Does 5G Lead to Higher ARPU or Higher Revenue?

One big concern for many mobile operators is that the investment in 5G networks will not produce revenue gains commensurate with the capital invested. Sometimes that concern comes because operators have only recently made investments in 4G networks. In other cases the concern comes from higher investment levels driven by the need for dense small cell networks. 

And some fear they will not benefit from new services generating additional revenue. But there appears to be a correlation between revenue growth and 5G deployment, so far, in the earliest-deploying markets. 

source: Ericsson Mobility Report 

In some cases, revenue gains may well come from higher fees charged for use of the 5G network. In such cases, we might cite a direct relationship between 5G and higher revenue. 

In other cases the relationship is indirect. Where there is actually no extra charge for 5G, there sometimes is a higher charge for “unlimited data usage.” In such cases, customers often upgrade their accounts to higher-cost plans to get the advantage of unlimited data. 

In such markets 5G ARPU can be higher than was the case for 4G, but we cannot definitively say 5G was the driver of the upgrade. It might well be the desire for cost certainty, protection from overages or unlimited data that is the actual driver of behavior. 

Whatever the actual driver of behavior, we now see enough evidence that “5G” revenue can grow in the classic consumer phone services market. 

The other complicating issue is the emergence of mobile services for sensors and machines, which have higher volume implications but also lower-per-account revenue implications. So “phone account” ARPU is one matter, while internet of things sensor ARPU is quite another. 

There can be a per-account difference of an order of magnitude or more between a classic phone account and an IoT device account. So 5G ARPU is a complicated matter: it can be higher or lower than 4G but not necessarily because of anything directly related to phone subscription prices. 

source: Ericsson Mobility Report 

It is not hard to find predictions that IoT and sensor or machine connections will equal or exceed phone connections. And since  IoT connections carry much-lower average revenue per device or connection, overall ARPU is bound to be affected, when IoT scales. 

The point is simply that the revenue payback from 5G is far more complicated than was the case for 4G, which still has been driven by phone accounts. 5G is probably going to be more complicated. Iot connections, fixed wireless for home broadband and other possible innovations around usage or speed will introduce more product types, with a blended ARPU that obscures the differences between products. 

Service plans generating $40 to $60 per month will coexist with plans representing cents to perhaps a few dollars per month in revenue. Low-usage plans will be mixed with unlimited and high-usage plans. 

Speed tiers, for example, are conceivable but rarely the dominant charging model for mobile services, though speed tiering is a growing trend. 

The point is simply that 5G will create a more-complicated business, in terms of account pricing and variability. Overall ARPU might not tell us as much as it once might have done.