Thursday, August 17, 2017

Yes, 5G is a Gamble. But it is, in Some Markets, a Very Necessary Gamble

The commercial revenue drivers for 5G are not entirely clear, argues William Webb, Ofcom senior technologist. The “vision is flawed,” he argues.

On the other hand, in many markets, mobile operators will require speeds that “can compete with fiber services,” says Sam Barker, Juniper Research analyst. That means 5G is necessary, in the same way that optical fiber has been necessary to boost fixed network bandwidth (no matter how deep into the distribution network a service provider deploys it).

In that sense, it is not so useful to know that perhaps 1.4 billion 5G connections will be in service by 2025, up from one million in 2019, the anticipated first year of commercial launch, as Juniper Research now forecasts will be the case.

Many, perhaps most, of those connections likely will be accounts that already were buying 4G services. That is a familiar situation for many fixed network service providers moving from copper access to optical fiber: for nearly every account gain for “fiber-based” internet access, those providers “lose” a customer formerly buying copper-based internet access.

So 5G--though a big gamble--is likely a necessary gamble, illustrating the point that it is the business model for 5G which poses the single greatest challenge, not the technology, not the need to support small cells or better radios, not even the capital investment and spectrum, even if all are crucial elements.

“Users will not value the higher data rates that are promised and will not need the higher capacity forecast,” Webb  argues. One does not have to agree with that sentiment to note that there are huge business model challenges.

Perhaps more debatable are some of the reasons Webb believes exist, such as
“technological advances” being “insufficient” to support the platform. Many would disagree, at least to the extent that such advances will not be available in the time frame, and with the cost parameters, required to support the business case.

Webb also argues that mobile operators “are insufficiently profitable to afford it.” Some might argue that is largely true in some markets, but not all; or true for some providers in markets, but not all; and also strategically irrelevant. If survival requires what 5G can provide, and 4G cannot, then the investments must be made.

That also is not a new situation. One might argue that, at least for a couple of decades, that same situation has been true for most deployments of fiber to the home. Even when they never say so in public, executives of firms making the investments understood, and understand, that the decision to upgrade to some next generation platform is not driven by classic investment criteria--because the profit from doing so will be X--but because failure to make the investment cedes the market (and perhaps the whole business) to new competitors.

That is important. The next generation network upgrade is not based on classic investment criteria, but for strategic reasons. “You get to stay in business” is the driver, not “our revenues will grow by X.”

Webb essentially argues that the 5G investment should not be made. There merit to that argument, perhaps strategically, often tactically, and often for some suppliers, compared to others. But, in some markets, as the colloquial expression suggests, “good luck with that.”

There are markets--developed markets where 4G adoption is saturated, for example--where there basically is no option but to make the leap. The simple answer is that suppliers have run out of things to sell customers on 4G networks, especially new things that generate incremental revenue.

So it is noteworthy that Juniper Research now argues the U.S. market will have the US alone “highest number of 5G connections for fixed wireless broadband and automotive services.”

In some markets, where strategic investment in next generation networks has been most important, 5G offers a way to dramatically reduce the costs of next generation network infrastructure; immediately offering a way to produce incremental revenue gains and boosting competitive positioning.

In other words, 5G supports what 4G cannot: a way to address a huge new revenue segment: replacing fixed network internet access, in territory and outside the current footprint. Doing so out of region is more challenging, but at least in principle, would offer a chance for the largest regionally-based fixed network service providers (AT&T, Verizon, CenturyLink) as well as new entrants, to offer internet access services with a sustainable business case.

In some instances, that is not just because 5G network platforms are available, but also because other innovations, such as spectrum sharing, bandwidth aggregation across licensed and unlicensed bands and new access to unlicensed assets and new spectrum, are available.

The point is simply that even if the 5G business case is uncertain, as it is, there are markets where the gamble to deploy must be taken.

No comments:

Generative AI Will NOT have the Impact Many Expect

Generative artificial intelligence, to say nothing of machine learning or neural networks (and eventually general AI), might collectively re...