Consulting firm warns against pessimism at 'evolutionary' 5G

31 July 2018 Authored by Consultancy.uk

With the next generation of mobile network technology on the horizon, consumers and businesses could be about to see the speed at which they access data via smartphones surge upward. However, many network providers remain unconvinced of 5G technology, something which a new report has set out to alter.

Every decade or so, a new generation of network technology comes along that promises more speed, more capacity, more quality and more uses. With each generation, network operators invest capital to upgrade their infrastructure, with the firm belief that those investments will lead to more satisfied customers and reinvigorated revenues and profits. Following on from the launch of 4G in the 2010s, the next decade is set to see the rise of the 5G generation of new mobile technologies. While previous generations have been understood in almost universally positive terms, however, the often complex definitions as to precisely what 5G consists of often causes confusion and, in some cases, cynicism.

While the leaps to 3G and 4G were more noticeable, 5G New Radio speed in sub-6 GHz bands is said to be ‘modestly higher’ than 4G, with a similar amount of spectrum and antennae, and is estimated at a 15% to 50% improvement. At least at its lower frequencies,  then, 5G is evolutionary, in contrast to its revolutionary predecessors. For this reason, according to a new report from consulting firm Bain & Company, there is significant scepticism among business leaders regarding 5G.

5G promises a step change in network performance

In fact, the state of play is so dire, that according to a recent survey of mobile network operators which Bain cited in the study, 53% see no near-term business case for the technology. Rather, they believe that the business case simply is not there as networks can do well enough leveraging 4G, while implementing 5G is likely to invoke hefty movements of capital, the reverse of the perception that 5G is about reducing unitary costs. However, the authors of Bain’s study mince no words in their ultimate assertion, “The 5G pessimists are wrong.”

Researchers assert that this is because, while the pessimism is partially founded in some of the result promised by 5G, it ignores many of its benefits. While some levels of 5G may only promise marginal benefits, it can offer up to 10 times the data rate of 4G, while at the same time allowing for an improved interconnectivity of devices. By facilitating an improved capacity for the Internet of Things, something which eight out of ten businesses that invested in the Internet of Things reported revenue growth in 2014. On average revenues grew by 16% as a result of their investment in the IoT, and by tapping into the mounting hunger for IoT, network operators could see a major boost to their operations.

Different impacts

Further contesting that there is no business case for 5G, Bain added that not every operator stands to benefit equally or in the same way from 5G, and that mobile-only operators that deploy 5G will be able to profit through mechanisms including challenging fixed-line internet providers. This can be very economically attractive given that many markets have fixed and mobile profit pools of comparable size. In the US, for example, fixed-line broadband and cable TV account for about $75 billion in EBITDA, while wireless accounts for about $90 billion.

5G opportunities vary by the type of provider and its position in the market

According to the authors, fixed-line operators can use 5G to further profit off their existing fiber assets, and that “converged operators,” or those with both fixed and mobile assets, can “establish or revitalise claims of network superiority as part of an effort to take market share from competitors with slower 5G deployments.” Elsewhere, converged operators can leverage 5G to establish or revitalise claims of network superiority as part of an effort to take market share from competitors with slower 5G deployments. Converged market leaders can also work to achieve 5G superiority by using their scale to move first in more markets, while converged challengers can make inroads by focusing their 5G investments on geographic battlegrounds.

Whatever the business situation, however, Bain concluded that 5G cannot be ignored. The operators which are successful in years to come will be those which focus first on investing in 5G business cases that will show results in the near term, between now and 2020. Bain added that for many operators, this will require going on the offensive, entering a new arena of telecom business, or displacing less daring competitors. Operators which prevail this process will need to wield prudent capital investments which avoid unnecessary surges or cuts in capital spending, and are expected to be those which build 5G networks that make full use of existing physical and spectral assets, developing multiyear rollout plans which can evolve as 5G technology does too.

Commenting collectively on the findings, authors Herbert Blum, Darryn Lowe and Alex Dahlke, said, “As was the case with earlier generations of network technology, 5G, along with closely related digital transformation, will unlock capital efficiencies. The most forward-looking operators will use those savings to invest in new revenue-generating 5G projects—thereby defying the 5G pessimists and fully embracing the promise of what this latest generation of network technology can deliver.”

Related: Telcos leverage M&A to pick up talent and bolster their digital assets.

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