Vertical diversification will be the key to 5G success for CSPs
The arrival of 5G represents a significant inflection point for the telecoms industry. In recent years, the industry has been marred by financial troubles as communications service providers (CSPs) have faced declining market share at the hands of internet content providers (ICPs) such as Amazon, Facebook, and Apple. Now in grave danger of becoming minority players in their own industry, 5G may be the last chance for CSPs to turn around their misfortunes.
Despite the lack of a clear “killer use case” for 5G, CSPs must move forward with deployments of the 5G network. Now more than ever, CSPs will need to have a clear plan for how they will monetize the network and get a return on their investment. One strategy that has emerged as a key priority for CSPs is the diversification of revenue by expanding into new industry verticals.
The little that we do know about potential 5G use cases indicates that much of the opportunity lies in serving the enterprise segment—offering industry-unique services like smart factory or smart agriculture solutions. Still, vertical expansion has a lot of associated risks. Organic expansion via R&D is time and cost exhaustive and building brand recognition and trust in a new industry takes time. Inorganic expansion via M&A can solve the problems around brand recognition and trust but is just as costly and is unattainable for most CSPs. In fact, building out a vertical offering or line of business altogether has significant implications on a CSP’s business agility. CSPs will need to meet the opportunities where they are, which means not being overly invested in any given vertical. CSPs will need to have the business and financial agility to pivot towards new industries as opportunities arise, and pivot away from others as opportunities wane.
So, how should CSPs approach vertical expansion? It starts with making a fundamental shift from the role of “connectivity provider” towards embracing the role “service enabler.” As connectivity providers, CSPs have treated the network as a utility and implemented utility-like monetization models, such as pricing based on the amount of data consumed. In a data-heavy economy, like we’ve seen in 4G and what we expect in 5G, this model is no longer viable. Embracing the role of service enabler, on the other hand, means focusing on the network as a platform on which partners and vertical industry experts can create services. This is how CSPs will be able to expand into multiple industries at once, deliver a wide-range of 5G-enabled services and do so in a way that minimizes risks and maximizes profit. Taking on the role of service enabler also affords CSPs the agility to seamlessly pivot towards new opportunities in different verticals.
Becoming a service enabler, however, will require some strategic investment in IT capabilities. According to Omdia’s 2021 ICT Enterprise Insights Survey, nearly 40% of CSPs plan to increase ICT spend this year and 90% will increase spend on billing, charging, and partner management solutions. As CSPs invest in capabilities to monetize 5G and support vertical expansion, they should prioritize tools to support the seamless onboarding of partners and vertical experts into their ecosystem to develop new services on top of the network. CSPs should also prioritize investment in charging systems (CCS) that are truly convergent and can support the rating and charging of any event or unit of measurement across lines of business and networks (i.e., 4G/5G). CSPs will also need to invest in a convergent (i.e., 4G/5G) policy control function to enable experience-based services, as well as a billing system that can support flexible billing models like subscription billing and bill on first use. Finally, CSPs should ensure IT systems are cloud-native. By embracing cloud-native technologies and operating principles (such as agile and DevOps), CSPs can ensure that they have the tools to operate at the speed and scale needed to be successful in the 5G era.
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