No executive running any company will be happy, confronted with two choices: declining revenue or flat revenue. And yet, for developed market mobile executives, those might ultimately be the choices.
Is it not the case that 5G will produce new revenue opportunities? That will happen. At the same time, average revenue per account, for the legacy services, is likely to keep falling. So the real choices are between declining or flat revenue, not matter how well mobile operators do with 5G.
Flat revenue might seem a curious way to approach the building of a next-generation network. But it is not the first time that has been the actual choice. In the fixed networks business, the decision to invest in fiber to the home actually was not premised so much on "net revenue growth" or "higher profits," but actually "avoiding serious revenue decline."
Investing to maintain (rather than grow) revenues is not the preferred situation. Executives would rather invest to grow revenues. But sometimes the choice is between "losing your business" and "keeping your business."
It is possible 5G will, in the end, turn out to be precisely that sort of choice.
The conventional wisdom is that 5G is going to create new revenue sources for mobile operators. That undoubtedly will prove true, to an extent; and perhaps to a significant extent.
What remains unclear is whether 5G actually will produce a net increase in mobile broadband revenues, even if 5G produces a gross increase in such revenues.
In other words, on a net basis, it is conceivable that 5G literally produces no net gain in access revenue. The reason is that, unlike the case in the 3G era, the 5G mobile internet market is going to operate in a mature environment in most markets.
In the transition from 2G to 3G, one might note an overall increase in mobile operator revenues, as the internet access market was young. By the time 4G arrives, growth mainly is substitution, not net growth. That is likely to be the case in the 5G era as well.
To wit, new 5G revenues will include some element of actual growth (IoT subscriptions, for example). But many of the 5G accounts will simply be substitutes for existing 4G subscriptions, so there will be no net gain in subscriptions.
Some will hope for higher average revenue per account. Initially, that could happen. But ARPU will fall fast. So, on a net basis, it is possible there will be no actual gain in mobile data or total mobile revenue.
Some might well ask, “then why do it?” The simple answer is that “doing nothing” might plausibly result in serious negative revenue growth, which is worse than “flat revenue.”
At the moment, though the new use cases for 5G are commonly said to be "enhanced mobile broadband, internet of things and low-latency applications, there are some not-obvious revenue issues, both in terms of magnitude and timing.
By 2025, global 5G services could be generating $250 billion in revenue, some project. What that means is not as clear as you might think. Some look at such numbers without subtracting losses in other existing product categories. That always is an issue with new generations of mobile networks.
In 2016, global mobile revenue was a bit over $1 trillion. Assume mobile data now represents about 50 percent of global revenue. That implies mobile data revenue of about $500 billion in 2017.
One way of looking at the projected $250 billion of 2025 mobile data revenue is that it is not incremental revenue, but only a displacement of 4G and 3G mobile data revenues.
New IoT subscriptions and, more importantly, the upside from the applications business, will happen. It just is not yet clear whether that net growth will more than compensate for net losses in legacy lines of business, such as declines in human-focused mobile data revenue.
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