of the lockdown, the CTIA for the US mobile industry reported data traffic for its members was up 9.2% and voice up 24.3%. US Telecom for fixed line said the average for its members was up 25%. Individual carriers like AT&T told the same story with its core network traffic is up 19%, Comcast saw its VoIP and video conferencing up 212%. Verizon reported that its VPN traffic was up 34%. How this reflects in revenue short and medium term is less clear.
Through their ability to provide steadfast connectivity, the crisis gave CSPs their moment to shine. However, solutions massively outsold products. In the same first few weeks, Microsoft Azure which powers communication platforms like Microsoft Teams, reported a 775% increase in usage in US locations. Cisco's Webex reported an unprecedented 2,400% increase. The winner by a long way however appears to be Zoom, using its cloud-based peer-to-peer software platform to keep business and households connected. Switching call centers and office workers to home locations would never have been possible without the wide variety of cloud-based solutions that enabled it.
It’s clear that now is the time for CSPs to evolve from selling standard connectivity products to selling pre-packaged solutions that solve genuine business problems.
The Covid-19 pandemic will make automation, digitizing the physical, enabling a work-anywhere economy and mitigating risk in supply chains, more relevant than ever.
It’s true that cloud services have proved their mettle this year. eCommerce, video conferencing, VOIP, file sharing and collaboration are all possible because of cloud and the scalability, flexibility and agility it brings to service delivery. The switch from on-premise to cloud has allowed businesses to connect and access business-critical data and applications from anywhere. They are fundamental to operational efficiency, effectiveness and employee productivity during the pandemic.
However, many enterprises will have learned a tough lesson through the pandemic that they aren’t driving their digital transformation fast enough. A recent Gartner study reported Global ICT is growing by 1.1% CAGR out of which Cloud is growing by 25% so cannibalizing existing ICT spend to take a larger slice. The pandemic will surely mean an acceleration towards migrating and consuming everything as a cloud service.
Static or even declining revenues may well cause some CSPs and other service providers to rethink their position on SaaS and cloud-based solutions. The ongoing resistance to adopting cloud native platforms, infrastructure, systems and software could well disappear versus the financial savings and the operational agility, efficiencies and advantages that they offer.
5G will open a world of new possibilities in SMB and Enterprise. Our survey showed that 72% of CSPs expect businesses to make up the lion’s share of their total revenues within two years (47% enterprise and 25% SMB). The challenge is that CSPs are still very consumer market orientated with only 31% of them now channeling investment into the enterprise. However, this downturn will likely influence the decision to switch investment from consumer to business markets more quickly. In practice, this means CSPs having to combine new 5G connectivity with cloud, IoT, VR/AR, Mobile Edge, AI and IT applications to create the new solutions that better designed to help Enterprises solve operational and business, digital and service wrappers they want to sell.
More than ever before, CSPs will need to get closer to their business customers in order to properly understand their needs and be more attentive and responsive on quality of service. 95% of businesses believe that building solutions with a partner ecosystem that better fits their needs is more important than 5G technology. The upshot is that they will only realize value from 5G if they can identify, partner, co-innovate, implement and run new cloud-based solutions with application-specific and industry specific specialists.
Building a partner ecosystem to access the complimentary capabilities needed to co-innovate and sell solutions is now key. CSPs that can orchestrate and master such a complex web of relationships will be capable of capturing a greater share of the over the top revenue that eclipsed them on 4G. They’ll not fall into the trap of being one of the many connectivity providers competing solely on price.
When the dark clouds of Covid-19 start to dissipate, the promise of enterprise 5G will still be there for the taking. A crisis is often an accelerator for change, so if CSPs can learn to master ecosystem orchestration, including joint go to market initiatives with vendors and cocreation with customers, they will achieve 5G transformational utopia.