The idea in a nutshell: Since they were set up 25 years ago, phone companies have charged for the ability to do phone things. Typical agreements between an individual and their phone company include voice minutes, SMS and data. We are, however, about to enter a world where data speeds are so incredibly fast that the networks we use will feel infinitely empty. There is unlikely to be any service contention. Since value flows to things that are scarce, how will telcos charge for the data they use ? And didn’t this happen with international fiber optics 20 years ago and crash the price for international calls, putting a lot of companies out of business ?!
5G data will be so prolific it will ‘feel’ limitless
Australian phone companies (along with pretty much every telco in the world ) have started trialing 5G data services. They are getting staggering speeds. One example released this week provided an interesting fact. Downloading a High Definition season of ‘Game Of Thrones’ over 5G will take around 10 seconds.
In truth, people are unlikely to download an entire episode in 10 seconds. They will most likely watch it over the course of an hour, streamed, with some spare as a buffer.
5G means that whatever data service we use will feel immediate. There will be no latency with 5G. The second you press the button the action occurs in a 5G world. If my car has 5G and it is out of control heading towards your car, my car can tell your car a collision is about to occur and pop your air bags !
Which means it will be hard to charge a lot for it
In economics, value flows to scarcity. You will have heard of supply and demand. When something is in low supply, (and at least some people want it) you can charge a lot for it. That’s why gold is expensive. (It is star exploding star flotsam which has fallen to earth – and there aren’t many things as rare as that)
In his brilliant book, The World Is Flat, Thomas Friedman presents 10 factors which have combined to supercharge globalization. Among them, he listed outsourcing.
The ability to send tasks overseas so they could be completed more cheaply was underpinned (again, as explained in his book) by the explosion of fiber optic cable facilities linking every major city in the world. They were laid by tens of communication companies competing to provide telecoms services to companies in the Internet Boom.
So many of these fiber optic cables were laid that prices for international calls and data fell dramatically – so dramatically that it wiped out the majority of the industry.
This is why the phone companies are focused on Entertainment
In this 5G world of very, very cheap mobile data for your mobile phone, the phone companies need something that will differentiate them from the competition. Perhaps this is why Optus and Telstra are spending so much acquiring the rights to content like The English Premier League or Australian cricket. When data is seen as so available, it’s essentially free, there needs to be a different reason to buy your phone service. Entertainment fits that bill.
Unfortunately, the telcos have missed a trick. They paid all this money for the rights and missed a critical aspect of the Go To Market program. They have forgotten to educate the public on the value of the content they have and how they can get hold if it. Worse still, they muddy the waters with confusing pricing, adding and then removing inclusions ( like Netflix ) and charging extra, on top of phone plans, to get it.
Remember, this 5G data facility is going to be commercially available in 2020. That’s 3 years from now. These things need to be solved fast if telcos want to charge for a service instead of ubiquitous data.
Wild assed speculation
There are colorful alternatives to having infinite data capacity (and therefore no scarcity to warrant cost.) We would just need a data service which met these criteria. It would have to
- Be a service that people found valuable,
- Be used by a lot of people a lot of the time.
- Require mobility.
One possible, wild assed version of which could be Facebook’s new Virtual Reality social network.
It’s no secret that Facebook bought Oculus Rift and that they are including Virtual Reality in their future. Distributed to people through a mobile phone network, it could meet all the criteria. People value Facebook so much that they check it 15 times a day. 75% of Australian adults have an account. Most access is mobile. A Virtual Reality version of Facebook would use a lot of data.
VR is on Facebooks ‘mid term’ roadmap. Perhaps they are just waiting for 5G to be available before they launch ?
Maybe we just use a lot, lot, lot more data
I also read this week that an entire telco network could expect to transact 10GB of data over it’s network in 2010. Network engineers at the time would have considered the concept of an individual having 10GB in their monthly plan an ‘infinite amount’ for an individual to need.
Anyone who has worked in telco knows that the incredible speeds the phone companies brag about ( for example in the tests of 5G that we have recently seen ) are conducted only under laboratory conditions. The truth is that many of the delivery mechanisms associated with 5G have not yet been finalized – which is why they’re testing them. So knowing exactly how much bandwidth we will have is not certain.
Cisco suggest that data growth on mobiles is going to increase by 50% year on year. Any kind of exponential compounding like that adds up quickly. Perhaps, organically, we will find we use all the 5G bandwidth we are given anyway.
Summing up 5G failures before the networks launch
I’ve covered a lot of ground here, from supernovae to supply and demand, and a harshly critical view relating to only one possible and certainly extremely unclear permutation of events.
I do feel, however, that the regulator has failed to keep up with technology development here. The idea that we will have 3 parallel networks (Optus, Telstra and Vodafone) with apparently infinite capacity, running alongside each other is bananas. Add the NBN to that and we have spent literally $billions on capacity we won’t need. The phone companies will have to cover the cost of the network builds on to customers in SIM prices.
As we have said in other articles, the best thing we could do for competition in telco is to burn down the Optus and Vodafone networks. Alternatively, we could just not build them in the first place – until at least Mr. Zuckerberg (or someone else) has created a service which uses so much band with, it requires what we would currently call an ‘infinite amount.’