Are private networks a golden opportunity or another false dawn?
The potential to earn money is certainly there, but the telco industry needs to demonstrate speed and agility to take advantage of the private networks opportunity, and history is not on its side.
While the 4G private network concept has been demonstrated and is proving to be profitable for those involved today, 5G adds more momentum. 5G addresses the limitations of 4G, security or latency for example, broadening the number of usecases and potential customers. According to research from Arthur D Little, the worldwide 5G private network opportunity could be worth as much as €60-70 billion by 2025.
“It will be interesting to see who develops into the market,” said Ros Singleton, Chair of national research programme UK5G, at the Private Networks in a 5G World event in London.
As Singleton highlighted, the development of this segment needs to be done in collaboration, with an on-going conversation between the telco industry and the verticals. However, with these parties often speaking different languages, there will of course be hurdles.
An interesting question which is beginning to emerge is who will collect the revenues attached to the development of this segment?
Starting with the telcos, these are companies who would appear to be the logical partner, connectivity is their core business after all, but are these companies agile or innovative enough? Traditionally, this segment is very slow to adopt and accelerate new trends, but it might be forced into action through necessity.
As Antje Williams, SVP of 5G Campus Networks at Deutsche Telekom, highlighted at the Private Networks in a 5G World conference, this is one of the few areas which provides genuine and concrete ROI for 5G investments.
Few people around the world are prepared to pay for enhanced mobile broadband (eMBB), but enterprise customers are now ready to pay for private networks. Telcos can extend their core business, building networks, to new environments to drive additional revenues without having to experiment in unknown areas. 5G is not a necessity for this market, but it creates more opportunity to work with a broader range of customers.
That said, the issue for telcos is rising through the emerge of new spectrum initiatives. In Germany, regulator Bundesnetzagentur has started the process to release highly-localised spectrum licences, while in the UK, Ofcom has designated the 3.8-4.2 GHz airwaves for spectrum sharing. In both of these examples, an enterprise organisation could purchase a localised licence with the ambition of building their own networks.
This has proven to be a very unpopular initiative for some. In Germany, Vodafone’s Robert MacDougall suggested the idea of spectrum localisation has created scarcity for the MNOs, not only pushing the price up at auctions, but also impacting the long-term experience for the consumer. There are elements of logic to this point but bear in mind this is a telco which is under-threat from innovation and experimentation.
If an enterprise organization purchases spectrum, the telcos can still make money by building or managing the network on behalf of the customer. Enterprise customers are unlikely to have in-house expertise in the short-term, though the telcos are certainly not the only option partner.
Infrastructure OEMs such as Nokia, are seemingly exploring how they can work directly with enterprise customers, effectively becoming a competitor to their telco clients, while Service Integrators such as Capgemini could also fit the bill. UK5G’s Singleton also pointed out that many ICT firms already offer similar services so could expand, while the operational nuances of integrating the control room could offer momentum for niche players in each of the verticals.
In private networks, there is an opportunity for telcos to make extra cash, but it certainly is not a given.
There are some advantages of ignoring the spectrum localisation initiatives and working directly with the telcos, as Williams (Deutsche Telekom) points out. If an enterprise purchases spectrum in the 3.6-3.8 GHz airwaves there are limitations. For example, indoor connectivity, extended coverage, extreme download speeds or passing through walls. Some of these cases would require different spectrum frequencies, making the telcos broad range of licences more attractive.
Private networks are an attractive trend for the telcos, even if enterprise customers haven’t quite figured out all the details, but this is not a guaranteed win. Service integrators, infrastructure OEMs, cloud companies, ICT suppliers and niche unknowns are going to be scrapping to gain their own slice of the private networks pie.