There’s never been a technology that has got as much attention as 5G, but we know precious little about what telecommunications operators think about how it will play out for the industry and what they plan to do.
Optimists are touting the great benefits of low latency and high capacity, while pessimists are focussing on the huge capital expense required.
Globally, the rollout will take until 2022 and the biggest uncertainties for industry professionals lie around the strength of the business cases and the underlying economics, as well as other emerging commercial considerations.
Confidence in the technology is high, but less clear is whether and how soon it can fuel new products and services that customers are willing to pay for. Consequently, at least at the outset, the majority see enhanced mobile broadband, rather than fixed wireless access or mission-critical applications, as the most prevalent applications. These are not the revolutionary use cases lauded by 5G proponents, but they provide advancements that are still meaningful.
So far, at least in public, most operators have been reluctant to take a stand on whether they expect to work even more with other providers to share network infrastructure or if they intend to use third-party “neutral hosts” that have their own, or shared, 5g infrastructure, and will run it for the operators in certain regions or buildings.
Approximately 90 percent expect third-party neutral hosts to supply a part of the network to run for several operators. Most operators will tread cautiously, leveraging 5G for near-term objectives and waiting for a clearer view on the use cases’ economics to accelerate. Yet given the expense required to prove those significant use cases, it could be an uncomfortably long wait.
And for operators in countries that don’t see 5G as a matter of strategic and economic importance, there is a greater risk of falling behind. The conditions are similar to that of the rollout of 3G in the early 2000s, when adoption was initially slow, with fixed wireless access one of the only real early use cases and handsets still expensive and relatively scarce.
Only when BlackBerry and especially iPhone came several years after 3G launched was the full network capability used, including for the beginnings of mobile broadband.
Although North America is in the lead, with the two top operators already launching 5G commercially, Asia is keeping pace. In Europe, however, there exists more doubts about 5G, which is a sharp departure from some earlier rollouts, such as 2G and 3G, when the continent led the technology’s introduction. Europe’s relatively slow start with 5G is driven by a complex set of factors.
It’s had slower economic growth than the United States and China since 2008, and its markets are smaller and more fragmented, hampering the ability to find quick returns on large investments. Relatively low prices in fixed wireless access also play a role, lowering opportunities for its expansion.
The second priority is customer experience, and the third is capacity, with about a third of operators citing this as their second objective for 5G. While we hear a lot of talk about the use of 5G for fixed wireless access, only 22 percent of operators identify this as their first or second priority for 5G.
Around a third of the operators have 5G-pilot strategies in place and are done shaping their technology strategies. However, few have a business case approved, and commercial planning is still in its very early stages.
The fact that the data seems to indicate that the technology team is leading the business team is notable, since it is usually the other way around, with a business case or financial return dictating the launch of any particular new service or technology.
The reasoning behind this could be either that 5G is viewed as so important that it just has to move forward or that the ‘working’ commercial teams—those below the CEO level—haven’t pushed for it yet.
The business case and economics of 5G remain unclear, with about two-thirds of the operators stating they still have questions around the financing of it, and indicating they struggle with the business case.
This element alone could possibly delay real full-scale deployments. The apparent bullishness of North American operators aligns with their push to launch now and their stronger market structure, while Europe remains skeptical on new use cases.
The business case is made more complex by the belief among most that 5G will usher in rising costs. More than two-thirds of them said the capital-expense-to-sales ratio will go up.
Given the densification needed in many of the networks to leverage the higher frequencies, as well as new spectrum acquisition and other potential spectrum-related costs (such as ‘refarming’), it is not a surprise that only 11 percent see 5G reducing industry capital expense.
On the operating side of the ledger, industry figures worry about site costs (65 percent) and maintenance costs (50 percent). Many expect IT costs to increase (40 percent), while 22 percent see an opportunity to reduce them.
Nearly a quarter of operators see uncertainty in regulation as a key stumbling block. 5G also introduces the prospect of additional regulatory hurdles, such as having to deal with cities and other local governments on small-cell rollouts.
This year will mainly be spent on preparing and planning for 5G, while only around 30 percent of operators plan to roll out 5G on a large scale in 2020, with about half already engaged in or have completed 5G pilots. Of those who have yet to take the plunge at all, nearly two-thirds expect to launch a pilot within a year.
5G is such a significant technological transition that it has the potential to bring with it some equally significant shifts in the operating model, which many in the industry still hope will eventually help enable 5G’s full potential.
Network sharing can be an attractive option to lower costs, especially in areas with either little opportunity to differentiate quality, or in areas with high rollout costs, such as rural regions beyond network sharing, 90 percent of operators surveyed say they expect to adopt new business models like neutral hosts, though there is no alignment yet on where such third parties will be involved.
This indicates a significantly greater role for neutral hosts than operators let on publicly, but it makes sense for three reasons. The first is financing. Neutral hosts offer a lever to balance out the increased investment 5G demands, similar to network and other infrastructure sharing.
The second reason is operations. Crowded venues that experience high demand for connectivity often have limited space, or they face limitations due to physical appearance, both of which can make it impossible for multiple mobile-network operators to deploy equipment in the same location.
The third reason is customer experience, including improved connectivity. The use of neutral hosts is more prevalent in crowded places where people use a lot of data (an event in a stadium where people want to stream a lot of live video, for example).
Shared infrastructure can ensure sufficient coverage and capacity to serve these high-volume, high-traffic areas. While there has been a lot of talk about new network capabilities, from leveraging latency to enabling more quality guarantees, most operators still see investment happening in the network, rather than the enabling layers like OSS and BSS.
At the same time, if pilots and enhanced mobile broadband (E-MBB) are the core focal points for pure 5G in the next few years, along with (to a lesser degree) fixed wireless access and enhancing IoT with 5G capability, investment in IT enablement of new business models can be delayed without much downside.
Industry leaders seem to predict significant implications for the core network, which would need to be upgraded to allow operators to offer 5G services (for example, network slicing and quality guarantees) to customers.
Although commercially in its infancy, 5G technology is ready, and in most markets its presence will be felt from 2020 on. Yet the fact that commercial models are not ready cannot be minimised; the business case is marginal, and the investments to enable new business models are not currently planned.