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.

Virtualization Means Old Definitions Do Not Work

The communications business has become a funny, fuzzy world. We used to be able to clearly define “narrowband, wideband and broadband.” We used to clearly demarcate “private, in-building functions” from “public network “access” functions and assets” from “trunking” or distribution network assets, from wide area network functions and assets.

These days, as networks and apps are more virtualized, the old definitions do not always work. Consider the wide area networks.

These days, it likely is the case that more than a third of all traffic moving across wide area networks does so on a “private” (enterprise owned) network, and not over the “public WAN.” In some cases the private percentage can be as high as 70 percent.

“Now networks are being built by hyperscalers,” says Tim Stronge, TeleGeography VP. That is a historic change.

On Latin American routes, about 70 percent of total traffic now moves over private networks. In other words, only about 30 percent of undersea, long haul traffic actually is sold to customers who use “public” networks,  according to Erick Contag, Globenet CEO.

On trans-Pacific routes, OTT app providers also are driving demand, accounting for about 33 percent of lit demand on the “public” networks, says Jonathan Kriegel, CEO Docomo Pacific.

Some of the WAN is private, some is public.

Just as important, as applications increasingly are virtualized, transport and access functions are virtualized as well. Transport and access happens, in a physical sense. But it is less certain, at any given time, whether those assets are public, private or shared. It is never so clear whether a particular function is “access” or “local distribution,” as used to be the case decades ago when local area networks (private) become important and widespread.

source: MetaPort

These days, “access” sort of depends on the situation. The best example is public Wi-Fi, or private Wi-Fi used by visitors or guests in a private residence.

When a consumer uses his or her own Wi-Fi, it still is possible to differentiate clearly between private and public portions of that network. The public network access supplies the internet access; the Wi-Fi the in-home signal distribution.

When third party users connect to a Wi-Fi hotspot, their “access” connection is the Wi-Fi, not the “access network.” That remains true whether the access is free of charge or the consumer has a subscription that grants Wi-Fi access.

For U.S. customers served by Comcast and others, being an internet access customer at any one location includes, as part of the service, access to all other homespots (the public side of each customer’s home internet access connection).

So when “roaming” outside the home, Comcast customers can connect to Xfinity homespot networks in a way that makes Wi-Fi the “access.”

It is even more complicated than that. Consider content streaming. From a logical standpoint, content delivery services such as BAMTech and Quickplay are the delivery infrastructure, even if, at a physical level, both require an internet connection of some type.

For content owners using delivery services such as BAMTech and Quickplay, customers”bring their own broadband.”

The historic importance of “public” and “private” parts of networking was that customers owned the private assets, while service providers owned the “public” parts of the infrastructure. These days, the distinction is never so clear cut. True, at the physical level, a consumer or enterprise might deploy private Wi-Fi assets while buying public access.

But there now is a difference between “users” and “customers,” and status changes dynamically. At the location where I have a Comcast internet access service, I am a customer. When roaming on the Xfinity network elsewhere, I am a user. When I use amenity Wi-Fi at a hotel, I am only a user. The venue is the “customer.”

When I use Wi-Fi on a plane, I am again “the customer” and Wi-Fi is the “access.” The point is there are times when I use Wi-Fi as “access” and times when I use it only as local distribution; sometimes I am a user, other times I am the customer.

That is not to deny the physical necessity of “access” facilities, whatever the direct (entity buying the access connection) and indirect relationships (users of those connections).

But there is an important shift. Application access these days “assumes” the existence of internet access, and so assumes “somebody” supplies the access to potential users (who might, or might not, be the access connection buyers). That’s just another business model implication of “separating access from app.”

Old categories are getting more porous all the time. Amazon Kindle owners often download content using Wi-Fi, and sometimes using Amazon’s special-purpose internet access, supplied by AT&T.

And it may no longer matter what the difference is between narrowband and broadband, but only what consumers consider “market standard” or “minimally viable” speeds and capacity. That is an ever-evolving figure.

The point is that anybody who studied the architecture of networking before local area networking, before the cloud, before Wi-Fi, before the internet and before different access platforms developed, would clearly understand how diffuse and porous networking concepts have gotten.

Smart Cities are Substantially About Carbon Footprint

It is interesting how much of the potential “smart cities” applications for internet of things deal with carbon: electricity consumption; auto exhaust; inefficient driver searches for parking; public lighting efficiency; green buildings; more efficient traffic flow and public transit, for example.

And then there are all the other ways the things humans do (move, eat, dwell) that also have carbon implications (opening doors, carbon footprint of foods, clothing, electronics, communications). Since most people live in cities, it is cities that produce the most human carbon impact.

source: visual capitalist

How Will 5G Small Cell Costs Compare to FTTH?

Nobody yet really knows how fixed wireless enabled by a 5G network will compare, in terms of deployment cost, with fiber to home costs, except to say virtually everyone expects that cost to be less than FTTH.

The issue is “how much lower, per potential passing,” those costs will prove to be. Many of the potential data points (fixed wireless to high rise buildings; mesh networks for business or consumers) are so different from potential ubiquitous 5G small cell deployments that those other examples are not so useful. Nor can the other deployments fully capture the costs of dealing with line of sight impediments, when small cells might be deployed very densely, perhaps on every other light pole.

What is really different about dense small cell networks is that, for the first time, the total cost of the infrastructure might be dominated by the cost of the trunking network, not the radio access network.

It might not be unreasonable to assume that a fiber-deep network of the sort Verizon is building, which might be called a “fiber to light pole” deployment, would be less than, or close to, the cost of a fiber to node architecture. According to Nokia estimates, the trunking network should cost less than half the cost of fiber to the home, and conceivably just a quarter of FTTH cost.

source: Nokia

One Time When Scale Apparently is a Negative

Scale matters in telecommunications and network-delivered content. But some forms of scale, namely the number of channels offered to consumers, seem to have negative impact. In other words, offering “too many” channels leads to much lower revenue per channel, as you would expect.

The relationship between market share and revenue per channel is less clear, if only because some smaller providers also offer the smallest channel lineups, while some larger suppliers offer the most channels.

source: Ampere Analysis

Service Providers	Subscribers at End of 1Q 2017
Cable Companies
Comcast	22,549,000
Charter	17,147,000
Altice*	3,500,000
Mediacom**	832,000
Cable ONE	307,187
Other major private company***	4,275,000
Total Top Cable	48,610,187
Satellite Services (DBS)
DIRECTV	21,012,000
DISH-DBS^	12,173,000
Total DBS	33,185,000
Phone Companies
Verizon FiOS	4,681,000
AT&T U-verse	4,048,000
Frontier^^	1,065,000
Total Top Phone	9,794,000
Internet-Delivered
Sling TV^	1,355,000
DIRECTV NOW^^^	375,000
Total Internet-Delivered	1,730,000
Total Top Providers	93,319,187

It also is possible to note that suppliers will smaller subscriber bases also tend to carry more channels, which, all things being equal, also lowers revenue per channel.

Nobody yet really knows how fixed wireless enabled by a 5G network will compare, in terms of deployment cost, with fiber to home costs, except to say virtually everyone expects that cost to be less than FTTH.

source: Leichtman Research

No 5G Business Model; It Has to be Invented

It has to be said: the business model for 5G will have to be created, it is not intuitive. Like earlier networks, most users eventually will migrate from older networks to 5G. The issue is how then to pay for the new network, if the base of human users is essentially the same as exists for 4G and older networks.

“Faster internet access” is the logical answer. And there the evidence is that higher usage, when usage is rated, leads to higher average spending. And that points to one potential problem. If usage is “flat rate for all you can eat,” higher usage does not increase revenues.

So a 5G network deployment adds capital investment cost, but possibly little incremental revenue from human users.

Many will note that is precisely why internet of things is so crucial: it represents the best hope for incremental new value and revenue from new use cases in enterprise verticals where the users are sensors, not humans.

Some are blunt. “Unlike 4G, there is no discernable use case that will encourage operators to roll out 5G networks,” says Juniper Research.

As a result, Juniper anticipates that increased investment from governmental bodies will be needed to encourage the development of these networks in most regions outside North America.

In many cases, that support might include measures such as spreading spectrum investment over some years.

source: Juniper Research

The 5G era also seems to be shifting the strategic function of fixed networks, adding value as backhaul for small cells expected to anchor much of the 5G network. Verizon has been most forthright in arguing that spectrum assets are only one way to increase capacity, something that always has been true.

In fact, some might well argue that, historically, shrinking cell radii has been a more-typical way of increasing capacity than adding new spectrum assets. In the 5G era, both will play important roles, especially in markets where regulators will release huge amounts of new spectrum for 5G and other networks.

Despite the huge increases in new spectrum assets (perhaps 10 times to 100 times as much as currently is available for all mobile purposes), some believe 5G spectrum will cost significantly less than did 4G spectrum.

5G is going to be different from 4G, says Juniper Research. Different enough, in fact, that business models, use cases and implementation will differ from 4G, indeed from all prior mobile generations, one might well argue.

There is a near certainty that brand-new revenue streams and use cases will disproportionately be created by enterprise customers supporting internet of things applications. That is not to say consumer internet access will not be important. Obviously, eventually most 4G users will migrate to using the 5G network. But it is unclear how much incremental revenue might be created, and for how long, by that substitution.

In the consumer internet access area, there is one important exception: use of the 5G platform to create fixed wireless connections with features that rival fiber-to-customer or hybrid fiber coax networks.

Juniper Research believes that use case will prove viable in both urban and rural areas. “The peak data rates of a 5G system will be higher than 10 Gbps but, more importantly, the cell-edge data rate (for 95 percent of users) should be 100 Mbps,” says Juniper Research. “This will allow the use of the mobile Internet as a reliable replacement for cable wherever needed.”

That will be more important in some markets. Lower-density markets will benefit, as those are areas where alternatives such as fiber to the premises are too costly.

In the consumer internet access area, it will likely prove to be the case that fixed wireless--allowing the mobile network to compete fully with the fixed network--will be the most-significant new use case.

Should Regulation be Technology Neutral?

Communications regulators always face issues when technology changes are rapid, the common complaint being that regulation lags technology change by quite some measure.

As the U.S. Federal Communications Commission says, “the fixed broadband industry continues to evolve.” For that reason, the FCC has issued a notice of inquiry on whether internet access should include both fixed and mobile delivery modes, and be tracked as a routine matter when assessing the state of internet access.

The proposal will raise hackles in some instances. Precisely at the point in time when we know gigabit and multi-gigabit internet access will be routinely supplied by mobile and fixed wireless networks operated by mobile service providers, some will say we should not “count” such access when assessing the state of the market.

In other words, the proposed FCC  “technology neutral approach” would continue to view access platforms in silos. That problem is not new. Even if there are important nuances, should legacy voice and VoIP not both be counted a methods for delivering voice services? And should cable modem services be counted separately from telco access services, since the platforms are different?

Are SONET-based data access solutions qualitatively different from Ethernet-based services, in terms of “counting” the usage of business data services?

Even if they use different technologies, are analog private branch exchange lines or trunks in service fundamentally different from IP equivalents?

Is digital TV something different from analog TV, or are both TV services, for purposes of measuring adoption and usage?

You get the point: technology change now is quite rapid in every communications and content delivery areas. And there are good reasons for using “technology neutral” methods of data collection and assessment.

Otherwise, voice, video or internet access delivered by satellite, cable TV, telco or independent ISPs are “different,” and not “parts of a single market.”

source: Nokia