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Estd 4.22.2023
How to Create Value from 5G Investment
The global 5G services market is projected to reach $1.67 trillion by 2030, growing at a CAGR of 52% from 2022. Yet many telecommunications leaders are still grappling with a critical question: how do we effectively monetize our massive 5G infrastructure investments?
Traditional pricing models that served telcos well during the 4G era are increasingly inadequate for capturing the full value of 5G's capabilities. The enhanced network characteristics—ultra-low latency, massive device connectivity, and multi-gigabit speeds—enable entirely new application ecosystems that demand more sophisticated monetization approaches.
This article examines emerging pricing strategies for 5G applications and how forward-thinking telecommunications providers are developing innovative business models to maximize return on their network investments.
Beyond the Data Plan: The Limitations of Traditional Pricing
For decades, telecommunications providers have relied on straightforward consumption-based pricing models. Customers purchase data allowances, and excess usage triggers overage charges. This model was perfectly adequate when networks primarily served human users with relatively predictable consumption patterns.
However, 5G networks are designed to support vastly different use cases:
- Enhanced Mobile Broadband (eMBB): Delivering peak data rates of up to 20 Gbps
- Ultra-Reliable Low Latency Communications (URLLC): Enabling mission-critical applications requiring sub-5ms latency
- Massive Machine Type Communications (mMTC): Supporting up to 1 million connected devices per square kilometer
According to analysis from McKinsey, these technical capabilities open opportunities across industries that could generate $2 trillion in additional GDP by 2030. The challenge lies in aligning pricing models with the actual value delivered, rather than simply charging for raw data consumption.
Emerging 5G Pricing Strategies
1. Network Slicing as a Service
Network slicing—the ability to create multiple virtual networks on a shared physical infrastructure—represents one of 5G's most promising monetization avenues.
Rather than offering a one-size-fits-all network, providers can deliver customized network "slices" with specific performance characteristics tailored to different applications:
- Mission-critical slices: Optimized for ultra-low latency and high reliability for applications like remote surgery or autonomous vehicles
- IoT slices: Designed for low power consumption and massive connectivity
- High-bandwidth slices: Configured for data-intensive applications like 8K video streaming or cloud gaming
According to Ericsson's research, network slicing could increase operator revenue by up to 35% compared to traditional business models. Pricing structures typically follow tiered models, where premium slices command higher prices reflecting their guaranteed performance parameters.
2. Outcome-Based Pricing
Perhaps the most sophisticated evolution in 5G monetization is the shift to outcome-based pricing, where charges align with the business value delivered rather than network resources consumed.
For example:
- A factory implementing 5G-powered predictive maintenance might pay based on downtime reduction percentages
- A retailer deploying smart inventory management could pay according to inventory accuracy improvements
- A municipality operating smart city applications might pay based on measurable energy savings or traffic congestion reduction
According to Deloitte's analysis of B2B 5G applications, outcome-based pricing models can increase perceived value by customers by up to 40% compared to resource-based pricing. The challenge lies in defining clear, measurable outcomes and establishing monitoring systems to track them.
3. API-Based Monetization
For telecommunications providers looking to capture value from the developer ecosystem, API-based monetization offers promising opportunities. By exposing network capabilities as programmable interfaces, telcos enable third-party developers to integrate network functions directly into their applications.
Potential monetizable network capabilities include:
- Location and presence information
- Quality of Service (QoS) controls
- Identity and authentication services
- Edge computing resources
According to GSMA Intelligence, API-based approaches could contribute up to 20% of 5G-related revenue for operators by 2025. Pricing models typically include developer subscription tiers, revenue sharing agreements, and transaction-based charges.
Case Studies: 5G Pricing Innovation in Action
Verizon's Network-as-a-Service (NaaS) Approach
Verizon has made significant strides in 5G monetization through its Network-as-a-Service approach. Rather than selling connectivity alone, Verizon offers comprehensive solutions that combine connectivity, edge computing, security, and professional services.
For enterprise clients, Verizon's pricing structure incorporates service level agreements (SLAs) guaranteeing specific performance metrics—a significant departure from consumer-oriented "best effort" data plans. According to Verizon Business CEO Tami Erwin, this approach has increased average contract value by 24% compared to traditional connectivity offerings.
SK Telecom's Slice Management Marketplace
South Korea's SK Telecom has pioneered a network slice management marketplace allowing business customers to select, customize, and dynamically adjust their network slice configurations through a self-service portal.
Pricing follows a hybrid model combining:
- Base subscription fees for access to the slice management platform
- Dynamic charges based on slice performance parameters
- Premium surcharges for priority resource allocation during peak demand
This flexible approach has enabled SK Telecom to penetrate verticals from manufacturing to healthcare with customized networking solutions rather than generic connectivity services.
Implementation Challenges and Considerations
While advanced pricing models offer significant revenue potential, implementing them requires overcoming several challenges:
Technical Prerequisites
Sophisticated pricing requires equally sophisticated technical capabilities. Organizations must invest in:
- Real-time billing systems: Capable of processing dynamic pricing adjustments based on changing network conditions
- Analytics infrastructure: To measure application performance and business outcomes
- API management platforms: To manage developer access and track usage
According to Analysys Mason, telecommunications providers are expected to invest $25 billion in BSS/OSS modernization by 2025 specifically to support new 5G business models.
Organizational Adaptation
Successfully monetizing 5G applications often requires significant organizational changes:
- Sales teams must transition from selling connectivity to selling business solutions
- Product teams need deeper industry-specific expertise
- Partnership capabilities become critical for co-creating solutions with vertical specialists
The Path Forward: Recommendations for Executives
For telecommunications executives navigating 5G monetization, consider these strategic priorities:
Identify high-value vertical applications where 5G's unique capabilities address specific industry pain points
Experiment with hybrid pricing models combining subscription elements with usage-based or outcome-based components
Develop partners ecosystem across cloud providers, systems integrators, and industry specialists to deliver complete solutions
Invest in customer education about 5G's transformative potential beyond simple connectivity
Build internal expertise in key verticals rather than treating all enterprise customers identically
Conclusion: From Connectivity Provider to Digital Enabler
The transition to 5G represents more than a technical evolution; it requires a fundamental rethinking of telecommunications business models and pricing strategies. By moving beyond data-centric pricing toward models that reflect the true value of 5G applications, providers can capture a greater share of the digital value chain.
The most successful operators will transform from connectivity providers into digital enablers, with pricing strategies that align network capabilities with tangible business outcomes. Those who merely replicate 4G pricing approaches for 5G services risk being relegated to commodity status in an ecosystem where the real value increasingly lies in the applications rather than the connectivity itself.
As 5G deployments accelerate globally, the window for establishing value-based pricing models is now. The telecommunications providers that move decisively to implement innovative pricing approaches will be best positioned to secure returns on their substantial network investments.