Service Provider R&D Spending is Low, for Reasons

Many will note that connectivity provider research and development spending is low, compared to spending by major app providers, for example. There are lots of reasons for that state of affairs.

In the U.S. market, for example, technology development in the monopoly era was conducted not by the operating units but by Western Electric, which after the Bell System breakup was separated out as part of AT&T, then privatized as Lucent, before sale to Alcatel and then to Nokia.

In the competitive era, most of the research and development has been done by industry suppliers, in part because that always was the way most such activity happened. That might be seen in R&D budgets for industry suppliers, as opposed to service providers.

Telco Research and Development Spending, $ Million
		2013	2014	2015	2016	2017
AT&T	R&D	1,488	1,730	1,693	1,649	1,503
	As % of sales	1.2%	1.3%	1.2%	1.0%	0.9%
BT	R&D	226	116	97	81	79
	As % of sales	0.9%	0.5%	0.4%	0.3%	0.2%
Deutsche Telekom	R&D	114	112	127	99	68
Orange	R&D	918	861	854	830	824
	As % of sales	1.9%	1.9%	1.8%	1.7%	1.7%
Telecom Italia	R&D	48	65	61	52	51
	As % of sales	0.2%	0.3%	0.3%	0.2%	0.2%
Telefónica	R&D	1,231	1,307	1,241	1,066	1,014
	As % of sales	1.8%	2.2%	1.9%	1.7%	1.7%
Ericsson	R&D	3,701	4,172	4,000	3,632	4,356
	As % of sales	14.1%	15.9%	14.1%	14.2%	18.8%
Huawei	R&D	4,632	6,168	9,001	11,536	13,544
	As % of sales	12.8%	14.2%	15.1%	14.6%	14.9%
Nokia	R&D	3,082	2,292	2,502	5,880	5,784
	As % of sales	20.6%	16.6%	17.0%	21.1%	21.2%
source: Light Reading

More recently, R&D investments have become less directly correlated with spending, however. One is the trend towards use of open source, which tends to mean development is less correlated with actual spending. Network functions virtualization also means that less capital has to be invested in hardware to achieve the benefits of software advances.

But some might note that connectivity providers simply have less profit from operations to invest in research or development. In a perfect world, with much-higher profits, service providers might have the ability to invest more. As a practical matter, they cannot.

The Big Difference Between Consumer and Business Adoption of New Products

SIP trunking is among communications markets that never has grown the way I would have predicted, namely with a rather-clear inflection point, as has been the case with consumer innovations such as the internet itself, PCs, mobility and smartphones.

In retrospect, I suspect that is a difference in adoption rates of connectivity products in business segments, compared to consumer markets. Simply, business adoption of products more often is linear; consumer product adoption non-linear.

With the caveat that most products and services do not become mass market successes, consumer adoption of most popular products is exponential and non-linear, with an S-curve adoption pattern.

source: Forbes  

source: Visual Capitalist

Few business products ever seem to have that sort of exponential growth.

source: Maximize Market Research

source: IDC

source: Grandview Research

source: IDC

source: Thorn Technologies, Statista  

The point is that business products might well not have a clear inflection point, or an S-shaped adoption curve, even if consumer products almost always do have such adoption curves.

5G Does Not Change Traditional "Capacity Versus Coverage" Issues

One way of making sense of claims about 5G performance is to recall that the traditional trade off between coverage and capacity will continue to hold, even as huge new blocks of millimeter wave spectrum are released for use.

Ultimately, all the noise about strategy and assets and advantage aside, our knowledge about existing use of mobile and other devices should provide a clue to network and spectrum choices.

Many note that perhaps 80 percent of data is consumed by mobile users who are stationary, in their homes, offices or other non-moving locations. That, in part, explains the high use of Wi-Fi by smartphone customers.

The obvious implication for 5G networks is that although coverage (with lower capacity) works for outdoor and mobile use, the places where millimeter wave spectrum really adds value are locations where users are stationary (and might otherwise use Wi-Fi).

So we might as well understand, early on, that peak 5G speeds (gigabit) will tend to be found only in urban and other high-density areas where people live and work. Though 5G will supply faster speeds in mobile scenarios, speeds are unlikely to reach those possible in fixed locations, simply because the physics does not support it.

Though it is easy to debate the merits of using spectrum below 6 GHz, or in the higher-frequency millimeter bands (24 GHz, 28 GHz, 39 GHz for example), the traditional trade offs between coverage versus capacity will still have to be made.

The only difference is that the range of frequencies will shift. Where 2 GHz once was seen as “high frequency” with better capacity performance, while 800 Mhz was better for coverage, now any spectrum below 6 GHz is seen as the “coverage” suppliers, while millimeter wave spectrum is seen as the capacity bands.

source: GSM History

Ultimately, we are likely to see all service providers rely on sub-6 GHz for coverage, even if that means sacrificing capacity (speed). To supply the gigabit per second speeds 5G makes possible will require the millimeter bands, but with coverage limitations.

To be sure, millimeter saves also offer greater spectral efficiency than lower-frequency signals. Simply, the higher the frequency, the higher the potential bandwidth.