Network Architecture Changes Explain why 5G is More Expensive than 4G

One often hears it said that 5G networks are more expensive than 4G networks, which are in turn more expensive than 3G networks. It is likely an accurate observation, but might be explained quite simply by changes in network architecture requiring use of smaller cells. 

And the simple reality is that networks with smaller cells require many more cell sites. The general rule is that shrinking the cell radius by 50 percent requires four times the total number of radio sites. 

And one might argue that, overall, cell sizes are getting smaller.

Network Generation	Typical Macrocell Radius
3G	1 - 5 miles
4G	0.5 - 3 miles
5G	0.25 - 1 mile

And that has clear implications for mobile network costs, as many more cell sites must be supported to accommodate the physical characteristics of radio frequencies in higher ranges that do not travel as far as frequencies in the lower ranges. 

Frequency Band	Frequency Range	Typical Propagation Distance
Low-Band	600-850 MHz	Up to 25 miles (40 km)
Mid-Band	1-3 GHz	1 to 12 miles (1.6-19 km)
C-Band	3.7 GHz	0.17 * Low-Band range
High-Band	24-47 GHz	50 to 2,000 feet (15-600 m)

So, if for no other reason that sheer number of radio sites, mobile networks using the newer frequencies--which do not travel as far as signals in the lower bands--are required to build more cell sizes. 

And even if those smaller cell sites are not always as expensive as macrocell sites once used, there are simply so many more sites to support. 5G networks, which use higher frequencies, can require 15 to 20 sites per square kilometer in urban areas, compared to only two to five sites for 4G networks using lower-frequency signals. 

The other issue is that indoor coverage becomes more difficult as frequencies increase. And that can add capex or opex cost as well. 5G indoor solutions can cost more than double that of legacy 4G-only indoor solutions. And costs three to 10 times higher are also possible. 

No Matter What, 6G Revenues Will Still be Led by Phone Usage

Some might argue that 5G was the first mobile platform intentionally designed to support internet of things services in addition to mobile phone services. That noted, IoT mobile service revenues arguably represent less than four percent of total mobile service provider revenues using any mobile platform (2G, 3G, 4G and 5G combined).

Revenue Source	Percent of Total Revenue
Voice Services	20-30%
Data Services	30-50%
Messaging Services (SMS)	2-5%
Roaming Charges	3-7%
Value-Added Services	5-10%
Device Sales	5-15%
Content and Digital Services	5-10%
Enterprise and IoT Solutions	5-10%
Wholesale Services	5-10%
Other Revenues	1-5%

On the other hand, some estimates suggest IoT will be a significant portion of the enterprise customer revenue stream, eventually. 

source: IoT Analytics 

IoT percentage of connections is higher, but revenue per connection is an order of magnitude lower than traditional phone connections, generally speaking. 

Study	Date	Publisher	Estimate
Global Cellular IoT Connectivity Tracker & Forecast	June 2024	IoT Analytics	Cellular IoT (2G, 3G, 4G, 5G, LTE-M, and NB-IoT) makes up nearly 21% of global IoT connections
Global IoT Connections Forecast	2024	IoT Analytics	Global cellular IoT connections grew 24% year-over-year in 2023
Ericsson Mobility Report	June 2023	Ericsson	5.5 billion cellular IoT connections by the end of 2027, majority on 4G/5G.
GSMA Intelligence IoT Report	2023	GSMA Intelligence	3.2 billion IoT connections on mobile networks by 2025, with rapid 5G growth.
Cisco Annual Internet Report	March 2023	Cisco Systems	10% of global IoT connections will be 5G by 2025.
Statista IoT Connectivity Forecast	2023	Statista	2.7 billion IoT devices connected via cellular (4G/5G) by 2025.
IoT Analytics Cellular IoT Report	2023	IoT Analytics	4.3 billion active cellular IoT connections by 2026.

At least one reason connections might not be as high as some might have forecast is that there are other ways to connect IoT devices, including unlicensed wireless such as Wi-Fi or Bluetooth and other methods. 

The point is that new or "lead" applications for a next-generation mobile network often do not dirrectly drive high amounts of new revenue, though the indirect effect can be important (each important internet-based app makes internet access more valuable).

IoT, so far, seems to fit that notion. Even if 5G was purpose-built to support IoT, such revenues remain less than five percent of total mobile service provider revenues, which continue to be led by mobile phone accounts and services.

Study	Date	Publisher	Estimate
Global IoT Connectivity Tracker	2024	IoT Analytics	Wi-Fi makes up 31% of all IoT connections4
Global IoT Connectivity Tracker	2024	IoT Analytics	Bluetooth accounts for 25% of connected IoT devices worldwide4
IoT Device Connections Report	2023	Pondiot	Bluetooth offers a maximum data transfer rate of approximately 3 Mbps for IoT devices1
IoT Connectivity Analysis	2023	Very Technology	Bluetooth range for IoT devices can be anywhere from 1 meter to 1 kilometer depending on device class and context2
IoT Project Connectivity Study	2023	Euristiq	Bluetooth Low Energy (BLE) can transfer data at a rate of approximately 100-250 KBps for IoT applications3
Global IoT Connections Forecast	2024	IoT Analytics	There were 0.7 billion wired IoT aggregation nodes in 2023, representing 4% of total IoT connections

That experience is worth keeping in mind as we start to hear about 6G platforms and their ability to support other types of enterprise or consumer applications, such as virtual reality, autonomous vehicles and so forth.

One always hears about such “futuristic” new use cases whenever a next-generation mobile platform is proposed. Rarely do the proposed innovations reach revenue scale, compared to supporting mobile devices such as smartphones. 

How Important are Mobile Service Provider IoT Revenues?

Some might argue that 5G was the first mobile platform intentionally designed to support internet of things services in addition to mobile phone services.

That noted, IoT mobile service revenues arguably represent less than four percent of total mobile service provider revenues using any mobile platform (2G, 3G, 4G and 5G combined). As important as service providers hope IoT will be, the bulk of revenues will continue to come from the staple "voice and internet access" services used by consumers and their smartphones.

Revenue Source	Percent of Total Revenue
Voice Services	20-30%
Data Services	30-50%
Messaging Services (SMS)	2-5%
Roaming Charges	3-7%
Value-Added Services	5-10%
Device Sales	5-15%
Content and Digital Services	5-10%
Enterprise and IoT Solutions	5-10%
Wholesale Services	5-10%
Other Revenues	1-5%

On the other hand, some estimates suggest IoT will be a significant portion of the enterprise customer revenue stream, eventually. 

source: IoT Analytics 

IoT percentage of connections is higher, but revenue per connection is an order of magnitude lower than traditional phone connections, generally speaking. 

Study	Date	Publisher	Estimate
Global Cellular IoT Connectivity Tracker & Forecast	June 2024	IoT Analytics	Cellular IoT (2G, 3G, 4G, 5G, LTE-M, and NB-IoT) makes up nearly 21% of global IoT connections
Global IoT Connections Forecast	2024	IoT Analytics	Global cellular IoT connections grew 24% year-over-year in 2023
Ericsson Mobility Report	June 2023	Ericsson	5.5 billion cellular IoT connections by the end of 2027, majority on 4G/5G.
GSMA Intelligence IoT Report	2023	GSMA Intelligence	3.2 billion IoT connections on mobile networks by 2025, with rapid 5G growth.
Cisco Annual Internet Report	March 2023	Cisco Systems	10% of global IoT connections will be 5G by 2025.
Statista IoT Connectivity Forecast	2023	Statista	2.7 billion IoT devices connected via cellular (4G/5G) by 2025.
IoT Analytics Cellular IoT Report	2023	IoT Analytics	4.3 billion active cellular IoT connections by 2026.

At least one reason connections might not be as high as some might have forecast is that there are other ways to connect IoT devices, including unlicensed wireless such as Wi-Fi or Bluetooth and other methods. 

Study	Date	Publisher	Estimate
Global IoT Connectivity Tracker	2024	IoT Analytics	Wi-Fi makes up 31% of all IoT connections4
Global IoT Connectivity Tracker	2024	IoT Analytics	Bluetooth accounts for 25% of connected IoT devices worldwide4
IoT Device Connections Report	2023	Pondiot	Bluetooth offers a maximum data transfer rate of approximately 3 Mbps for IoT devices1
IoT Connectivity Analysis	2023	Very Technology	Bluetooth range for IoT devices can be anywhere from 1 meter to 1 kilometer depending on device class and context2
IoT Project Connectivity Study	2023	Euristiq	Bluetooth Low Energy (BLE) can transfer data at a rate of approximately 100-250 KBps for IoT applications3
Global IoT Connections Forecast	2024	IoT Analytics	There were 0.7 billion wired IoT aggregation nodes in 2023, representing 4% of total IoT connections

That experience is worth keeping in mind as we start to hear about 6G platforms and their ability to support other types of enterprise or consumer applications, such as virtual reality, autonomous vehicles and so forth.

One always hears about such “futuristic” new use cases whenever a next-generation mobile platform is proposed. Rarely do the proposed innovations reach revenue scale, compared to supporting mobile devices such as smartphones.