Oliver Dowden’s statement this week has sent waves across the world. Setting aside the reasons for the decision (for which there are experts far better equipped than me to comment) there will be specific consequences for the mobile market and 5G in particular.
Consumer customer growth will slow further
We’ve seen Covid-19 effect major launches so 5G handset supply was always going to be tricky this year, but this is quite a spanner in the works for any operator with desires to grow their 5G base in 2020.
It’s not helped by the fact that 5G is quite a niche proposition for consumers and that’s even for the really early adopters. We’re talking about the ‘Tech trailblazers’ (30% of the market) wanting 5G to begin with. That said, it’s not an insignificant number so the operators will have planned to attract them early to help showcase the possibilities, and get the revenue in the door. Their initial growth strategy will be pinned on business applications (see final point below) and these Trailblazers. But like 3G and 4G, 5G will go mainstream as more handsets become available and, in particular, once Apple is able to supply a decent quantity of 5G iPhones.
Handsets is one thing, using it on a working network is another. This week’s decision will undoubtedly impact the speed of the rollout of 5G coverage. Networks have built plans around the availability and supply of Huawei kit, and now need to see if the more likely suppliers of Ericsson and Nokia through to re-emerging brands like Fujitsu, NEC and Samsung can help fill the gap.
Will they be able to make up the deficit quickly enough? My guess is it will be a perfect collision of not enough kit from any of them quickly enough, and delays on taking out the existing kit. That all adds up to a slower than planned growth of 5G coverage, and, as networks will ultimately need to extract the kit they have already installed, there will be disruption to existing 5G service.
Overall it’s going to be an interesting race between operators to change quickly and with limited impact to customer experience. And it’s a race it will be difficult to judge as networks seldom publish their plans in any great detail, so we won’t really know how they are progressing against the initial plan they had.
Will Customers pay the new 5G bill ?
The cost implications of replacing kit are most likely to be felt by consumers. The availability (or lack of) alternative base station kit may drive up market prices and therefore costs to deploy networks. Plus reversing out already purchased Huawei kit has a double whammy effect, the original investment is wasted and you are effectively installing, de-installing and re-installing which all has associated costs. That has to be financed somehow and while I don’t expect data pricing to go up I do expect data pricing to stabilise and the steady decline we’ve seen over the last couple of years slow down.
It’s very likely this will cause some networks to re-evaluate their 5G pricing strategy. Consumers should therefore expect 5G to be at a premium in terms of handset costs and possible the available tariffs for 5G.
But as ever, it always pays to shop around. MVNOs like Sky Mobile (on the O2 network) already have access to 5G and with recent developments in the MVNO and MNO market, and the announced merger between O2 and Virgin we may see some good deals in the short term.
What do consumers think and what will they do?
The news has made every front page and it’s likely consumers will now be concerned about buying Huawei branded devices as a result. They are likely to think more about the trade-offs than they usually would when investing in a new phone.
Huawei is likely to extend its range of very cost effective 5G devices competing against the more expensive Samsung or Apple (once available). It remains to seen whether price over perceived security wins out.
My hunch is customers will take longer to adopt 5G anyway, simply because we have a shrinking economy and people will be keeping an eye on their discretionary expenditure.
MVNOs left in the cold?
All the complexity in the practicalities of delivering 5G and the added pressure on economics might have mid-term consequences for MVNOs. The big question is will operators offer market parity to their partners? A delay in parity would help ensure 5G is synonymous with the big networks. Yet, MVNOs exist for the very reason that there are sets of customers operators will never reach. Extending 5G to MVNOs early (as some Operators have already done) could boost market traction.
It would not be a huge surprise if Operators take this opportunity to review the 5G MVNO strategy and whether they can delay MVNO access. Their cost base has changed significantly so the question is, do they drive for volume and include MVNOs or pursue a premium strategy for their direct customers only?
I imagine wholesale and finance teams are working intensely on business case calculations now.
Private networks may stall
Finally, we can’t look at the ramifications without talking about the impact on enterprise. This is where the real 5G business case lies, helping companies become more efficient and innovate. Any delay to 5G means a delay to some aspects of digital transformation, which is a strategic imperative at the moment.
The development of private networks, which is probably one of the most interesting use cases, will also take a hit. Private networks are not covered by the legislation but as Huawei has targeted this market and built some innovative RAN solutions I can see another potential problem.
All businesses are very concerned about security and data protection in line with legislation, and as a matter of reputational necessity, so I imagine any business in need of a private network, will be intently reviewing the perceived risk, seeking alternative suppliers and again increasing demand on more expensive alternatives to Huawei. The question is will that blow the business case?
As you can see there’s a lot at stake and as the points above show the strategic choices operators face are complex. From performing technical change through which propositions to define and price first, to whether to launch with MVNOs.
Few will have predicted the scenario five years ago, but real it is and it won’t be reversed. Navigating the short-term upheaval for long-term gain is now the name of the game.
If you need help working through your strategy in response to these changes then get in touch.