This is an excerpt from a story delivered exclusively to Business Insider Intelligence Connectivity & Tech subscribers. To receive the full story plus other insights each morning, click here.
As telecoms set their 5G networks live and debut compatible devices, they must determine how to charge for 5G services. Given the current paucity of actual subscribers to those services — they’re mostly comprised of tech-savvy consumers and first-adopters — it’s a natural time for telecoms to experiment with pricing regimes and different ways of charging for service.
But it seems that charging higher prices for 5G may not be a sustainable approach, based on comments from the executive team of UK operator British Telecom (BT) on the company’s fiscal Q1 (ended June 30, 2019) earnings call.
Under its EE brand, BT launched the first 5G network in the UK this May, which includes a surcharge for access to the network and its faster data speeds. Data plans for EE’s 5G devices and SIM cards startat £32 ($39) per month for a 20Gb allowance.
An equivalent plan for a 4G device is £20 ($24), though the 5G plans also include some other perks, such as access to BT video content or the ability for consumers to exclude some activities from their monthly data allowance.
According to the CEO of BT Consumer, Marc Allera, the telecom’s approach to the market was based on the idea that "With all the investment in 5G and the fact it’s a faster, better network, we thought it would be logical to have a small premium for 5G." But, he continued, "others have not seen that logic."
As Allera alluded to, BT must now compete with other telecoms that have launched 5G networks — and with their pricing plans, some of which do not upcharge for 5G access. Vodafone, for instance, is treating its 5G service in the UK much like how broadband operators often price their plans, offering unlimited data but tiers of network speed based on monthly pricing.
Three UK, on the other hand, will not charge extra for its 5G-powered service, keeping its SIM-only plans at £20 ($24) per month. These alternate approaches to 5G pricing could force BT to change course at some point, since, as BT Group CEO Philip Jansen said, "We launched with a premium price for 5G, and it looks like the market may not be able to sustain that premium because it looks like people aren’t in the same position we are."
The bigger picture: The lack of clear consumer use cases for 5G and the range of alternatives will likely force telecoms away from 5G-plan premiums.
Many of the improvements brought by 5G in areas like speed and latency will be marginal for consumers. For example, 5G will allow consumers to stream high-quality video at faster speeds than on current 4G networks. But, as Qualcomm President Cristiano Amon told Business Insider Intelligence, those 4G networks allow most consumers to stream video with speed and quality that’s sufficient to them most of the time.
And it doesn’t seem like consumers will want to pay more for such marginal gains. Just one third of US consumers are willing to pay more for 5G service, according to PwC; on average, they wouldn’t be willing to pay more than around $5 extra per month for 5G.
That’s why Verizon was smart to retreat from its initial plan to add a $10 surcharge to its 5G phone plans (though that decision was inspired by the lack of widespread network availability rather than competitors’ 5G options).
As 5G is quickly shifting to table stakes for global telecoms, they’ll be forced to treat it as just another means of transmitting data. Instead of seeking new revenue from premium 5G pricing plans, they should turn to other sources, like the enterprise connectivity market.
Interested in getting the full story? Here are two ways to get access:
- Subscribe to a Premium pass to Business Insider Intelligence and gain immediate access to the Connectivity & Tech briefing, plus more than 250 other expertly researched reports. As an added bonus, you’ll also gain access to all future reports and daily newsletters to ensure you stay ahead of the curve and benefit personally and professionally. >>Learn More Now
- Current subscribers can read the full briefing here.
- A new network-sharing agreement between Telecom Italia and Vodafone Italia will allow both operators to expedite 5G
- AI IN TELECOMMUNICATIONS: Why carriers could lose out if they don’t adopt AI fast — and where they can make the biggest gains
- Amazon’s Ring partnership with law enforcement is a double-edged sword