Industry digitalization and the untapped opportunities for operators October 2017 The 5G business potential SECOND EDITION 2 ERICSSON REPORT THE 5G BUSINESS POTENTIAL SECOND EDITION The 5G market potential Operators can beneft from an additional 36 percent revenue from 5G-enabled industry digitalization market opportunities by 2026. In today’s world, telecom operators are facing multiple challenges; increasing demands from consumers and tough pricing competition are only a few of the factors causing market stagnation for the industry. Despite high growth in both mobile subscriptions and mobile data traffc, overall mobile service revenue growth has fattened out, compared to the 10 to 15 percent annual growth a decade ago.1 Operators are struggling to turn the growing usage of mobile data services into greater revenues. The current average forecast for operator service revenues is expected to increase by 1.5 percent annually from 2016 to 2026 globally. While this offers a steady revenue stream, it is slim when compared to 5G-enabled revenue growth opportunities in industry digitalization. This report unveils updated 5G industry fndings, introducing data from an additional two industries – retail and agriculture – and adding these to the eight key industries in the frst edition of the report. Our latest fgures back up and build on the fact that in a competitive marketplace, 5G presents huge fnancial opportunities for operators over the next decade. Figure 1: Revenue forecast (CAGR 2016–2026, USD billion) Current operator service revenues Industry digitalization revenues for ICT players Source: Ericsson and Arthur D. Little 2016202620162026 1,497 968 1,736 3,458 13.6% 1Ericsson Mobile Business Trends, 2015 1.5% Ericsson worked closely with Arthur D. Little, a leading international management consultancy frm, conducting interviews, consulting leading market reports and liaising with global and local representatives of Ericsson industry practices, as well as Arthur D. Little experts. A conservative view was taken on the fndings in this research report, to deliver an authentic interpretation of the impact 5G will have on future markets. The operator-addressable share of revenue is based on the 2017 Arthur D. Little global telecoms study report, Major Strategic Choices Ahead: Reconfguring for Value, which is based on 150 industry interviews. METHODOLOGY * Industries included: manufacturing, media and entertainment, fnancial services, public safety, energy and utilities, healthcare, retail, agriculture, automotive, public transport 淘宝店铺 “Vivian研报” 首次收集整理 获取最新报告及后续更新服务请在淘宝搜索店铺“Vivian研报” 或直接用手机淘宝扫描下方二维码 As the world becomes ever more digitally and globally connected, industries are experiencing an Information Communication Technology (ICT)-driven transformation. For operators, traditional methods of revenue are slowing; however, the market for industry digitalization is only just beginning. Digitalization has risen industrywide across the globe, and it is predicted that digital revenue for ICT players will be worth around USD 3.5 trillion by 2026 across the 10 key industries studied.2 Industry digitalization revenues for ICT players come from adopting or integrating digital technologies into a specifc industry.3 These industry digitalization revenues are substantial – even today. In fact, revenues reached USD 968 billion in 2016; operators should consider that this young market is already bearing fruit for those who take the opportunity to reap the fnancial rewards. Global business trends such as hypercompetition, new customer power and sophistication, the fast-paced change in business ecosystems and disruptive technological advances all affect vertical industries to different extents. Industries are moving towards digitalization for better business outcomes: to increase revenue by better serving their customers, increasing demand, and beating the competition; to decrease costs by increasing productivity and effciency; and to decrease risk by increasing safety and security. Tomorrow’s progress begins today 5G will be a major technology for growing industry digitalization, creating and enhancing industry digitalization use cases such as autonomous driving, remote robotic surgery and augmented reality (AR) support for feld maintenance and repair. Globally, the largest opportunity will be seen in the energy and utilities industry, closely followed by the manufacturing and public safety sectors. Three families of use case scenarios and applications have been identifed: Massive machine-type communications requiring connectivity for millions of devices, typically transmitting a relatively low volume of non-delay-sensitive data (low bandwidth and not latency-critical) via low-cost devices with extended battery life, e.g. asset tracking in a warehouse, a factory, or on a farm; or massive numbers of sensors in cars or other machinery to enable predictive maintenance Critical machine-type communications for ultra-reliable, resilient, instantaneous connectivity, with stringent requirements for capabilities such as throughput, latency and availability, e.g. remote medical procedures; drones to inspect remote assets; or remote control of machinery in hazardous conditions Enhanced mobile broadband for mass mobile connectivity, as demand for mobile broadband continues to increase, e.g. enhanced gaming or AR/VR to enhance the shopping experience ERICSSON REPORT THE 5G BUSINESS POTENTIAL SECOND EDITION 3 DIGITAL transformation 2Public safety, manufacturing, fnancial services, healthcare, energy and utilities, automotive, media and entertainment, public transport, agriculture and retail 3 In this report, we do not include revenue from the sale of smart objects such as devices, cars, forklifts, or hospital beds Figure 2: 5G-enabled industry digitalization revenues for ICT players, 2026 Source: Ericsson and Arthur D. Little Public transport Energy and utilities Automotive Media and entertainment Manufacturing Public safetyUSD 1,307 billion 19% 4% 6% 8% 18% 13%12% 10% 9% Healthcare Financial services Retail Agriculture Having gained an understanding of industry digitalization revenues for ICT players, the study delved into the impact of 5G on key industries. Some 400 industry digitalization use cases were assessed and categorized as 5G created, enhanced or independent.4 Based on this assessment the 5G-enabled revenue potential for ICT players in 2026 is estimated to be USD 1.3 billion. Establishing a new identity One of the objectives of this report was to determine potential revenue growth for operators based on the role of the operator in the industry digitalization value chain. While operators may still proft from focusing on one of the steps in the value chain, they could achieve much larger growth if they embrace every step. Using 5G to solve the key challenges in digitalization for industries (such as manufacturing and automotive), operators can become more than network developers, addressing additional revenue streams by becoming service enablers or even service creators (see Figure 4, page 5). Today, there is already a mix of operator positions in the value chain. Digitalization of industry-specifc business processes generates a vast opportunity for operators assisting their customers from various vertical industries with new strategic direction. This B2B2X model represents a market where the operator