Several studies have concluded that 5G will be very expensive–costing nationwide US carriers tens of $billions each. That raises concerns about whether 5G is a wise investment. Operators may be able to deliver, say, five times as much data with 5G–but consumers are not going to pay five times as much to get it.
The success of 5G will depend on operators’ ability to develop new revenue streams.
Fortunately, there is more to the 5G cost story than the final price tag. While 5G could be the most expensive next-generation technology in the end, it doesn’t have to be so expensive in the beginning. Operators have a wide choice of 5G deployment strategies. Most of the strategies make extensive use of existing infrastructure. In many cases, 5G will complement 4G, using LTE infrastructure. Operators are likely to deploy 5G selectively for the first several years.
The final price tag for 5G may also not be quite as high as some fear. There has been a big push by FCC officials and lawmakers in many states to ensure that regulations and local fees don’t become obstacles to small cell deployment. And don’t forget that millimeter wave technology is still in its infancy. If history is any guide, we can expect significant price reductions and performance improvements over the next decade.
Given that 5G offers not only greater capacity and higher speeds, but lower latency and a more flexible architecture, it presents a golden opportunity to develop new markets. Network slicing, based on virtualization, permits operators to allocate core network, radio network, and device resources to serve diverse quality of service (QoS) requirements. Lower latency opens the door to serving vertical markets such as manufacturing, transportation, healthcare, and energy. Greater capacity and higher speeds mean that wireless becomes a viable alternative in some traditional wired markets.
For instance, by leveraging millimeter wave spectrum, small cells, and higher spectral efficiency wireless operators can compete head on with cable operators in providing Internet access and television content to homes. While the mobile market demands nationwide coverage, the fixed broadband market can be treated as a series of independent local markets. Wireless operators can target locations where fixed wireless broadband service–particularly when bundled with mobile broadband service–is most competitive. As operators and their equipment partners squeeze out costs and improve performance, the service can be expanded to other locations.
In a study recently published by Datacomm Research in collaboration with Rysavy Research, we evaluated 5G-based fixed wireless broadband business models by modeling network capacity per square kilometer and by determining the likelihood of individual cells achieving breakeven revenue based on detailed capex, opex, and financing assumptions. We found that millimeter wave spectrum has sufficient capacity to compete with cable operators’ hybrid fiber-coax networks, but that operators must “thread the needle” by choosing the right locations (in terms of factors including number of homes covered, backhaul costs, and competition).
Wireless operators have a couple of interesting advantages in the fixed broadband market. While cable operators sell traditional TV channel packages, wireless operators are selling Internet streaming capability with a choice of content providers. (A growing number of consumers have been switching from legacy cable TV service to Internet streaming service.) Plus, wireless operators can offer more attractively-priced mobile and fixed broadband service bundles, because while cable operators can also offer such bundles, they must buy mobile service wholesale from wireless operators.
Another new market may be providing all-in-one service (mobile phone, Internet, and TV) to cost-conscious young consumers. This trend has already been observed in developing countries such as Mexico. While mid-band spectrum (at 3.5 GHz) doesn’t have the capacity to compete head-on with cable operators, it can be used to double capacity and enable lower-cost data plans. For Millennials and Gen Z members who don’t mind doing everything on a smaller screen, a mobile device with a higher data allowance (for example, 60-100 gigabytes) offers a significant savings over separate mobile, Internet, and TV devices and service plans. A recent report projects that three quarters of the world will use just their smartphones to access the Internet by 2025.
For over a decade, wireless operators’ networks have been optimized to meet the needs of smartphone and tablet users. This has created opportunities for competitors employing low-power, wide area (LPWA) networks to serve Internet of Things applications for utilities, smart cities, and vertical industries. LPWA networks are designed to enable machines (such as smart meters, sensors, and remote controls) to exchange short messages. By paying close attention to their customers’ needs and constructing networks optimized for their requirements, LPWA operators have enjoyed a degree of success.
However, LPWA networks will never be able to match the coverage of mobile networks that have evolved since the 1980s from serving car phones on the streets to serving handsets wherever they happen to be (whether indoors or outdoors). Similarly, the modems that go into smartphones and tablets enjoy a huge economy of scale cost advantage over the modems embedded in smart meters and various machines. Leveraging 5G’s network slicing capability, long battery life for IoT devices, and support for high device density, mobile operators will be better able to satisfy the needs of utilities, smart cities, and vertical industries. The main challenge for mobile operators will be developing the marketing and application support teams needed to compete with vendors who have years of niche market experience.
With previous next-generation technologies, Tier 1 mobile operators felt that achieving nationwide coverage was a top priority. However, that may not be the case with 5G. The Tier 1 operators are publicly-traded companies, have substantial debt, and their biggest markets are approaching saturation. From here on, it is imperative that they identify and develop new markets. Fortunately, 5G provides the tools to do exactly that.