After large-scale 5G deployment began globally in 2019, more than 2 million 5G base stations had been deployed by the end of 2021 marking the time when 5G had entered commercial use at scale.
China has installed 1.42 million 5G base stations, accounting for 60% of the world's total, and launched more than 10,000 5GtoB application projects that are already creating business value. The nation is now positioned as a global leader in 5G and continues to make breakthroughs.
The development of the ICT industry is driven by both market demand and technological innovation. As the industrial Internet becomes mainstream, national strategies, especially those of China and the US, are becoming the primary driver of 5G deployment. China has outlined a 5G blueprint with advanced infrastructure, aiming to drive social and industrial transformation and complete intelligent digital transformation through 5G. With policy now serving as the biggest driver of industrial progress and evolution, how can carriers coordinate national and industry strategies, create new business models for industries, and realize business value?
Insight: Five waves of digital evolution and trends
Looking back at evolution in the 4G-based mobile Internet era, the mainstream services that dominated the market during the first and second waves of digitalization were clear to see. The first wave revolved around 4G-based lifestyle portals and the second on mobile short-video applications. Given the evolution of major mobile Internet services, it is essential that the development of the 5G industry runs parallel with applications and devices in vertical ecosystems. The key control points are customer experience and high-value applications, as shown in Figure 1.
Figure 1: 5GtoB,business value
In the third wave of digitalization, the 4G + short video model coupled with the pandemic spurred live video streaming and converged fixed-network video services, like Zoom, DingTalk, and WeLink, to gradually mature and become widely adopted. In turn, converged video is a booming mainstream application of 5G that is driving the development of the gigabit 5G market.
AR/VR applications and device innovations in markets such as the US, Japan, South Korea, and China, are seeing rapid breakthroughs that are shaping the fourth wave of digitalization. The large-scale commercial use of AR/VR is expected to reach a tipping point in the next two to three years. High-order 5GtoB application innovations are maturing through iteration, and are expected to reach a tipping point of value creation within three to five years, which will shape the fifth wave of digitalization.
Current mainstream markets are still going through the third wave of digitalization (the large-scale commercial use of convergent video services), which is seeing two main trends in the global market: (1) Digitalization is making its way to emerging markets (EMs), (2) Digitalization is being deeply integrated with enterprise/industry services in developed markets (DMs).
Carriers can achieve rapid growth only by identifying and gaining insights into mainstream markets and accelerating application-driven and scenario-oriented transformation.
Four high-value scenarios drive commercial 5G for industries
Today, typical examples of 5G business value can be seen in all major markets worldwide.
- China shows outstanding performance in both monetizing 5GtoC traffic and innovating 5GtoB business models.
- Europe and the Middle East have formed a virtuous business cycle in developing fixed wireless access (FWA) services.
- South Korea and Japan have made innovation breakthroughs in AR/VR applications.
- Europe and the US have facilitated single-point industrial Internet applications and solutions.
These success stories are driving the adoption of commercial 5G by industries (Figure 2).
Figure 2: Four high-value 5G business scenarios
High-value business scenario 1: Collaboration between 4G and 5G consolidates and improves the 4G market landscape. In the Chinese market, 5G has surpassed 4G to become the dominant telecom service in the mobile Internet era, which has profoundly impacted the existing 4G market landscape. 5G is also driving the upgrade of the mobile Internet monetization model, shifting it from user-volume-based to traffic-based. In China, there are 1,425,000 5G base stations and 5,820,000 4G base stations, and the traffic generated by 5G accounts for more than 20% of the total (Figure 3). The pandemic has spurred convergent video services, such as live streaming and enterprise videoconferencing, to rapidly mature and grow in industries like education, healthcare, and government services. 5G's dataflow of usage (DOU) in China quickly surpassed 4G's best-experience DOU (5 GB), reaching 11.7 GB in December 2021.
A combination of 5G and 4G maintains or enhances the optimal network experience. When network resources are fully utilized, the technical and traffic throughput capabilities of the 5G network will ensure a 50-GB best-experience DOU, a tenfold DOU increase from 4G that is in line with generational evolution. Coordination between 5G and 4G is changing the baseline of competition in the mobile Internet market, and 5G is already reshaping the market landscape for carriers in terms of mobile Internet services. Simply put, whoever has a stronger 5G network will gain a larger user market.
Figure 3: 5G starts to change the market landscape from the 20% tipping point
High-value business scenario 2: Developing FWA to replace 100 Mbit/s fixed networks. 5G is replacing fixed optical network access in application scenarios both inside and outside China, such as 4K/8K live streaming, which is becoming another key application of 5G as it realizes its business value (Figure 4). In remote regions of the Middle East, Latin America, North America, and Europe, where optical fibers cannot be deployed, the 5G-based FWA solution is replacing fixed access. This solution features fast deployment and low cost, increasing market penetration and rapidly improving the landscape of the fixed-mobile convergence (FMC) market. The current 100 Mbit/s rate satisfies user-experience requirements of major home services like HD large-screen video and gaming, and carriers like STC and Zain in Saudi Arabia and Sunrise in Europe are providing such services.
Figure 4: 4K/8K live streaming application supported by the 5G FWA solution
High-value business scenario 3: AR/VR as typical 5GtoC applications. The development of 5G in South Korea is taking on new features. Leveraging 5G's high speed and low latency, and working with the country's world-leading AR/VR industry, South Korean carriers like LG U+ have created innovative 5G-based AR/VR applications and put them into commercial use at scale. AR/VR applications have helped increase the DOU to 30 GB and the average revenue per user (ARPU) by 37%, creating a genuine 5GtoC application market.
High-value business scenario 4: Innovative 5GtoB applications and solutions are making major breakthroughs in the industrial Internet. Carriers such as China Mobile and technology companies, such as Huawei, Alibaba, and Tencent, have all participated in 5GtoB innovation: In 2021, more than 10,000 5GtoB innovation projects were underway in China, indicating a vibrant market. Preliminary solutions, new forms of business, and new applications of 5G are now taking shape in industries such as ports, mining, iron and steel, and power grids. The core forms of 5G business for many projects are maturing and emerging as world-leading, shaping an ecosystem of innovation.
Among the aforementioned four high-value business scenarios, scenarios 1 and 2 are a continuation of the 100 Mbit/s pipe model, which is limited as the growth of the world's population and connections are approaching a bottleneck. Therefore, a major breakthrough in realizing the value of 5G can be made by leveraging the unique features of 5GtoB to develop ecosystem-based vertical solutions, break the limits of vertical growth, and develop a new growth model based on intelligent digital platforms.
5GtoB unlocks the blue-ocean vertical market
In 2021, the fourth wave of strategic digital transformation represented by AR and VR attracted the attention of the industry and gained massive investment from the capital market. The involvement of Meta and Microsoft in this market stimulated an upsurge in the 5GtoC industry. The majority of new players worked to develop hardware and software technology solutions spanning devices, networks, platforms, and ecosystems for new applications. In 2022, the industry's enthusiasm for AR/VR leveled out, guided by a general realization that another two or three years were needed for the hardware and software to mature before reaching the tipping point (e.g., visual immersion) of user experience, and for the true value of the market to be realized.
As a result, the focus of vertical market growth has returned to 5GtoB scenarios. Some of these scenarios have higher and more complex technological requirements, which simply cannot be addressed by existing technologies. However, opportunities for breakthroughs in 5GtoB lie in the fact that many industries in China still need low- and medium-level solutions based on simple technologies for simpler scenarios. This is supported by the case of mobile payments seen in the mobile Internet era, where China was able to surpass the US in the use of mobile Internet technology.
Breakthroughs in vertical solutions must start from low- and medium-level scenarios, integrate connectivity technologies such as 100M, 5G, and gigabit optical networks, and then integrate AI, big data, cloud, security, IoT, and vertical technologies (ABCSIV). The aim of these efforts is to develop applications that deliver experiences similar to those provided by smartphone operating systems and apps, meaning the development of vertical solutions that run throughout technology chains (Figure 5).
Figure 5: 5GtoB solution innovation
Breakthroughs in vertical solutions will help carriers find their place in terms of value within a new blue ocean, transcending the user-volume-based and DOU-growth-based monetization models. Gaining solution capabilities will help carriers build leadership in intelligent digital platforms and then use these platforms to shape new PaaS- and SaaS-based profit models. Such models are essentially data-based monetization models, as the core capabilities of the platforms lie in data technologies (DTs) like cloud, big data, artificial intelligence, and security. Application innovation based on platform-enabled ecosystems will allow carriers to share revenue from intelligent digital applications for verticals, which can be seen as information-based monetization.
The digital intelligent transformation of carriers focuses on innovating vertical solutions and digital transformation underpinned by digital transformation during the development of the new industrial Internet. This should be undertaken while carriers consolidate traditional networks, connectivity services, and profit models.
Carriers should develop four new monetization methods (Figure 6).
Figure 6: New business value of 5GtoB: Four innovative monetization models
Developing intelligent digital platforms and new "3-4-3" profit models
At the initial stages of 5G development, 5G's business value is mainly reflected in the monetization model, which is based on mobile Internet traffic. This means 5G collaborates with 4G to improve DOU and leverages video content (the third wave of digitalization) to overcome the "dumb pipe" dilemma, increasing ARPU through DOU growth. Another way of increasing 5G ARPU is the development of private line services through the integration of 5G with cloud and security capabilities.
If we look at trends in the value of 5G for industries, innovative breakthroughs in intelligent digital capabilities and services for verticals are the true blue ocean for realizing 5G’s value. Carriers can first build vertical solutions for the B2B market and then develop intelligent digital platform capabilities. This means upgrading the intelligent capabilities of each module of the digital platform to improve their competitiveness, thereby achieving 20% to 30% revenue growth. Through the foreseeable evolution of 5G value realization, a platform-dominated "3-4-3" profit model architecture that goes beyond connectivity is sure to emerge. In the "3-4-3" model, connectivity accounts for 30% of total revenue, platform services for 40%, and information-based service revenue sharing for 30%.
The development of 5G is now maturing and the business value of 5G is gradually increasing. Traffic-based monetization seen in the initial stages of 5G development is a new growth model based on collaboration with 4G. The most important aspect for carriers is to develop new growth models driven by innovative breakthroughs in solutions and intelligent digital platforms for the B2B market.
Carriers should go beyond networks and connectivity to pursue growth through data- and information-based monetization in the new blue ocean.