5G is supporting strong revenue growth at mobile operators

Over one billion 5G phones have been sold globally by the end of March 2022, with the technology accounting for 42% of phone sales in Q1. In the same month, there were approximately 720 million active 5G users around the world, over 8% of all subscriptions. Mobile service revenue is currently increasing 3-4% per annum (levels not seen since 2012) and 5G is one factor contributing to this improved performance.

With current 5G volumes largely focused on non-standalone services (outside of China, at least), 5G business models are still overwhelming based on a ‘more for more’ pricing approach. ARPU uplift and stronger revenue growth as users migrate from 4G to 5G has been encouraging in many markets, enabled by a cross-generational user experience improvement (and so larger data plans). This is not to talk down the positive impact 5G has had on ARPU and revenue for many operators:

• In China 5G ARPU in 2021 was 1.7x total blended ARPU at China Mobile and 1.5x at China Telecom.
• In Thailand, both AIS and True report a 10-15% ARPU uplift for 5G customers, from a healthy base with 5G accounting for 6% and 8% of total customers respectively.
• In Q1 2022, Strategy Analytics estimates 5G ARPU at 1.6x 4G levels in South Korea and 1.3x in the USA, despite uniformity of 4G and 5G pricing across most plans in the latter.
• In its Gulf state markets, 5G has lifted Zain’s revenues in Saudi Arabia and Kuwait with quick wins from a strong FWA market. 5G has helped to transform a >1 million FWA customer base with 5G ARPUs 30% higher than 4G and, in Kuwait, 5G accounting for over 40% of traffic in Q1 2022.

Volume-based pricing has been effective in driving ARPU uplift with 5G

Volume-based pricing remains common in many markets around the world. While in many cases, 5G was initially only supported on the larger data plans offered by operators, it is increasingly common to find 5G available across right tariff ranges. This is certainly the common model in Europe, with operators increasing data allowances quite significantly with modest increases in monthly fee. The goal is to help users upgrade through tariff ranges as the need for larger or unlimited plans is influenced by their 5G use. For subscribers, value is improved as the small increase in monthly fee brings excess traffic and lowers the price per bit. For operators, the ARPU value of 5G subscribers increases, resulting in revenue growth.

In China, 5G was introduced as a new set of volume-based tariffs, offering lower per-GB prices than 4G but encouraging greater monthly spend. 4G plans ranged from USD9 for 0.9GB to USD37 for 40GB, with 5G layered alongside and above this from USD20 for 30GB to USD93 for 300GB. For example, in China in the early stage of 5G, the 4G package of China Mobile is USD20 with 20GB. In the same period, the 5G package is USD24 with 40GB: the 20% increase in price offers double the traffic, attracting subscribers to migrate to 5G. As noted above, this model is delivering 5G ARPU 1.5-1.7x 4G levels.

Experience-based pricing remains the most common 5G approach

In markets where unlimited data plans are more common, this model of using 5G to sell larger higher-value data plans requires an adjustment, with tiered pricing based on speeds used with some success. This approach applies equally to FWA and mobile 5G services. In the 5G FWA market, Zain’s success in Saudi Arabia has come with tiered plans of USD77 for a 100 Mbps downlink / 20Mbps uplink service, USD80 for a 200/60 service and USD100 for an uncapped service. For mobile services, unlimited plan speed tiering has been a successful part of Vodafone Group’s tariff strategy since it launched 5G in 2019 and has also been the basis for Finland’s operators significantly outperforming European revenue trends. Price plans supporting speeds of 100Mbps and higher have increased from 20% of data plans in use in 2016 to 65% in 2021 in Finland, with 300-1,000Mbps plans increasing from 6% of use in 2019 to 17% in 2021 as 5G has grown. Over the last five years, ARPUs have increased by 15% in Finland.

5G-relevant content bundling supports tariff upsell opportunities

For South Korea, content bundling is one of the key elements within 5G service plans. These typically take the form of more expensive plans layering in a larger set of content subscriptions either completely free or heavily discounted so that they more than compensate for the additional monthly fee. These will include music and video streaming subscriptions, cloud gaming services, and AR/VR subscription options. 60-70% of 5G subscribers in South Korea take more than just the basic 5G package.

As important as the upsell potential is with bundled content offers, these have also been key in showcasing 5G use cases to consumers; giving them access to the content experiences that make 5G worthwhile. Cloud gaming, UHD video, and AR/VR have been important to help differentiate between the 4G and 5G experience. For some services, the operators have generally partnered with established players (e.g. SKT and Xbox for cloud gaming) but for others they have developed their own content portfolios. The three South Korean operators are among the leading AR and VR content developers globally, operating their own volumetric video capture studios to fill a gap in the market and ensure that there is sufficient compelling content within their 5G-optimised content libraries.

Where Next for 5G Pricing?

These pricing plans have been successful in supporting 5G upgrades and improving value in the market, though fall short of pricing network features beyond download speed and capacity. We see the 5G pricing evolving in a number of directions in the medium term.

Pricing latency: this remains an untapped opportunity. It will perhaps be challenging as a discrete pricing feature, but for operators bundling cloud gaming into their 5G plans, or offering as a supplemental content subscription, premium options that support lower latency do present a market opportunity.

Pricing uplink: there is an interesting recent example here, with China Unicom offering a ‘5G Network Wizard Service’ option on the campus of Universal Beijing Resort. Targeting vloggers, the option provides an enhanced uplink service at RMB 19.9 (USD3.1) for 30 minutes. Services dependent on a high-quality uplink, such as this vlogger scenario or businesses and retailers adopting live selling retail strategies, represent a strong revenue opportunity for enhanced uplink services.

Bundling all broadband: changing work and study behaviors represent an opportunity for more ‘universal’ broadband pricing, with converged fixed and mobile broadband plans building on the ‘always best connected’ business model. We are seeing greater interest around heavy discounts for customers taking both 5G mobile and 5G fixed wireless access services (e.g. T-Mobile’s Internet Freedom offer) and also work on 5G as a backup to a fixed broadband solution.

Cloud computing pricing: we wonder whether there is potential for 5G operators to adopt cloud pricing as a more appropriate model. The AWS model of paying for compute (by the hour), storage (by the GB), and outbound data transfer (by the GB), with the number of connections not being part of the equation, may suit a range of enterprise 5G use cases and is a model that allows businesses to scale costs with their market. This is the model the AWS Private 5G service has adopted: as we noted in a recent report, customers pay only for the network capacity and throughput they request. In the consumer market, operators developing cloud computing services or cloud-rendered metaverse services may also consider incorporating such models into service plans, balancing the challenge of consumer understanding of compute resource requirements against a growing awareness of tiered as-a-service pricing in markets ranging from cloud storage to printer ink.

It is worth emphasizing that, as operators explore pricing options that consider the full capabilities of 5G networks, it is essential these options are backed up with high quality network experience and coverage. Differentiating based on network and service quality clearly needs to be built on a network capable of delivering that: as we have seen in South Korea, when the services are there to showcase the capabilities of the 5G networks there is strong revenue growth potential.