5G is a game-changer.
It’s the power behind Industry 4.0. It will connect everything and everyone and unleash the potential of technologies like AI, IoT, AR/VR and robotics.
5G is set to bring exciting advances for sectors like healthcare, manufacturing, financial services, mobility, logistics, technology and retail.
And it’s a massive investment for telcos, who’ll spend close to US$1 trillion on 5G deployment over the next 5 years.
Yet 5G is not quite hitting the spot for investors.
Which presents a dilemma for telcos, who need funding to roll out their ambitious capital plans.
What’s behind investor skepticism?
KPMG professionals have carried out a detailed analysis of the strategies based on public communications of the world’s 14 largest telcos, and gathered the reactions of the investor community via a 5G Investor Survey circulated in 2019. We’ve also spoken to leading figures in both camps.
First the good news.
A significant proportion of investors (44 percent) believe 5G will underpin Industry 4.0 – and the remainder are neutral. They appreciate 5G is more than the previous evolutions from 2G to 3G to 4G.
But none of the investors surveyed are fully convinced of the true value of 5G. And none are confident 5G can deliver positive financial benefits within their investment timeframe.
They’re also uncertain whether telcos’ 5G capex envelope will be large enough to meet demands. And they question whether a traditional, consumer-led approach to 5G can deliver the necessary ROI.
They’re especially worried about pricing. With 5G often being introduced at the same price as 4G, there are concerns that fierce competition will keep margins low and restrict revenue growth.
This skepticism is reflected in sector share prices, which are below the S&P 500, with declining PE ratios globally.
The case for an enterprise-first strategy
I believe enterprises are likely to gain the most from 5G. KPMG research has identified more than US$4 trillion of unlocked value across a number of industries.
And, encouragingly, many investors feel the same way. Three-quarters believe the financial upside will come from the deployment of 5G in the enterprise space.
Looking at specific industries, KPMG’s report “Unlocking the benefits of 5G for enterprise customers,” found that campus-style 5G rollouts could bring US$600 billion of value in manufacturing, US$400 billion each in healthcare and logistics, and US$375 billion in technology – all within a 1-4-year timeframe.
An enterprise-first approach would represent quite a change from previous 2G, 3G and 4G evolutions, where rapid consumer adoption drove up telcos’ revenues.
By shifting their strategy – and their message – from the consumer to the enterprise, telcos can create a more compelling narrative, built upon value not price. Such a story should enthuse the investor community.
Painting a clear, upbeat picture of 5G
Around the world, many carriers have purchased different 5G spectrum allocations, and investors are unclear over which offer the best performance.
As telcos formulate their strategy and messaging, it’s important to convey the tremendous advantages of edge computing, millimeter wave spectrum and ultra-low latency, bringing increased agility, responsiveness, efficiency and productivity.
Some of the investors KPMG professionals spoke to are also a little in the dark over the financials of 5G. To reassure them, telcos should provide greater detail on specific 5G capex levels and expected revenue, earnings and cash flow.
Collaborate with industry to accelerate 5G roll-out
5G is set to become an integral part of the enterprise business model. Collaboration with key partners can further convince investors of the 5G business case.
Think about sectors like manufacturing, healthcare, B2B cloud providers, cloud gaming, autonomous vehicles and government. Their actual investment in 5G may be limited, but it’s in their interests to work with telcos to shape the services they want and see an accelerated roll-out, because their businesses will benefit tremendously from 5G.
Indeed, KPMG estimates that delays in the network rollout could reduce GDP growth by as much as 5 percent.