Cellular ecosystem evolution: 4G to 5G transition

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Understanding the evolution of ecosystems connected to 5G is crucial in being able to keep up to speed with, and take advantage of, the business transformation it enables. It is easy to miss these shifts by considering 5G to be a faster version of 4G, with similar ecosystem logic and dynamics. In this post, the first in our ecosystem evolution blog series, our experts explore how the 5G ecosystem differs from its 4G predecessor, how it connects with IT and industry-specific vertical ecosystems, and what role you can play as a vital stakeholder in these evolving ecosystems.

The homogenous 4G ecosystem

The 4G ecosystem has been very homogenous and straightforward for all stakeholders to understand, centering around four simple main pillars – one single device type, one connectivity type, one type of cloud and one common model for distribution and monetization.

  1. The 4G device: the smartphone: The smartphone has been a phenomenal success and driver for 4G technology, networks, and apps. Even if other devices use 4G today, the smartphone has driven the market momentum – either as the device for use or as a control platform for smart innovations.
  2. Connectivity becomes universal: Universal connectivity is delivered to smartphones over 4G or Wi-Fi access. Both access types provide a universal connectivity service that is equal for all use cases and apps. 4G is available everywhere, and Wi-Fi is available at home, the office and public hotspots. The widespread availability of both these wireless technologies makes it reasonable to assume that at least one will satisfy users’ needs almost anywhere. Wireless connectivity is either free or paid through a monthly cellular data plan.
  3. Centralized clouds: In 4G, the cloud infrastructure powering all apps and enterprise applications is centralized to offer the lowest possible cost. From a single location, an American hyperscale data center can serve a large population with their mobile, B2B, and B2B2C needs. 
  4. 4G app distribution and monetization: Then we come to the applications themselves. Application developers funnel their innovations through two app stores to reach all users globally. Monetization of apps then happens either through a revenue share with the app store for paid apps or through ads for free apps.

The four main pillars in the 4G ecosystem.

All stakeholders in the 4G ecosystem understand these four anchors well and enjoy a homogeneous and straightforward view of the ecosystem. During the 4G era, we have seen a significant shift in how value is captured in this ecosystem, with growth being increasingly skewed toward large internet providers, and away from CSPs. In fact, in their report The Mobile Economy 2022, GSMA found the relative revenue of the top 25 mobile operators compared to the top 10 global internet companies has shifted from above 80 versus 20 in favor of operators back in 2010, to 40 versus 60 in favor of internet giants in 2020.

The transition to 5G and ecosystem diversification

The first wave of 5G deployments has taught us valuable lessons regarding the logic and dynamic in the 5G ecosystem. On the surface, the ecosystem is bigger and more diverse. All service providers are early adopters, devices come earlier in the deployment cycle and in a larger variety, and topologies for cloud infrastructure and network are shifting.

The cellular ecosystem has also expanded, evolving from serving consumers with smartphones to being a powerful innovation platform enabling the digital transformation of B2B and B2B2C companies. Last year, as part of our 2021 Practitioner’s Guide to 5G for Business, we explored this expansion of the 5G ecosystem. We described two main categories – the global 4G winners across eight stakeholder categories pivoting to reinvent themselves for similar success in the 5G ecosystem, and the variety of new segments being unlocked, representing an expansion of scope for the 5G ecosystem and creating new 5G leaders.

This expansion may lead to new opportunities, but it also makes it more complex to navigate the cellular ecosystem. In September 2020, 18 months after the first 5G network launch, Technexus counted 400 stakeholders in 25 subcategories of the 5G ecosystem. As a key stakeholder, you can therefore expect the 5G ecosystem to be much more diverse than what you experienced with 4G.

A more affluent, interconnected ecosystem

In addition to being more diverse, the 5G ecosystem is more affluent and has stronger connections to adjacent ecosystems, such as the IT and vertical industry ecosystems – connections that are being built through three main pathways.

First, the IT ecosystem underpins the digital transformation of all industries and business applications moving to public and hybrid clouds. The IT ecosystem includes computing, storage, security, open-source and software application building blocks. For most businesses, cloud-based applications plus wireless connectivity creates the flexibility and agility they strive to achieve.

Second, the connection between the cellular ecosystem and different industry-specific vertical ecosystems is growing in importance. Industry verticals rely on cellular connectivity’s reliability, security, and performance to make their next leaps in user experience and efficiency gains.

Finally, we see a split into global and regional or local ecosystems. Global ecosystems – such as automotive, entertainment and manufacturing – require access to the same connectivity solutions everywhere on the globe. Regional or local businesses including agriculture, healthcare and government sectors, can rely more on regional and local ecosystems connected to the global 5G and IT ecosystems.

Connecting 5G, IT, and vertical ecosystems

Connecting 5G, IT, and vertical ecosystems.

This new world, with an “ecosystem of ecosystems,” represents a good starting point for understanding the complex landscape and stakeholder relationships in play. This multi-faceted nature makes it necessary to be able to work with multiple perspectives in the same ecosystem framework.

Complexity breeding exponential opportunity

At this stage, you might feel overwhelmed by the increased ecosystem complexity, but this is the foundation for increased opportunities that will create exponential innovations – once you know how to navigate the landscape.

These increased opportunities come from introducing more options on two fronts. There are more building blocks in the new ecosystem, some from the expanded scope and some from the breaking up of the existing 4G ecosystem into more granular parts. In addition to offering a more extensive set of building blocks, we also have more choices for each building block. We have access to great capabilities in the network that can be exposed to applications, such as location information, available quality of service levels, and equipment used by the end customers. These strategic choices give innovators the potential to tailor offerings even closer to customer segments’ needs.

Exponential innovation is about the art of combining multiple disruptive technologies into one invention. When connecting the power of numerous strong technology forces, you have the potential to create an innovation that scales up quicker and reaches further in penetrating the market.

A high-level overview of the innovation stack in play.

A high-level overview of the innovation stack in play

For an example of this, you can look to where extended reality (XR) is today. Users have a powerful head-mounted display wired to a powerful desktop computer where all the applications are running. The exponential innovation in the pipeline relies on moving the required compute resources to the premises or network edge, replacing the wires with low latency wireless connectivity, and splitting rendering between devices and the computing at the edge. By combining these technologies, future XR devices will be lighter, have longer battery life, and be able to be used everywhere – much like the evolution we enjoyed in telephony when GSM emerged 30 years ago.

Unlocking the full potential of this evolved ecosystem

There are several different entry points to make the most of this dynamic new landscape. Firstly, we can expect to see tighter connections between devices, connectivity, and applications at the edge. If you deal with an application that will continue to target the smartphone as the user device, without performance requirements on the network, and that low cost defines your cloud choice, you can continue as-is. The tighter connections come into play when you rely on a different device that consumes or generates large volumes of video or data processed by AI and where flexibility is required.

Your starting point could also be performance-critical B2B and B2B2C applications where a centralized cloud is not good enough. Another reason to get excited might be if you’re currently relying on wired connectivity and looking forward to the flexibility of a wireless connection with performance on par with wires.

Secondly, we are in the middle of several disruptive technology shifts. Last year, we outlined the five major technologies driving 5G disruption. These technologies – edge computing, artificial intelligence (AI), XR and the Internet of Things (IoT), combined with cellular wireless connectivity, are crucial tools for the creation of new 5G-enabled innovations. And the new developments don’t end there – you need only browse through our most recent technology trends looking ahead to 2030 to gain valuable insights into the future network platform.

Some inventions are technology-lead, taking advantage of one disruptive technology. But the exponential innovation potential will come from a combination of multiple technologies applied to a complex problem. Uber is an excellent example from the 4G wave of the power of combining various disruptions. Uber reinvented the way we order a ride, track a vehicle en-route, earn ratings as both driver and customer, and finally how we pay for the trip.

Finally, the innovations we envision will rely more on cross-industry collaborations at the intersection of the different ecosystems we have laid out here. These collaborations start in the early stages, when it is about nailing a solution with many moving parts from stakeholders with diverse backgrounds. This collaboration requires taking advantage of early access to 5G networks at a corporate campus, a university campus, a technology incubator, or a 5G technology and service provider lab.

By being an early mover and finding that disruptive solution, all contributors can look forward to the potential to scale, fast and high, once proven for a market segment. It is much more difficult to enter these types of innovations later and aspire to copy the leader, once the market is already established.

What role will you play?

Now that you have a clear view of the context we will operate in, is time to look at which role you will play. There are three prominent roles in the ecosystem for a given type of opportunity – the orchestrator taking a lead role, the contributors making the solution complete, and the beneficiary who will enjoy the advantages.

The orchestration role is a big job. It is customer- or beneficiary-facing and requires both a meaningful contribution and the capability and interest to bring together all the required stakeholders. The challenge is not only to find the best provider, but also to find a solution that controls and leverages the system. As an orchestrator, you want to ensure all contributors have confidence that you have all bases of the solution covered, and that each part is powerful enough to deliver on the promise to the end-customer.

As a contributor, you provide one of several parts of the solution. You are either a smaller company, offer a minor part of the solution, or have a smaller market share in your target segments. Your contribution is vital to making the whole solution complete, and you strive to co-create and collaborate with the best players in the industry to advance a given opportunity.

The beneficiaries are the ones that will see an improved outcome from what you are creating to solve one of their key challenges. The beneficiary can be a consumer, a business, or a society or government function. Each of them measures success in different ways, such as superior experience, improved business outcomes, or societal advancements.

Interested in learning more about these roles and how they work together? In the following episodes of this ecosystem evolution blog series, we will present a framework which supports all three of these stakeholder roles and ties them together. If this is your first contact with this ecosystem series, be sure to sign up to be notified of all future episodes in the series as soon as they are published.

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Contact the authors

If you have any ecosystem context-related questions that we left unanswered here, or if you have ideas or suggestions for how you’d like this series to end, please contact the authors here.

Acknowledgement: The authors of this ecosystem evolution blog series would like to acknowledge the work and contributions of Arthur D. Little, who conducted a joint analysis with us earlier in 2022.

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