How big would edge computing, internet of things or private networks have to be to drive the next stage of revenue growth for mobile operators?
Much hinges on the assumptions one makes about what happens to current revenue sources.
My own assumption is that mobile operators must replace half their current revenues over the next 10 years, because that is the pattern we tend to see based on product life cycles. As a rule, we can expect any next-generation network to displace earlier generations over any 15-year period.
All other things being equal, that would mean 5G revenues would displace 2G, 3G and 4G over some period of time. Of course, all things are not equal. Average revenue per user or account drops over time. Profit margins drop over time. Global mobile revenue growth rates now are below one percent annually, though higher in some countries and regions.
The obvious conclusion is that next generation platforms, in and of themselves, used to support existing use cases, do not inevitably boost revenue too much, but arguably support the incremental revenue growth we typically see.
Looking at products, not network infrastructure, we already can confirm that earlier product drivers--especially voice and messaging--have been displaced by internet access. And though nobody believes that will change much in the near term, eventually even “mobile internet access” will reach saturation, and cease to drive current growth rates.
In other words, though it might seem unthinkable, there will come a time when neither mobile revenues, nor mobile internet access for present use cases, will drive the next stage of revenue growth.
The issue is what such a source--or sources--might be. The obvious answers (and hopes) are the internet of things, edge computing and private networks. All three could add new use cases and revenue streams. And the hope is that those sources will eventually reach a magnitude big enough to overcome a lost of half of current revenue over the next decade, as voice, messaging and consumer internet access continue to mature.
We can rather safely assume that 5G does not, by itself reverse the trend of declining voice and text messaging revenue. The ultimate impact on mobile internet revenue is not clear, but assume modest if any actual ARPU increases for consumer mobile data. On the other hand, 5G does allow operators to scale supply to meet consumer demand at near-equivalent gross revenue per account.
Assume present global mobile revenue of about $1 trillion. So a loss of half of that revenue over a decade is $500 billion. That’s the theoretical revenue replacement bogey.
Right now, it does not appear that any single new revenue stream (service provider IoT, edge computing or private networks) alone amounts to $500 billion globally in 10 years. IoT connectivity revenue is highly unlikely to represent a big enough new revenue source to move the needle on a $500 billion annual revenue target. IoT connectivity revenues might be in the $28 billion range globally by about 2025, Analysys Mason has projected.
The point is that IoT connectivity revenues are a fraction of total IoT revenues and are unlikely to reach even $50 billion in annual revenue by 2025. The somewhat obvious conclusion is that other roles in the IoT ecosystem will have to be successfully pioneered by mobile service providers if IoT is to become a revenue source making a meaningful dent in the $500 billion revenue target.
Something like that also applies to edge computing. Mobile operators can make some incremental revenue as suppliers of edge real estate. But most of that revenue stream lies in the sales of servers, apps or actual “computing as a service.” So far, one would have to say hyperscale computing-as-a-service suppliers are on track to reap much of that revenue stream, unless mobile operators successfully acquire other roles beyond connectivity.
Edge computing colocation alone is unlikely to drive $50 billion in new revenues by 2025, one might guess. In fact, edge computing revenues overall might not break out of single digits.
Private networking might be even more difficult, as much of that market opportunity will accrue to suppliers of servers and software, as most Wi-Fi revenue accrues to suppliers of infrastructure. 5G private networking, for example, might not generate much more than single-digit billions of revenue for mobile operators by about 2025.
The larger point is that, as promising as edge computing, private 5G, private 4G and IoT might be, they do not collectively seem capable of generating anything close to $500 billion in new incremental revenue for mobile operators over the next 10 years, at least not based on colocation, service and connectivity revenues.
Either additional new--and substantial--new revenue sources must be found or big moves into other parts of the value chain will be necessary to reach $500 billion in new revenue within 10 years.
It is a tremendous challenge.
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