5G Networks: Why Telcos need to build businesses, networks for sustainable growth -Report

*Experts found the telecommunications firms and their investors expect new revenue streams to result from the buildout costs on 5G networks, as the new technology ‘has not delivered’ thus far

Isola Moses | ConsumerConnect

Telcos are over-invested in 5G in every sense of the phrase, according to industry analysts.

The latest mobile generation has fallen well short of expectations, as recent numbers from analyst firm MTN Consulting have indicated.

The study indicated the total operator revenue actually declined in the second and third quarters of 2022, largely as a result of weak service revenues, reports Light Reading, a newsletter of Informa Tech.

In Q3, for instance, service revenues sank 7% – a startling number given the post-covid recovery had already begun – while device sales grew 2%. Services account for nearly 90% of Telco revenues, so while the occasional bump in device sales is nice to have, it’s not driving the business, the study found.

The other part of this is the world-record capex.

Telco capital intensity reached 17.9% in Q3 2022 – an all-time high and up from 16.8% in 3Q21.

So, operators have been investing at a record pace but their business isn’t growing.

MTN also said: “Telcos, and their investors expect new revenue streams to result from these buildout costs. So far, 5G has not delivered.”

Paying attention to bottom line, ROI

Shiv Putcha, an analyst from Mandala Insights, opined the operators’ problems today are a legacy of the 3G era, when they invested heavily but prioritised connectivity revenues without grasping the shift in power to the big Internet players.

Putcha observed that almost two decades later, the players are still there as of now, with operators reaping increasingly “mediocre returns” on selling bigger data packages.

The expert, however,  pointed to some positive signals.

One is the development of common APIs through the GSMA’s Open GatewayOne Initiative, the latest but also the most sustained effort yet of turning networks into “something more consumable.”

The other is operators trying to make use of AI beyond network optimisation.

Putcha also cited an AI-powered remote veterinary image diagnostic system that SK Telecom showcased on its MWC booth.

SKT is one of the industry’s most forward-leaning operators. It’s been making headlines lately with its bold ambitions in not just AI but also in drones and the metaverse.

No question that these are risky bets and may blow up in its face.

But it’s notable that, like quite a lot of other Tier 1 Asian carriers, SKT has successfully made other, more proven bets in areas like payments, media and e-commerce.

A reason for this is the reduced presence of the US hyperscalers in these markets, opening up space for local players. But it is also because Asian businesses tend to be more willing than Western firms to stray out of their lanes.

This can lead to unwieldy conglomerates, but it also means they are better equipped to take advantage of emerging opportunities.

These operators have not been waiting for 5G to drive a path into new adjacencies.

“The report disclosed that too much of the industry has been expecting 5G will do the work of diversification for them; we see that in the massive capital spend.

“5G will likely drive revenue growth some time in the future. But so far it’s been a distraction.”

The report said the Telcos needed to focus their attention on building out their businesses as well as building networks.