A Sprinting Start to the 5G Marathon

On June 10, 2019, the three South Korean Mobile Service Providers (MSPs) reached a cumulative one million 5G subscribers after only 69 days. This broke the record set by 4G, which took 80 days to reach the same number back in 2011. In parallel with the South Korean 5G deployment success, other early deployers are also working hard on their 5G infrastructure: the United States has approximately 100,000 subscribers and the United Kingdom also ended June with 150,000 5G subscribers, supporting the claim that 5G is already here and definitely progressing much faster than previous generations. On the device side, while there was no real 4G capable chipset available in the first year of 4G, there will be four 5G capable chipsets immediately available in the first year of 5G. This is similar to the situation with smartphones: there was no 4G capable smartphone in the first year of 4G, but ABI Research expects more than 100 5G capable devices by the end of 2019. The mobile infrastructure was also half-baked in the first year of 4G, with roughly 400 base stations. However, ABI Research anticipates there will be more than 250,000 5G base stations by the end of this year.

The two leading U.S.-based MSPs are promising nationwide 5G coverage by as early as the end of next year. Even though each generation's magnitude is larger, 5G came much faster than most of the industry expected. ABI Research expects that 5G will need just 4 years to achieve 500 million subscribers, while it took 5 years for 4G and 10 years for 3G.

Frank Bass’s Diffusion Model presents a great explanation of how consumers adopt new technologies, such as 5G. This S-shaped curve is great for describing a wide range of new technologies, from electrical lighting to radio, smartphones, the Internet, or 5G. The model splits consumers into five groups (innovators, early adopters, early majority, late majority, and laggards) and describes different stages of adopting new technology as shown below.

This standard model uses three main guiding coefficients to estimate penetration:

Market Potential: This refers to Total Addressable Market (TAM), usually expressed as a percentage between 0% and 100%, and basically means an attainable maximum penetration for a new technology. In the case of 5G, the market potential is the total number of subscriptions.     
External Coefficient (Mass Media Influence): This coefficient includes external influences, such as marketing, that primarily impact the product pioneers’ and early adopters’ decisions. External driving forces are more relevant in the early phase of the product life cycle. This is why equipment vendors, device manufacturers, and MSPs carry out most of their promotional activity then.          
Internal Coefficient (Word of Mouth Influence): The coefficient of internal influence describes the impact of social pressure, or recommendations from friends and family. Whenthe adoption of the new technology reaches a critical mass, this impact will be more dominant than the external, and the new technology will be well known in society. Marketing will be less relevant and, hopefully, conversation around the dinner table will be more and more common: “Do you guys have 5G? This is great! Look, you should all have it!“           

Bass’s diffusion model is well-fitting for 2G, SMS, 3G, 4G, video calling, Uber, and social media adoption, and probably a great way to forecast the number of 5G subscribers. New technologies have their unique attributes, and every 5G market will be different. Even though the basic structure of the S-curve is the same, every country will have an individual 5G adoption path. Customer habits, MSP deployment strategies, use cases, natural endowments, topography and fiber penetration will all impact the expected 5G path, so the industry needs to consider these characteristics on a country level. Due to 5G’s unique nature, the new era will have a different setup, in which vertical markets will play an essential role. Furthermore, the definition of subscriber will be a much broader concept in the 5G times than it was before: The huge variety of 5G capable devices is already shocking, even in the first year of 5G, including smartphones, Customer Premises Equipment (CPE), robots, TVs, tablets, PCs, vending machines, drones, notebooks, and more.

5G had an unexpectedly quick start: the installation of additional 5G base stations were coupled with the really aggressive promotions of 5G smartphones (e.g., Samsung Galaxy S10 5G, LG V50 ThinQ 5G), which led to more consumers jumping on board the 5G experience. Despite South Korea receiving international acknowledgement with its record-quick 5G deployments, local consumers are starting to experience congestion in the new network and are in fact already complaining. South Korean 5G subscribers have mentioned that the 5G services provide slower connection then they expected; the offered service often has poor quality and subscribers do not have many applications for the new technology. In some cases, the user experience in the 5G network is of lower quality than the densely deployed 4G network, thus eroding the high-tech brand image of the new generation. MSPs and equipment vendors should be particularly careful and constantly monitor customer complaints in the early phase of 5G. Bad rumours and customer dissatisfaction are particularly dangerous in this stage and can slow down the evolution of telecommunication.           

On the other hand, MSPs, equipment vendors, regulators, and device and handset manufacturers have also learned from previous telecommunication generations and understand the importance of entering the market early. The rapid adoption of 5G surprised the equipment vendors, device manufacturers, and MSPs, which had simply underestimated 5G. 

Despite it’s well-managed jumpstart, MSPs and vendors need to monitor each market and evaluate feedback. Regardless of 5G’s superiority, it is expensive, lacks the business case, has rudimentary coverage, and device availability is currently still limited. 4G has already achieved economies of scale and is well-known, mature, and, most importantly, superior to 5G from a business perspective. This is why 5G users will be a minority compared to 4G users around the world in the upcoming seven years, and explains the early flat part of the S-shaped curve. 5G will be a long-burning wood.