It is just 10 years since the birth of the smartphone and the pace of change in mobile communications has been nothing short of breath-taking. The 3G network, which had been more than sufficient to meet mobile phone users’ needs up until then, was quickly superseded - with 4G services being introduced within six years to cater for ever-increasing demands for data capacity.
Now even 4G is being pushed to its limits, not just by smartphone users but by new technologies and an increasing demand for data from consumers. Enter 5G, which will offer speeds 100 times faster than today’s 4G networks and will enable connected cities and machine-to-machine communication. 5G is much more than simply an improved version of the current 4G service. It will provide the connectivity to make technologies like smart cities and driverless cars possible. This means it can manage our increasing desire for and reliance on internet-enabled devices, with Gartner Inc predicting that 21 billion devices will be connected to the internet by 2020 - up from an estimated 6.4 billion currently. As such, the UK TMT industry has its sights firmly set on 5G.
The benefits of 5G
5G will increase the capacity of each cell on the network enormously. It will allow millions of users to connect through each cell and this will facilitate the massive uptake in internet of things (IoT) and machine-to-machine communication solutions that we anticipate in the coming years. Narrowband IoT is a new technology being developed in parallel, which will enable these communications requiring the transfer of small amounts of data but over a long period of time.
Increased connection density will be another important benefit. The 5G network will be capable of supporting up to one million connections per square kilometre instead of tens of thousands. In practice, this will mean that thousands of mobile phone users will be able to share the same network with hundreds of thousands of sensors on cars, traffic lights and buildings, with no constraints on service. While the infrastructure of our cities connects to the internet, we as consumers are demanding more and more data. We think nothing of streaming albums or TV shows direct from the internet; another reason why we need the increased capacity of 5G. This will also allow devices to constantly upload and download data at incredible speed, opening up opportunities for even more personalised online content and marketing.
Clearly Telcos are now using their improved 4G network to attract customers. For example, EE’s #OM4G campaign and new offerings from several companies around ‘More for More’ (offering customers the option of significantly increasing their data allowance for a relatively small price increase). Three’s decision to eliminate data charges for streaming TV and music from certain providers under the strapline “Go Binge” has enabled customers to binge on their favourite shows on the move. This trajectory will continue with the advent of 5G.
So what does the development of 5G mean for Telcos and how will they need to adapt to ensure they and their customers benefit fully from it? The answer lies in three areas:
- Develop new pricing models
- Adapt their market proposition to suit customer needs and fend off disruptors
- Prepare to undertake significant transformation
Develop new pricing models
From livestreaming concerts on Facebook to using Facetime whilst crossing the road, we are constantly connected to others around the world. We consume data on the move more and more, something which would have been impossible even a couple of years ago. Three’s launch of “Go Binge” may mark the start of a move to customers accessing on demand content & television programmes on the go, with 45% of 16-24 year olds already regularly watching on demand and catch up TV on their smartphone. 500MB per month is no longer enough data, and offers of unlimited minutes and texts do not attract consumers in the same way as our priorities have changed. It is not only our mobile phones that require 4G internet either, but also smart meters, smart TVs and wearable devices which are becoming part and parcel of daily life. Providers will have to modify their offerings and increase their prices to match demand for data. Although a number of Telcos have responded to this with “More for More” deals as mentioned earlier, this price will have a ceiling as customers consider their smartphones a necessary utility rather than a luxury.
Adapt the market proposition
Companies such as Relish have led the way by doing away with fixed lines (responding to increasing use of mobile phones and decreasing landline use) and providing broadband access through the 4G network. They have attracted customers with promises of unlimited data, next day delivery, no activation fees and a money-back guarantee. But it is not all plain sailing. The service has limited availability in Central London zones 1-2, with customers complaining of poor coverage, slow speeds and lacking customer service. So how can major Telcos take advantage where Relish has not managed to fully do so? By investing in the infrastructure which enables customers to move away from fixed-line internet access, Telcos will be responding to three trends: decreasing use of landline call volumes at the same time as prices are increasing, improving 4G, and later 5G, coverage and the ever-growing number devices in the home which depend on internet access.
Alongside this investment in 4G and 5G infrastructure, Telcos need to respond to market disruptors like Relish by providing more flexible offerings: reduced cancellation fees, shorter-term contracts and greater flexibility in terms & conditions. This is also the time for Telcos to consider the structure of their deals and why quad play has not been as popular as the industry expected. According to Strategy Analytics , quad play packages will account for over 21% of bundled subscriptions in the UK by 2020 but there is clearly a long way further for Telcos to go here. At the same time there is a growing desire among consumers to take advantage of the best deals on the market rather than just using one provider for simplicity.
Significant Transformation Programmes
Traditional operating models and ways of working will not deliver the flexibility required to maximise the benefits that 5G can offer. For major Telcos to adapt their market proposition and implement new pricing models, they need to mobilise both technical and business transformation programmes. The focus should be on removing unsustainable platforms and legacy systems, for example mediation and billing systems that are not able to cope with huge increases in data use. Instead, Telcos should implement new operating models and ensure that the infrastructure behind the network is sustainable and able to cope with anticipated future demand. By maximising the benefits of the improved 5G network through transformation programmes, operators would also be able to align with the recent push by Ofcom to provide 100% data coverage across Britain, rather than focussing on population-based coverage which prioritises the ability to make a phone call. EE has already taken steps towards this by aiming to extend its network to 95% of the UK’s landmass by 2020. Their competitors should take note.
Standing still is not an option and competitive advantage can be quickly eroded if organisations are not equipped to embrace change. It will not be enough for Telcos to simply invest in their 4G infrastructure and services over the next five years. By focussing on the above three areas, Telcos can get ahead of the curve and avoid playing catch up with their competitors and customers.
Over the last few years Moorhouse has supported a number of large, global organisations address the challenges that they are facing as they transform to put the customer at the heart of what they do and go through the strategic design / redesign that will underpin this. The need for this will only be further compounded with 5G.
Olivia Hill is a management consultant at Moorhouse - a consulting firm that is focused on delivering sustained transformational change. Working in small integrated teams with our clients we support them in responding to their most strategic challenges. In doing so, we are able to leave a legacy of increased capability through a genuine commitment to skills and knowledge transfer.
The 2017 Moorhouse Barometer on Change provides key insights on meeting increasingly challenging customer’s expectations. The Barometer on Change can be downloaded here.
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