5G Provides an Unlimited Window to Move from the Short Tail to the Long Tail

The 5G market is growing faster than anticipated. In North America, 5G launched early, with low-band spectrum allocations already taking place. 5G deployments are also already in motion in Asia. South Korea is the first country to launch 5G by hours. With approximately 100 thousand cell sites deployed, 5G covers a large part of the population. Japan is taking a considered approach due to a strong 4G network in place and a lack of spectrum availability. A key market for mass rollouts is China, a country with thousands of base stations that are due for an upgrade. In China, the mindset is to build out the network and then identify the commercial opportunity. Europe, by contrast, a market with over 200 Communications Service Providers (CSPs), is seeking to identify the opportunity first and then pursue 5G build outs.

Furthermore, the African market represents 13% of the world’s population but only accounts for about 2% of base stations. In Latin America, LTE networks predominate. Spectrum is dear in this market, but there is growing interest in countries like Brazil, Peru, and Colombia. Regardless of regional dynamics, 5G deployments will propel new growth in mobile broadband, mission-critical connectivity with network slicing, Ultra-Reliable Low-Latency Communications (URLLC), and 5G SA core. However, capturing the value at stake will depend on vendors’ strategies for utilizing their inside and outside resources (e.g., sales force and distributors) to deliver unique value propositions. After all, the next wave of growth in telecoms is in niche engagements, and the best way to exploit those niches is by having more focus, not less, and lower costs, not higher.

Ericsson’s Go-to-Market (GTM) strategy is firmly anchored on its existing partnerships with CSPs. Ericsson is pursuing market growth by looking for scale as opposed to scope. Ericsson leverages its deep cellular expertise to shape its 5G market standing and is doing so in a selective fashion while driving cost out of its product lines. This may turn out to be a laudable approach, particularly when we consider that each entity in the market functions within constraints. There are only so many resources it can expend, so long it can wait for a pay-off, so much risk it can take, and certain types of CSPs it can serve. Such a frugal way of operating can potentially result in competitive and hyper-efficient 5G networks powered by revitalized investment in Research and Development (R&D). For example, Ericsson’s R&D personnel today constitutes 24% of the workforce, relative to 19% in 2017.

Ericsson claims that its market competitiveness comes from some key decisions made in advance of 5G diffusion. Specifically, each radio unit shipped from 2015 onwards is 5G-ready. Today, there are 5 million radios in Ericsson-powered LTE deployments in Frequency Division Duplex (FDD) bands that are software upgradeable to 5G. Furthermore, Ericsson has developed multi-standard base bands that support both 4G and 5G and has already shipped in excess of 1 million units. Ericsson’s CSP partners can reuse the radio, the base band, and the site grid, all of which are aided by its spectrum sharing capability. This, in turn, promotes spectrum efficiency and rapid 5G diffusion. Swisscom, for example, is a CSP that has achieved top coverage for 5G in Switzerland.

Ericsson advocates for a 5G platform built around one network and same set of frequencies. At present, Ericsson does not contract directly with enterprises for 5G vertical deployments. Instead, the vendor remains focused on helping CSPs take 5G benefits to the enterprise domain. T-Mobile, Orange, and Sprint, for example, are leveraging Ericsson’s offering to offer digital services to enterprise verticals. Ericsson’s strategy to help CSP partners understand 5G’s commercial potential in enterprise verticals bodes well for continued growth in the short term. On the other hand, continued ecosystem disaggregation and spectrum liberalization may well mean that market dynamics will change over time. When a new commercial landscape emerges, Ericsson may have to consider new GTM strategies and how to build value into 5G propositions that are aimed directly at enterprise partners.

5G unlocks new transactions that supplement the current volume-centred modus operandi with a value play for discrete engagements. Long-term value is a measure of utility that accrues to 5G adopters now and in the future. Leveraging 5G for new value creation raises a key question: do vendors have the knowledge to create new growth by integrating 5G network slicing and URLLC into use cases that go beyond telecoms? Not necessarily. Ericsson, for example—like a few other vendors—is strong on cellular, cloud edge, and Artificial Intelligence (AI). But, on the other hand, Ericsson must obtain enterprise-specific knowledge for commercial endeavors that may not necessarily scale across multiple verticals. Vendors must change the dialogue from vertical and telco-specific deployments to a horizontal 5G platform value play aimed at specific enterprise deployments. To that end, technology-driven solutions do not hold the relevance they once did. 5G stands to create new value. Vendors that will capture that value will be those that prioritize solution-led products and engineer their product lines based on business-driven outcomes.

With 5G, the industry is centered to propel the digital agenda of enterprise verticals and, by extension, create a new growth cycle. For that growth to materialize, vendors must take the lead to establish interworking between the 4G ecosystem and impending 5G networks. This strand remains the topic of much discussion in the industry. When more specifics emerge, the winners will be those vendors that reduce pain points and manage a complex, interwoven ecosystem spanning 3G, 4G, and 5G with simple packaged product offerings. The supply side in telecoms should enhance their existing “value add” by complementing their deep cellular expertise with “new” business knowledge. It is valuable to learn to operate frugally. But more importantly for value-based engagements, vendors should aim to understand on an intimate level what the drivers of revenue and profitability in enterprise verticals are. Ultimately, that understanding will need to be fed back into product planning and design across different groups.