No "Chicken and Egg" with 5G

Some have described 5G as a “chicken and egg” problem, where it comes to the business model. Actually, that is the wrong analogy.

That sort of problem actually typically refers to the building of marketplaces and exchanges, where buyers and sellers have to be brought together. The classic problem is that, in the absence of buyers, sellers will not want to participate, while the absence of sellers keeps buyers away.

That is not true of 5G, though it was true of the early telephone network, facsimile machine value, ridesharing services, Airbnb, email and messaging services. For any of the communications services, the issue was that the value of a phone, phone service or a facsimile machine was how many other people had phones and fax machines, plus phone service.

There were clear network effects at work, as the value of the services and devices was contingent on the size of the network. The same holds true for the value of messaging, email or ride sharing: the value of the service hinges on how many others are using the product. 

That is not true of 5G, for several reasons. Yes, the network has to exist before customers can use it. But 5G does not have to exist for customers to derive huge value from mobile voice, texting, messaging, internet apps and sites. The value already is built; the network effects already in place. 

Even when only a few can use 5G for access, there is no reason anybody else has to be on a 5G network for the value to be reaped. Perhaps speed is higher, latency lower on the 5G end of any session. But there is no actual degradation of value because far-end devices, servers or apps do not use 5G. 

There is, in short, no chicken and egg problem. The value and network effects are not contingent on 5G access, because the messaging, communication and apps already in place that supply the end user value of a 5G device already are fully built out. 

Instead, 5G is a classic “pipeline” business, the classic pattern for most businesses. A pipeline business involves creating a product and then selling it to customers. Product creation always precedes the acquisition of customers. 

It is the same with 5G: the network has to be built first, before customers can be acquired.