By: An Jian, President of Carrier Network Business Group, Huawei Middle East
Every new technology sees a climbing period when deployments are in their early stages. Often times, this is where a technology first struggles to gather critical mass, but then comes a turning point when consumers start taking notice, services start gaining momentum, and users are developed rather quickly.
After experiencing 18-24 months climbing period, 5G development is now entering into an exciting new stage of maturity. Globally, the first wave of 5G deployments showed a flying curve in business development. In the past 12 months alone, operators in China and South Korea have achieved financial success owing to their 5G deployments. For example, LG U+ in South Korea saw a 6.5% growth in H1 2021 service revenue as compared to same period last year. The operator also saw an 8.8% growth in its EBIDTA during the same period, and has seen a sustained reduction in churn rate during last four consecutive quarters.
Let's go back to the GCC region. 5G technology has seen its climbing period over the last two years, and now it has started to show that a turning point is being achieved. For some operators, it has been even beyond expectation. In financial reports of H1 2021, some leading GCC operators have shown positive results in terms of 5G commercial indicators such as growth in revenue and profitability, which can be attributed to the 5G deployments they took on during 2019 and 2020.
What has led to this resounding success, and what does it mean for the future? Let us explore.
Multiple factors speed up the 5G business success
We have learned that during the first two years of 5G large-scale commercialization, the number of total 5G users has crossed 340 million globally. That is three times as fast as the adoption in the 4G era. There are a number of factors which support operators in achieving better 5G adoption, sustaining the 5G advantage, and generating maximum commercial impact in a relatively short time. This includes providing ubiquitous 5G coverage, enhanced network experiences, smartphones with multiple price ranges, flexible tariff designs, targeted marketing, and the introduction of new 5G services.
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Ubiquitous 5G coverage: Without coverage, there’s simply no experience. The global 5G pioneers have a comprehensive understanding of this, so they have been building ubiquitous 5G to enable continuous and superb network experiences. Take South Korean operator LG U+ again as an example. Its 5G population coverage ratio in Seoul has exceeded 95%. Another case is CMCC in China, which has covered 97% of the population with 5G in Hangzhou city. The result of ubiquitous 5G coverage in these use cases is that both Seoul and Hangzhou have had speedy 5G user growth, and their 5G penetration ratios exceed 25%. In the GCC, leading operators are on a similar ubiquitous progression.
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Enhanced network experience: With the advanced technologies such as Massive MIMO and leading algorithms, 5G base stations enable 5~10 times the spectrum efficiency compared to 4G 2T2R. In other words, 5G could be said to provide 5~10 times the user experience, which many operators have achieved in their commercial networks. Third party reports already cite that the 5G versus 4G download speed improvement ratio is x8.2 in Saudi Arabia, and x6.7 in markets like Kuwait. This greatly enhanced network experience will stimulate the generation of more new services.
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Flexible package design: 5G allows operators more room to play with their data quotas due to its lower cost per bit. Operators are able to design innovative offers for all types of users and increase their data usage, and thus ARPU. Using these strategies, CMCC in Zhejiang, China, has been able to convert 20% of their user base to 5G by mid-2021, while increasing the average data usage by almost 60% as compared to 4G users. This has resulted in the operator seeing double-digit growth in their revenue & profitability. In the Middle East, one of the regional operators we work with has been able to achieve a 5G traffic offload percentage of around 40% of traffic to their 5G networks through innovatively designed FWA packages, while converting more than 20% of their existing user base to 5G. With 5G users having an ARPU that is approximately 80% higher than that of a 4G user, combined with the reduced per bit cost of 5G, the operator has been able to reverse a decline in revenues and post a double-digit growth in profitability. Furthermore, higher bandwidth allows for 5G packages which can be tiered by speed, and may be considered to create value at various different levels. Many operators now have prepaid subscribers who have 5G-enabled phones. However, they are not subscribed to a 5G package. Perhaps an innovative prepaid offer can assist operators to unlock the value from this ignored but potentially valuable segment.
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Smartphones with multiple price ranges: As we leave the climbing period of 5G and enter the turning point, this growth will be driven by mass adoption. Operators will find it easier to gather a critical mass of users for any new 5G-enabled service when there is widespread adoption of 5G connectivity already within the user base. This widespread adoption will in part be facilitated by low cost 5G handsets. Looking at CMCC Zhejiang again, it completely replaced its 4G smartphone range with 5G smartphones, and offered not only high-end 5G phones, but also targeted the lower end of the market with budget 5G phones to accelerate user migration.
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New 5G-enabled services: In order to continue the momentum that 5G had provided to operators during the climbing period through improved connectivity services, the next phase of growth will be expected through new services. Through its high speed and low latency, 5G makes many new services possible. Operators are right in the center of the value chain as the services are made possible through their high-end networks. These services will range from cloud gaming and virtual reality broadcasts to augmented reality navigation, mixed reality entertainment, and gaming, which will all bring new revenue stream to operators. We see this in LG U+ in South Korea, for instance, which provides a range of AR/VR entertainment and gaming content to its 5G users, the success of which is reflected in their reduced churn rate and higher service revenues since the launch of 5G.
For the operators who have been able to start reaping the rewards from their foresight into the benefits of early 5G deployments, the time is right to start looking for next phase of growth. This is the move from just connectivity to newer 5G-enabled services. This phase will require a continued focus on improving network experiences to match the requirements of these services, while also expanding their coverage and simultaneously innovating in their commercial offerings through new package designs. The combination of enhanced coverage, network experience, newer services, and innovative packages will ensure a sustained growth for operators for a lasting period of time, achieving new business success through 5G.
