INTERVIEW: 5G SUCCESS IS IN OPERATORS’ HANDS, BUT ONLY IF THEY LEARN FROM THE PAST
Ericsson has been monitoring the changing consumer market as operators evolve beyond unlimited offers and buckets of data to service-based products. It has found there are lessons to be learned if operators are to capitalise on 5G. Mobile World Live talks to Greger Blennerud, Strategic Marketing Director at Ericsson.
Strategic Marketing Director Ericsson
How are the different kinds of consumer proposition changing?
The overarching change that we're seeing is more choice for consumers. Almost everybody is doing a bucket model, where you are selling gigabytes, but we're seeing an increase in variations on this, like shared data plans. The United States for example has made shared data plans a big thing and they have been quite vocal about the benefits of it with reduced churn etc.
We're also seeing some of the new things like service-based packaging that have had quite a rapid increase in take up. Indonesia was the first place where I saw it with Telekomsel. They were targeting low end segments, with really cheap, like two cents or three cents per day, packages where you could use one or a couple of social media services.
Thinking forward, 5G’s capabilities will probably trigger innovation in areas where you need high performance. We may see service-based packages for streamed gaming, for example, which has several times higher bandwidth demand than video streaming today, very low latency requirements and so on. Then there's also fixed wireless access, that's increasing very rapidly.
You might say the choices are making life more complex to consumers. As you get more choices, it comes down to the way it's presented to the consumer by operators, how they structure their consumer websites and so on. For example, I know some operators don't just sell service-based packages to everybody; they actually target those with medium to low packets as an add on. They do it directly and they have huge success, in some cases 10 times higher take-up rate for that package than any other package that they have.
Which particular products are growing the quickest and why?
In pure numbers, fixed wireless access is showing highest growth. It went within a year from 104 operators offering it to 185. Sixty per cent of operators have FWA on offer, compared to only 40 per cent 14 months ago. Service based packaging went from 71 operators to 123, as more and more are experimenting with the proposition, and it has now overtaken unlimited. If you look at the higher end, where operators are offering unlimited streaming, GB limited streaming or time limited streaming, it's more than doubled from 37 operators to 85 operators in just over a year.
The device space also shows very high growth and I think that's an area that is similar to service based. When you're selling a bucket or unlimited, people need to somehow translate their cost into what value they can get from it. But when you're talking about a service-based package around video for example, which is the most popular area, you're talking about a particular service that already has a very clear value to the consumer. Similarly, if you look at device-based products - if you want to track your kids, or your dog, for example - it's so much easier to explain the value. You don't have to talk about the bytes and the bits and everything. You just talk about that value. And what we're seeing is that operators are able to capture a higher value doing that.
What else is driving growth behind service-based offers?
I mean, it is all about what you are able to do with your connection. And people come running to the stores because Apple, Samsung and others are marketing their cool devices. And even more importantly, it's about the great stuff you can do when connected; YouTube, Spotify and Netflix etc. But at the same time, without the operators' service there wouldn't be any of this, so it is a whole ecosystem.
I think operators are trying to find ways to capitalise on all these cool services. We did a Consumer Lab study that explored various 5G services, how much consumers would be willing to pay and the expected time they thought they would hit the market. And they felt the services were bubbling, they were coming. Of course, we have gaming and some of those areas that are near term. Others like drone delivery etc are longer down the line. But most of those could be capitalised upon by using service-based packaging.
That's why there are these operators that are offering these products now by starting with video and music. They're learning how to price and market the packages and they're also teaching consumers that this is the way for the future. Then it's going to be natural when they launch the 5G gaming pass, or the 5G video conferencing package or the 5G virtual reality museum package or whatever. The nice thing about it is you don't need to own the service yourself. You're wrapping around somebody else's highly successful service.
How quickly is 5G hitting the market?
On the network side, I'm sure it's not too early, but I think they should think a little bit harder on how they launch it and make it more exciting. I think that's where I see kind of a lack of innovation. There are little things that are being done, but at the same time I can understand that you don't want to push too hard before you have good coverage. It's a bit of a balancing act.
What we've seen is every new generation gets deployed and the take up is much quicker than the previous one. When 4G was launched, people were learning. And I think there were even operators who were hesitant. But 4G clearly showed the consumer what it was really about. It was a big change, a big shift in the performance and the experience. And to that end, 5G is maybe not going to be as revolutionary if we're just looking at the smartphone because it won't change the quality of the video that you're watching, for example, but it clearly did with going from 3G to 4G. But through doing speed tests, 5G is a revolutionary step. We are now talking fibre in the air.
At the same time I think the market has never been as ready as it is today for 5G. Devices and chipsets are there [and with] the fantastic penetration we have on smartphones, everybody understands what it's all about. Operators have learned the pricing model. Everything is ready for 5G.
How is it being positioned at consumers?
If you look at the launches today on 5G, most of them are quite boring, to be honest. Here's 5G, it's faster, it's better. But if you said here's 5G, it's faster and here's a gaming service that you can buy together with it, here's a VR package you can buy, you can show them directly your proposition, here's what it's all about. I think that's what they've been able to do in Korea so well. They've been really talking about all these cool new services in a way that has got the whole market excited. And that's why we've been able to see such dramatic take up and large enough 5G base that we can see an ARPU uplift there.
Is 5G able to generate the necessary revenue uplift?
What I think is key here is to make sure you don't do what happened in the past. There was a bit too much focus on trying to capture subscribers and not really thinking about maintaining price levels. Many markets in Europe in particular were nearly destroyed because of that. It's only been in the past year or so after hitting rock bottom that they are recovering. But there are markets still struggling to generate any growth.
I think the challenge here is to look at how they compete and whether or not they're going to be sensible enough to do things slightly differently. I've asked the question to operators about whether they know what the price sensitivity of a smartphone user really is. What would happen if you doubled the price? Would people stop using it? No way. There would be a slight drop but there's so much value in the market. The base that they already have is pumping in money into the machine.
There's been much talk about industry - 5G is what's going to save the operators. The consumer market was almost forgotten in these discussions, but it's the consumer market that's going to pay for everything in the future. It is the bulk of the revenue of all operators today. Maybe in a couple of years, we'll have seen other parts grow to be a significant part of the revenue, and there might be more margin in that. But succeeding with 5G is all about how operators play it and that's in their hands.