5G in Desperate Need of a Business Model

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By Dimitris Mavrakis | 4Q 2017 | IN-4824

Huawei hosted its annual Mobile Broadband Forum (MBBF) in November in London this year, where it invited high profile telecom executives, including BT CEO Gavin Patterson, Telefonica CTIO Enrique Blanco, NTT Docomo CTO Hiroshi Nakamura, Vodafone CTO Johan Wibergh, and DT CTO Bruno Jacobfeuerborn, among others. These executives all have different priorities and challenges to face, but they had a unified voice in expressing that they don’t see a viable business model for 5G in the market, today. For example, Johan Wibergh asked: “How are we designing 5G to be, like 2G and 4G, or like 3G?”

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Huawei MBB Forum Highlights the Problem

NEWS


Huawei hosted its annual Mobile Broadband Forum (MBBF) in November in London this year, where it invited high profile telecom executives, including BT CEO Gavin Patterson, Telefonica CTIO Enrique Blanco, NTT Docomo CTO Hiroshi Nakamura, Vodafone CTO Johan Wibergh, and DT CTO Bruno Jacobfeuerborn, among others. These executives all have different priorities and challenges to face, but they had a unified voice in expressing that they don’t see a viable business model for 5G in the market, today. For example, Johan Wibergh asked: “How are we designing 5G to be, like 2G and 4G, or like 3G?” The difference is that 2G and 4G brought mobile voice and mobile broadband to the mass market, respectively. On the other hand, the killer application of 3G was supposed to be Push to Talk (or Push to X) and video calling, neither of which were successful. 3G networks achieved a return of investment only when incremental upgrades that provided an adequate mobile broadband experience were introduced. Now, it seems 5G is designed like 3G, without a clear business model and the telecoms value chain aspiring that vertical markets will provide the killer applications. The problem is that very few – if any – parties involved in 5G and telecoms, in general, understand the requirements of vertical markets and whether they are holding their development efforts for 5G. 

5G will be about mobile broadband in the first 3-5 years

IMPACT


We can expect vendors and telcos to do what they are used to doing: sell connectivity and prepare for vertical services. This means that 5G is more likely to be deployed as a faster network in areas where 4G cannot cope, in a staggered, incremental manner. A Huawei executive claimed that the market will be ready for 5G deployments and smartphones during 2019, not before, using C-band in the 3.4-3.8GHz range, rather than the most discussed millimeter wave. A technical development in 3GPP, called Uplink Sharing (or Uplink/Downlink decoupling) allows telcos to overlay C-band cells on top of existing cellular grids deployed for 1.8GHz and use a lower frequency for the uplink. Assuming this feature will be included in the Release 15 standard during December 2017, and that C-band spectrum will be available throughout most of the world, it is reasonable to assume that telcos will have a relatively affordable way to significantly increase top speeds and capacity in hotspots. Moreover, the introduction of C-band support for smartphones and devices does not pose as large as a barrier compared to mmWave. Except for the (non-mobile) Fixed Wireless Access (FWA) use case/business model which is undergoing trials by Verizon and AT&T in the United States. Even with FWA, which uses millimeter waves, there is still a debate on its viability and economics.

Also, if 5G is only about faster mobile broadband, MNOs might find it less costly to upgrade to Gigabit LTE since eMBB will not generate additional ARPU. Even the improved cost efficiencies of 5G NR will not in themselves pay for the cost of deploying a 5G RAN. These arguments point towards 5G being a faster network, at least in the following 3-5 years, giving telcos some time to understand vertical market and potential business models.

It is the introduction and the cost savings inherent in network slicing from 5G SA which will lead to true revenue generating business models, but it is not yet clear which end market or use case will be a potential revenue driver to justify large scale deployment.

Can Vendors Unravel 5G Business Models?

COMMENTARY


Vendors have now established in-house labs, partnerships, and alliances that aim to explore vertical markets. For example, Huawei’s X-labs addresses connected drones, AR/VR and autonomous driving for 5G. Other vendors, including Ericsson, Nokia, Samsung and ZTE have similar activities to understand these adjacent areas. However, vendors are presented with the opportunity to help telcos beyond a simple understanding of vertical markets and help them create new business models. For example, Huawei’s rotating CEO Ken Hu discussed that connected cows could represent the next billion subscriptions around the world, providing a significant new revenue stream for telcos that position their services in the agriculture vertical. Similar examples can be uncovered in several verticals. It is imperative that vendors start exploring business areas that go well beyond connectivity, to solve a problem telcos cannot solve alone. The question to ask is whether this vendor expertise and the availability of private networks will allow vendors to address end markets without a telco, or whether telcos will perceive this as a threat. Huawei at least, aims to help telcos rather than compete with them, but other vendors may have a different appetite.

Regardless of vendor ambitions, as long as 5G business models have a nebulous and uncertain future, massive investment in 5G will not happen. It’s in the vendor hands to start proposing new business models for their clients and innovate in a market which has been stagnant for years.

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