As published in Developing Telecoms, September 2019
The global race for 5G is on with operators in advanced markets such as the US, South Korea leading the way with the first deployments of 5G networks in their respective markets. Given all the excitement and hype that has shrouded 5G over the last couple of years, telecom operators around the world are under pressure to jump on the 5G bandwagon as governments push to position their economies for the digital era. Especially for the US and China, 5G has become a strategic economic imperative that both countries believe will determine the economy and doctrine that will lead in our digital future. But what does the 5G race mean for the emerging and developing markets? Do operators in these markets have the opportunity to rethink the network to enable new economic possibilities in the era of 5G?
A holistic understanding of 5G is critical to identifying areas of innovation that matter
So, what is 5G? It’s the next generation mobile network, right? It will bring about killer capabilities such as eMBB (enhanced Mobile Broadband), URLLC (Ultra Reliable Low Latency Communications) and mMTC (Massive Machine Type Communications) which have become the hallmarks of the 5G promise. With time, yes.
To fully grasp the transformative potential and nature of 5G we need to recognize that it is much more than another evolution of the network core or the RAN. 5G is not just another 3GPP specification release or radio technology. 5G is a seismic shift in the way operators need to think about spectrum, the network, operations, services and their business model. 5G-driven innovation will occur across and at the intersects of these five dimensions in enabling and creating the compelling new consumer, business and societal values that are the hope for the next-generation network.
5G also presents a revolutionary opportunity for operators to reinvent themselves into digital service providers. What is a digital service provider? It is a provider that provides converged CT (Communications Technology) and IT (Information Technology) services to its customers and recognizes that the nature of communications will change dramatically in the era of 5G. In fact, 5G technologies and standards (3GPP and ETSI) are driving this convergence as they foster the cloud-native transformation of the network and the fusion of compute with connectivity via Multi-Access Edge Computing (MEC) support.
We are already learning from early releases of 5G into the wild
Out of the gate, operators leading the 5G charge are learning sobering lessons as early deployments have not lived up to lofty expectations due to limited and spotty coverage and inconsistent quality of 5G service. But this was to be expect as we have seen this dynamic before with prior generations of the mobile network. However, this hasn’t stopped marketing teams of these pioneering operators from touting the fastest network based on peak speeds at select locations that provide a clear line-of-sight to a 5G small cell radio. Does this metric signify 5G success and value? Quite simply, no.
The run up to the first commercial showcase of 5G by Korea’s KT during the 2018 Winter Olympics in Pyeongchang to the first commercial deployments earlier this year has been about mmWave. Of the three 5G spectrum tranches, mmWave is considered the band that delivers the bulk of the 5G promise. However, over the course of the last few months the limitations of mmWave have come to light, most notably the lack of in-building penetration, propagation range, all-weather reliability and signal diffraction.
It is increasingly apparent that the mobile 5G narrative is rapidly being flipped on its head with operators realizing that the near-term value of 5G is not with mmWave. To date, mmWave continues to struggle to find a value case that will make it a viable anchor upon which an operator can hitch the evolution of their network to 5G. The net effect of this dynamic – those marquee ITU use cases of autonomous vehicles and remote robotic surgery are going to be pretty well off in the future as both of these applications are far from being ready for mass adoption today.
Early ventures leading with mmWave spectrum are feeling the economic and service quality challenges as meaningful deployments require a very high level of network densification, hence cost. mmWave realities have prompted Verizon to make an urgent request to the FCC in June of 2019 to release underutilized mid-band C-band spectrum for operator use. Sprint is banking on their mid-band spectrum strategy for 5G which they are ironically basing on their legacy 2.5 GHz WiMax spectrum. If the Sprint merger T-Mobile goes through, the combined company will have a solid mid-band and low-band based strategy with T-Mobile’s 600 MHz spectrum.
The short of it from an operator’s perspective is that the promises of eMBB, URLLC and mMTC will be difficult to deliver near term until technologies for standalone (SA) deployments become mature and implementations begin in the 2020 timeframe. This transformation of the core network won’t happen overnight. Operators will need to reckon with their legacy infrastructure which will add complexity to their 5G transformation and make each operator’s 5G journey unique.
Meaningful 5G innovation will occur at the foundation
There is no doubt that the 5G promise will eventually enable exciting end user applications in the form of new augmented media experiences and a slew of autonomous, connected things. While these aspirational applications will benefit from 5G networks at some point in time, it is increasingly evident that we have a long way to go before these applications themselves reach a minimal level of viability and we reach the 5G promise land. In terms of 5G innovation, the fundamental challenge for operators and regulators is figuring out where to invest across the wide palette of possibilities that is 5G. What will be valuable? What will generate revenue? What will generate a return?
For operators, the 5G revolution will start with the network. Near-term, 5G will be about cost-effective expansion of capacity through enhanced Mobile Broadband which will provide improved quality of experience to existing mobile and fixed broadband customers. The fact is applications have not emerged that are creating demand for Ultra Reliable Low Latency network services. Use cases such as AR and VR have yet to move the needle and the autonomous vehicle and accompanying smart infrastructure have yet to materialize. Moreover, URLLC has proven to be much more difficult to implement and realize, especially on the back of LTE network cores of the nonstandalone 5G implementations of early deployments.
According to Huawei’s 2018 GCI study, emerging and developing markets unanimously suffer from insufficient ICT supply against prevailing consumer and enterprise demand. Incidentally, ICT demand outstrips available supply globally suggesting that 5G will not necessarily drive industry innovation. Innovative end user applications will drive the demand for 5G. This means that operators need to make careful decisions on where they invest in the next-generation network. Should they invest in mmWave? Mid-band or LPWAN for IoT (Internet of Things)? Should they invest in modernizing the core network or the RAN? What is the optimal mix of investments? What will drive short-term and long-term returns?
Based on neXt Curve’s research, the low-hanging 5G fruits for operators in the emerging and developing markets are coverage and quality of experience. Establishing the foundation for 5G will be essential by modernizing the network through virtualization (SDN/NFV) and supporting OSS/BSS for managing, orchestrating and monetizing new virtual network services. These investments should also provide a baseline of scalable cost-efficiency and extensibility of the network to meet future demands for new 5G network and converged IT/CT services. As operators evolve their networks with newer 5G technologies on top of a 5G capability foundation, they will be able to quickly design and implement new business models through Agile and DevSecOps-enabled processes that will capitalize on the innovative connectivity possibilities that 5G will bring about for consumers, enterprises and governments.
Innovation-friendly regulations will be key to drive 5G benefits and digital economic value
While it is important for regulators and operators to collaborate in promoting the healthy development of 5G networks and services, regulators have the opportunity to foster new business models and competitive dynamics to address challenges in coverage and access that many emerging and developing economies suffer. Regulatory leadership, foresight and creativity that capitalizes on new 5G possibilities will be vital in countervailing the commercial proclivity toward profit that denies broadband availability to millions in difficult-to-serve areas.
In particular, the rural broadband issue afflicts even advanced markets such as the UK and US. Both the FCC and Ofcom are opening up unlicensed spectrum – for example, CBRS (Citizen Band Radio Service) in the US – to incentivize small carriers and private entities to provide broadband coverage in underserved areas. Given that 3GPP Release 16 will support 5G NR (New Radio) for unlicensed spectrum, regulators will want to consider leading practices in allocating unlicensed spectrum and creative funding models that foster new possibilities in spectrum sharing, coexistence, crowd-sourcing and coopetition among carriers and private network operators.
Digital economic maturity is a key driver and constraint of 5G innovation
It goes without saying that not all economies are equal. The reality is that most emerging and developing economies are resource and investment constrained in developing their ICT capabilities and infrastructure. Economies such as the US, Japan and South Korea are mature digital economies that generate tremendous domestic demand for ICT services. It is no surprise that these countries have been first to market with 5G commercial deployments. Unfortunately, for many emerging and developing economies low digital maturity can hold back not only 5G deployments but also 5G innovation. Why? The economics simply don’t work in the near term.
In order for the economics of 5G to work you need broad uptake of mobile devices – namely the smartphone – that are capable of running the applications that are and will drive the digital economy. This was true for 4G as well. It is not true that Uber was possible because of 4G. It was actually the demand for data created by a small number of killer mobile applications that preceded Uber that compelled operators to expand and improve the performance of their mobile wireless networks and innovate by investing in 4G. Great examples of killer mobile applications that drove 4G network demand are Google Maps, Skype, FaceTime, Netflix and Facebook. It is important to remind ourselves that these killer mobile applications used to be applications and online services that we primarily accessed via the PC. Mobile computing and the mobile network would not be what it is today without them.
The dilemma that emerging and developing markets face in the near term with 5G is the premium that 5G devices and services will command. Chip makers such as Qualcomm and smartphone makers such as Samsung, Huawei and Apple will want to drive big margins from early handsets to recoup their investments in the new mobile network technology. Operators are also looking to drive a premium tariff for 5G mobile wireless services.
According to the IMF, the average GDP per capita in emerging and developing economies was a mere 5,420 USD per year in 2018. Consider that the average income per capital is typically lower than GDP per capita. Moreover, income inequality tends to be higher in emerging and developing economies. How many individuals in these markets will be able to afford a premium 5G smartphone for 1,300 USD or more such as Samsung’s S10 5G? Not many unless one of the Chinese handset manufacturers such as Oppo or Xiaomi introduces 5G modems into a mid-range device in the near future, which could be a possibility.
An IoT bright spot for 5G in emerging economies is smart agriculture which has the potential to revolutionize the production of food globally. Not only are the economics of increasingly capable and durable IoT devices improving dramatically, deployment of LPWAN technologies such as NB-IoT (Narrow Band Internet of Things) and SigFox are expanding rapidly. The favorable economics of the technology and the high-value of the 5G-enabled solutions make low-band, low-cost IoT applications such as smart agriculture the ideal starting point for driving new 5G revenue opportunities for operators. No highly-densified mmWave radio network needed here.
At the end of the day, it is important for operators in emerging and developing markets to make the right bets with 5G. Operators need the right focus and sequence of investments that consider the digital maturity of the economies that they serve and their own readiness to embark on their path of 5G transformation.
Each 5G journey for each market, for each operator will take on a unique path
Operators globally will face challenges evolving their networks and infrastructure for 5G. It’s simply not easy work. It is a tough, profound transformation. Across the globe, we see operators taking different approaches for their 5G evolution based on their strengths and weaknesses, their spectrum holdings, and the nuances of their local market in delivering value to their customers and accelerating returns on their 5G investments. Examples include Verizon with their mmWave first approach, AT&T with LTE-A which they dubbed “5Ge”, and Sprint and PCCW with their mid-band strategies. It would be a mistake to think that there is a boilerplate approach and deployment pattern that can be applied across the board in every market or even within a single market.
All the challenges aside, the advent of 5G presents operators in emerging and developing markets with a tremendous opportunity to reinvent their networks, create new services, invent new business models specific to their market and dramatically improve and scale their operations to meet current and future demand for digital services. It may even be possible for some to leapfrog their more mature brethren over time. However, as we are witnessing through the experiences of 5G pioneers, a value-oriented strategy for 5G transformation and reinvention will be vital for an operator to extract the most benefit from their investment in the next-generation network whether they are in an advanced market or an emerging one.
For more insights on neXt Curve’s 5G Evolution research theme, contact us for a detailed briefing with one of our analysts. Follow our site to get updates and notifications of our research and our 2019 research agenda.
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Managing Director, neXt Curve
October 21, 2019
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