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Tag: Dynamic Spectrum Sharing

Telstra’s journey in commercialising 5G

Telstra’s journey in commercialising 5G

Telstra: Maintaining its network leadership

SK Telecom, Verizon and Telstra were among the first in the world to start commercialising 5G networks. SK Telecom and Verizon launched broadband-based propositions in 2018, but it was only in 2019, when 5G smartphones became available, that consumer, business and enterprise customers were really able to experience the networks.

Part 3 of our 3-part series looks at Telstra’s 5G experience and how its propositions have developed from when 5G was launched to the current time. It includes an analysis of both consumer and business offerings promoted on Telstra’s website to identify the revenue streams that 5G is supporting now – as opposed to revenues that new 5G use cases might deliver in future. (We have covered this extensively for a number of verticals, including healthcare, manufacturing, energy, and transport and logistics.)

When its 5G network was launched, Telstra went to market with a 12-month free 5G access period and the intention to charge AUD15 ($12) at the conclusion of the free period. However at the end of the promotion period it opted to keep things simple for consumers, choosing to bundle 5G access with higher tier plans (effectively AUD65 / $50 and above) – and only offer 5G under its main Telstra brand. There were no 5G specific services at launch, however capacity advantages were leveraged to offer zero-rated access to subscription services available with the plan (i.e., subscription services would not consume data). From a customer standpoint the principal and most visible benefit from 5G in the early stages was its noticeably faster speeds.

This report examines the market factors that have enabled and constrained Telstra’s 5G monetisation efforts, as it moves to extend 5G access beyond premium early adopters to a wider audience. It identifies lessons in the commercialisation of 5G for those operators that are on their own 5G journeys and those that have yet to start.

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Telstra 5G performance to date

Given that four of the top five key purchase considerations for Australian customers (across consumer, small business and enterprise segments) are network-related (i.e., coverage, speed, reliability and security), Telstra has made network leadership a point of competitive differentiation. It views its investment in 5G as enabling it to stay ahead of customer network expectations as they evolve.

The operator was Australia’s 5G first-mover and it has been able to maintain its leadership in terms of 5G network coverage to date. This is a key deliverable of its T22 plan for transformation in response to challenging industry dynamics and the impact of the National Broadband Network (NBN) – the government’s broadband upgrade initiative.

In a market release on 21 April 2021, Telstra announced that its 5G network covered close to 66% of the Australian population and that it would attain its target of 75% coverage by the end of June 2021 (it achieved this goal on 28 June 2021). Telstra 5G sites number more than 3,700, across 200+ cities and towns, and 5G coverage extended to over 2,700 suburbs.

Post launch in 2019, early take-up of 5G devices was skewed towards consumer and SME segments, but the launch of Apple’s first 5G device in October 2020 helped promote 5G take-up in the enterprise segment (there has historically been a higher penetration of Apple devices in the Enterprise market).

  • Early consumers were typically metro customers, which aligned to Telstra’s network rollout strategy (covering more populous/high traffic metro areas first).
  • Enterprise customers were not among the early adopters of 5G devices.

Net porting to the Telstra network was higher for 5G than for 4G for the first few quarters after launch and Telstra saw strong growth from its installed base (largely the early adopters). In August 2020, Telstra reported 210,000 5G devices connected to its network (before iPhone). The launch of iPhone 12 caused the number of 5G devices to jump to 400K by November 2020 (reported at Telstra’s November investors meeting), with 40K new 5G devices being added per week.

  • 72% of 5G iPhones devices were on plans which included 5G access (i.e. top tier).

At the same meeting in November, Telstra reported that 65% of all new Android device sales were of 5G models (e.g. Oppo, Google, Motorola, Samsung), a factor attributed to getting handsets below the AUD1,000 ($771) threshold. This has helped to increase 5G readiness among its customer base.

By February 2021, the number of 5G devices on the Telstra network was over 1 million  (this compares to 8.6 million postpay retail customers reported in December 2020, and 19 million customers overall).  The share of devices on 5G plans is not public.  Telstra continues to report that it is adding “thousands” of 5G devices to its network weekly.

5G devices connected to Telstra’s network since launch

Telstra commercial 5G

Source: STL Partners based on Telstra public data

Telstra continues to see an increase in customer take-up of 5G-ready plans (new connections and upgrades). It attributes the increase in postpay service additions over the period to a leadership in 5G (supporting its network leadership perceptions), but also acknowledges that other non-network considerations, such as large data allowances may also be driving the uptake of these plans.

Telstra has reported an increase in the “transacting minimum monthly commitment” (TMMC) versus previous calendar period (PCP) for its postpay handheld customers for six months ending December 2020. TMMC is regarded as a lead indicator of ARPU trends (actual ARPU declined due to lost roaming revenue, new plan accounting which allocates more revenue to handsets, lost out-of-bundle revenue and other factors). Telstra regards some of the increase in TMMC as having been driven by the introduction of the latest model handsets. It noted a high attach rate for 5G inclusive plans – AUD65 and above plans – with iPhone 12 devices and the latest Samsung handsets that were introduced during the period (i.e., customers want 5G-ready plans with these new 5G handsets, not 5G access alone).

AUD ($) increase in TMMC on PCP for postpay handheld customers

Telstra commercial 5G

Source: Telstra

Whilst the initial most obvious benefits of 5G relate to speed, Telstra assumes a broader perspective of 5G’s success metrics, including a comparison of overall NPS which has been consistently higher for customers on 5G plans than for those on 4G plans. There could be a number of reasons for this, aside from better network performance, e.g.:

  • Positive associations with having something “new”;
  • A positive effect as a result of iPhone ownership (though Telstra has noticed that the positive trend started before the iPhone launch);
  • Post-purchase rationalisation;
  • Richer device capabilities.

Telstra continues to monitor this trend to determine if it will be maintained.

Contents

  • Executive Summary
  • Introduction
  • Performance indicators to date
  • Details of launch
  • Consumer propositions
    • At launch…
    • …And now
    • Consumer monetisation summary
  • Business propositions
    • At launch…
    • …And now
    • Business monetisation summary
  • Analysis of 5G market developments
  • What next?
  • Conclusions
  • Index
  • Appendix 1

This report builds on earlier STL Partners research, including:

  • Verizon’s journey in commercialising 5G
  • SK Telecom’s journey in commercialising 5G
  • Monetising 5G with consumers: What are the options?
  • 5G strategies: Lessons from the early movers

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Monetising 5G with consumers: What are the options?

Monetising 5G with consumers: What are the options?

10 telco approaches to consumer 5G

This report looks at the 5G consumer approaches of 10 network operators across nine markets, providing a description of the tariffing approach taken towards 5G smartphone packages, 5G fixed wireless access (FWA) plus mobile broadband packages and where available, tablet and laptop propositions.

Five of the 10 operators reviewed in this report have been promoting 5G smartphone services for the last two years with the remaining having launched in 2020. Of the 10 operators analysed, only three (China Mobile, EE and NTT DoCoMo) have publicly stated the number of 5G customers that are subscribing its 5G tariffs so far. China Mobile has been impressive in its ability to sign up 5G customers as has NTT DoCoMo which launched 5G services just over a year ago in March 2020.

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An operator’s 5G tariff may be exclusive and sold separately or at a premium to 4G or an operator may choose to promote its tariffs as 5G ready – i.e. the tariff is technology neutral (available across 4G and 5G) and access to a 5G service will depend on the customer owning a 5G handset. Some may view a 5G ready approach as a more simplistic with the opportunity for a premium to be earned in speed variation, data allocation and inclusive services such as SVoD and gaming.

Operators have made large investments rolling out new network, introducing new mobile and broadband propositions, launching new services and entering partnerships for video, AR/VR, gaming, music, health and insurance.

The report also provides a snapshot on operator spectrum bands used for 5G, RAN coverage to date and standalone/non-standalone status. It also reviews device range and affordability, subscription services on offer as well as other initiatives MNOs have taken to differentiate their 5G service offering. The report also highlights the level of 5G MVNO activity in each market and whether our surveyed operators have extended 5G to both its own brands and to independent players.

China Mobile has led the way in 5G package subscriptions using a migration strategy that focused on discounting (in addition to bundled content). However, not all 5G subscription customers own a 5G smartphone meaning they have no ability to access a 5G service. These customers subscribed to the 5G package because of the better value pricing and inclusive data offered compared to the 4G tariff they were previously on.

EE launched 5G two years ago and has so gained 3.26 million 5G subscribers compared to DoCoMo’s 3.09 million 5G subscribers acquired in just over a year, representing 3.74% of its base. China Mobile’s 5G network customer base of 92.76 million subscribers (those accessing the 5G network with a 5G device) represents 9.8% of its 940 million customers and just over half of its 5G package subscribers. While Elisa does not publicly state its 5G subscriber take up, we estimate at least 200,000 or 5.5% Elisa’s subscribers are 5G.

The Chinese mobile operators migrated 3G and 4G customers to their 5G packages by discounting prices and offering more data than existing 4G packages. China Mobile in particular offered a 30% discount for the first six months to customers of 5 years or more.

Service such as VR, AR and cloud gaming are still developing and so services such as SVoD (movies, series and sports content) continues to feature in proposition offerings either as a core component of the tariff propositions or at least for a limited period trial.

This report accompanies a 3-part series of 5G reports (published in 2021) taking an in-depth look at how 5G pioneers are looking to monetise 5G in the enterprise segment as well as in consumer:
• SK Telecom’s journey in commercialising 5G
• Verizon’s journey in commercialising 5G
• Telstra’s journey in commercialising 5G (forthcoming in June 2021)

Table of Contents

  • Executive Summary
  • Introduction
  • China Mobile, China
    • 5G context
    • Key takeaways / assessment
    • In detail
    • Performance
  • DNA, Finland
    • 5G context
    • Key takeaways / assessment
    • In detail
    • Performance
  • EE, UK
    • 5G context
    • Key takeaways / assessment
    • In detail
    • Performance
  • Elisa, Finland
    • 5G context
    • Key takeaways / assessment
    • In detail
    • Performance
  • Globe Telecom, Philippines
    • 5G context
    • Key takeaways / assessment
    • In detail
    • Performance
  • NTT DoCoMo, Japan
    • 5G Context
    • Key takeaways / assessment
    • In detail
    • Performance
  • Ooredoo, Qatar
    • 5G context
    • Key takeaways / assessment
    • In detail
    • Performance
  • Rogers, Canada
    • 5G context
    • Key takeaways / assessment
    • In detail
    • Performance
  • Swisscom, Switzerland
    • 5G context
    • Key takeaways / assessment
    • In detail
    • Performance
  • Vodacom, South Africa
    • 5G context
    • Key takeaways / assessment
    • In detail
    • Performance
  • Conclusions
    • 5G tariff offerings
    • ARPU
    • Devices
    • FWA and mobile broadband
    • MVNO and own brand activity
    • Subscription services and network differentiation

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Verizon’s journey in commercialising 5G

Verizon’s journey in commercialising 5G

Verizon: Payback for the 5G pioneer?

SK Telecom (SKT), Verizon and Telstra were among the first in the world to commence the commercialisation of 5G networks. SK Telecom and Verizon launched broadband-based propositions in 2018, but it was only in 2019, when 5G smartphones became available, that consumer, business and enterprise customers were really able to experience the networks.
Part 2 of our 3-part series looks at Verizon’s 5G experience and how its propositions have developed from when 5G was launched to the current time. It includes an analysis of both consumer and business offerings promoted on Verizon’s website to identify the revenue streams that 5G is supporting now – as opposed to revenues that new 5G use cases might deliver in future. (We have covered this extensively for a number of verticals, including healthcare, manufacturing, energy, and transport and logistics.)

Initially, Verizon had hoped to charge a $10 monthly fee for existing 4G subscribers to access its millimetre Wave (mmWave) 5G Ultra Wideband (UWB) service, however it waived this fee due to a lack of devices and limited coverage at launch in April 2019. 5G access was offered as a benefit for customers on its top two Unlimited data plans, which promised unlimited 5G UWB data, unlimited 4K HD streaming and unlimited 5G UWB hotspot. It emphasized capacity advantages of 5G as well as its ability to offer an improved video experience.

Verizon’s choice of 5G spectrum (mmWave) was guided by its intention to offer customers a differentiating 5G experience, but it has added complexity to its 5G propositions and initial limited coverage has impacted its competitive position in the market.

This report examines the market factors that have enabled and constrained Verizon’s 5G monetisation efforts, as it moves to extend 5G access beyond early device adopters to a wider audience. It identifies lessons in the commercialisation of 5G for those operators that are on their own 5G journeys and those that have yet to start.

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5G performance to date

This analysis is based on the latest data available as we went to press in May 2021.

An early benefit of moving to 5G for Verizon was to reduce costs and increase efficiency. On this score, Verizon reports that it is on track to achieving its $10 billion cost reduction target, ahead of the scheduled end-2021 timeframe (as set out in September 2017).

On the fourth quarter 2020 earnings call, CEO Hans Vestberg claimed there had been a “great migration of our customers [consumer] to Unlimited and to the premium Unlimited” plans, resulting in over 60% (57 million subscribers) of Verizon’s base being on an Unlimited plan and over 20% (19 million) being on premium plans (5G Ultra Wideband – UWB – inclusive). The appeal of 5G is not thought to be the primary driver of this trend (only 9% of the postpay base had a 5G device in December 2020 ):

  • Verizon is bundling generous content services (non-5G specific) with these high-end plans.
  • The arrival of the iPhone 12 in the fourth quarter was at least partly responsible for 90% of new net additions in the quarter taking Unlimited plans (with 55% being premium Unlimited plans) – probably more so than the introduction of a low-band 5G nationwide (NW) service in the same time period.

Quarter one 2021 results indicate that the migration to premium plans has continued. Matt Ellis, Verizon EVP and CFO announced that “At quarter end, over 65% of our base was on an Unlimited plan with more than 23% of our base taking a premium plan” . The “5G adoption rate” was reported to be 14% of the consumer postpay subscriber base (12.6 million subscribers). 5G access (5G UWB in particular) may become a more important driver of upgrades to higher value plans in future, particularly as it becomes more widely available (mid-band inclusive) and there are more obvious benefits to consumers (services).

Upgrades have succeeded in driving average revenue per account (ARPA), which reportedly grew by 1.7% for the first quarter year-on-year (despite COVID impacts) – Verizon attributed this to its tiered approach to Unlimited plans.

There were negative net postpay additions in the March quarter, partly ascribed to seasonality, however this followed fourth quarter criticism of Verizon by investors for failing to attract expected numbers of new customers, particularly in comparison to competitors.

In his fourth quarter address, Mr Vestberg also expressed satisfaction that Verizon was adding new enterprise customers, which it continued to do in quarter one 2021. With regard to 5G mobile edge compute, Mr Vestberg reported that Verizon was building a “funnel of customers” but held that significant revenues were only expected in 2022.

First mover advantage?

The risk of being an early mover (which had worked for Verizon with 4G LTE), may not be paying off in the 5G era. While Verizon has retained its 4G market leadership status, Verizon’s 5G market position is being challenged following the merger of Sprint and T-Mobile, which was approved in April 2020.

Prior to the merger, T-Mobile had been rolling out a low-band 5G network – which performed well on coverage, but less so on performance – where Verizon had a competitive advantage. The Sprint merger has since provided T-Mobile with a mid-band 5G network that delivers faster speeds than its previous low-band 5G network and provides better coverage than Verizon’s premium mmWave offering. T-Mobile’s 5G proposition has become more compelling from a performance perspective, and it has better 5G coverage than Verizon’s 5G UWB and NW.T-Mobile reported that it had greater than 10 million 5G subscribers in March 2021 , compared to Verizon’s 12.6 million, based on the 5G adoption rate announced for the same quarter. On this basis, and the fact that T-Mobile net additions have exceeded those of Verizon, while Verizon currently retains 5G leadership, its lead could be narrowing.

T-Mobile versus Verizon subscriber base comparison, March 2021

Source: STL Partners, based on T-Mobile and Verizon reported data

T-Mobile, Verizon and AT&T continue to compete aggressively on network coverage. In March 2021 , it was reported that:

  • T-Mobile led Verizon on low-band 5G “Extended Range” network coverage, reaching 287 million versus Verizon’s 230 million;
  • T-Mobile’s 5G “Ultra Capacity” network (mainly mid-band, with some mmWave) covered 125 million people, while Verizon’s UWB (mmWave) coverage is limited to 67 cities (the 5G service based on Verizon’s recently acquired C-band/mid-band spectrum will also fall under UWB, but it is not yet available).

Contents

  • Executive Summary
  • Introduction
  • Performance indicators to date
    • First mover advantage?
  • Details of launch
  • Consumer propositions
    • At launch…
    • …And now
    • Consumer monetisation summary
  • Business and enterprise propositions
    • At launch…
    • …And now
    • Business monetisation summary
  • Analysis of 5G market development
    • Consumer perceptions
  • What next?
    • Mid-band
  • Conclusions
  • Appendix 1
  • Index

This report builds on earlier STL Partners research, including:

  • SK Telecom’s journey in commercialising 5G
  • 5G strategies: Lessons from the early movers
  • 5G: Why Verizon thinks differently – and what to do about it

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