Many executives from large mobile network operators don’t think investing in 5G will provide any short term returns, according to research from Bain and Company, which also argues that the 5G trepidation is unjustified.
The consulting firm surveyed recent public statements by executives of the 19 largest mobile network operators worldwide, revealing 53 per cent see “no near-term business case for the technology”.
But Bain and Company argues the lack of faith is unwarranted, and apprehension now from network operators means they risk ceding a competitive edge to early adopters.
“We believe the industry has been influenced by misconceptions and flawed thinking,” said the authors of a Bain and Company report called Why the 5G Pessimists Are Wrong.
Which-50 explored the challenge of defining a business case for 5G last month, revealing similar angst in the local market about early ROI.
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According to Bain and Company analysts, the global fears are driven by three “analytical fallacies”.
Fallacy 1: There is no business case for 5G
While skeptics argue 5G-powered technologies like VR and autonomous vehicles don’t yet have a mass market, the authors argue that doubt is misplaced.
“What this reasoning misses is that network operators don’t need blockbuster new use cases to develop a good business case for investing in 5G. They can develop a compelling rationale for 5G based on the improvements it will bring to existing use cases.”
The two immediate use cases cited by Bain and Company analysts are congestion relief and fixed-line displacement.
The current 4G technology does a reasonable job handling video consumption, but struggles when many users do so at the same time — like with major sporting events. The authors argue that a 5G network, with greater speed, lower latency and new spectrum, can immediately relieve the congestion problem.
They also argue 5G provides a “true substitute” for fixed-line services — something Australian regulators have also noted.
The Bain and Company analysts write, “With 5G, network operators can offer the 1-gigabit-per-second speeds and 1-millisecond latencies needed to challenge fixed-line providers with fibre-to-the-premises broadband Internet in denser markets.”
Fallacy 2: 5G requires a surge in capital investments
5G is widely expected to require extensive new infrastructure, particularly for the “small cells” required to transmit a 5G signal. Operators are anticipating capital expenditure-to-revenue ratios will increase in order to accommodate the new infrastructure spend, but the report’s authors see this as flawed logic.
According to the authors, 5G will not require a “contiguous canopy” of small cells, as some have suggested. Operators will be able to connect 5G cells to exiting 4G cells and “deaverage their approach to cell building” — essentially only using new 5G cells in the highest-demand areas initially.
They also argue that existing nodes used in current networks can be upgraded to provide 5G coverage more easily and cheaply than building entirely new ones.
5G investment should not be viewed in isolation either, according to the authors, who argue that customers migrating to a 5G network will provide more room on a still in-demand 4G network.
Finally, many critics have failed to see the potential of 4G and 5G to “coexist in the same spectrum with the same node equipment”, allowing operators to extend 5G coverage to areas using current generation cells, the authors said.
“Specifically, when dynamic frequency-division duplexing (FDD) radios become available in 2020, an operator will be able to allocate capacity to 4G and 5G carriers from a common spectrum pool, based on real-time customer demand.”
Fallacy 3: 5G is all about bringing down (unitary) costs
Bain and Company says that seeing 5G as solely a way of reducing costs is a flawed approach, despite the next generation’s potential to do just that. The analysts argue, instead, that 5G’s big returns come from the innovative high-return investments that can be made possible by early low-return 5G efficiencies.
“If an operator adopts 5G with the overriding goal of reducing its capital intensity, then that means it has, in effect, run out of attractive investment opportunities. That amounts to a repudiation of the decades-long belief that strategically investing in next-generation technology will be good for growth, good for customers and good for the bottom line,” the report reads.
“We expect successful operators will be able to create a virtuous cycle of 5G reinvestment. First, they’ll build an all-digital, 5G network; then they’ll use the cash flow generated by those efficiencies to invest in high-return-on-investment 5G uses.”