The Economics of 5G for Telcos
By Michael Entner
5G has already left its mark on our public consciousness, but is there a strong business argument for this? This two-part series examines the economy of 5G, from the challenges of public 5G networks to the potential for private 5G networks.
As operators continue to launch 5G and highlight the benefits of the technology, it is high time to look at the economics of these deployments. Are there enough compelling reasons for consumers and businesses to switch to 5G? And is there a good enough return on investment (ROI) for telecom operators to commit to the improved infrastructure needed by 5G?
Wireless generations: from 3G to 5G
Let’s look back at the two latest generations of wireless technology before 5G came out. The introduction of 3G heralds the arrival of mobile internet on smartphones. You can have a video chat with a friend or watch YouTube on your phone (albeit in low resolution) and users liked it. What they didn’t necessarily like was the broken video and sound and the often broken connections. 4G, then, brought significant improvements in both speed and reliability. You can conduct high-quality video conferencing, stream HD videos, and play from the heart on your phone or tablet. Consumers who are already on the move have become addicted to the fast and stable connectivity that 4G provides. From weather reports to video news and email and chats with friends, we use 4G every time we go online.
While 5G provides even faster speeds, better security, and significantly greater reliability, it doesn’t offer new capabilities to users like 4G did. Most consumers who already pay a lot for their cell phones and plans see no serious reason to pay extra for 5G. This leaves telecom companies with a huge economic problem: how to pay for a 5G network and get a solid return on this expensive infrastructure investment.
Challenges with the 5G ecosystem
While 5G technology offers significant improvements in performance, reliability and latency, there are definitely challenges that telecom operators and their partners must face before 5G adoption becomes widespread.
Let’s start with 5G mobile applications. While 5G does not have 100% national coverage, you cannot create a mobile application that needs 5G connectivity 24/7. Consider a national truck system using 5G to manage their inventory and route management software. The 18-wheeler leaves JFK Airport in New York and the 5G app can see where this truck is and recommend the fastest route, avoiding construction, accidents and other delays. But by the time this truck entered Poconos a hundred miles away, 5G had disappeared and the app had to run on 4G, slowing down the routing software just enough to cause the truck to get stuck, causing a cascade of delivery problems.
The amount and type of spectrum available for 5G is another challenge. For example, 5G coverage with millimeter wave technology is very, very fast and can carry a lot of data. But even this is huge, it can not penetrate very well into buildings (and other solid objects). Each time it hits a wall, the signal deteriorates significantly, to the point that you may lose the signal or suffer a serious deterioration in bandwidth. One solution is to place antennas everywhere (even in buildings), which means more equipment, more costs, more maintenance and more management of all this infrastructure.
There is currently a significant amount of spectrum that would be suitable for 5G connected in 3G networks. Carriers need to slowly withdraw from these commitments so as not to interrupt the service of existing customers who are still working with 3G equipment (utilities, sensors, tracking devices, etc.). Stimulating customers with cheap or in some cases free 5G phones is actually one way to restore some of that spectrum and be able to move to 5G and away from millimeter-wave technology.
Finally, and this is the biggest challenge, telecom operators need to identify where they can generate 5G revenue. The move to 5g involves significant hardware and software improvements with a forklift, but telecom operators still don’t see how to get a return on this entire investment.
5G monetization with Private 5G
Currently, virtualized radio access networks (vRANs) offer a way to quickly deliver 5G radio services at a higher density and at a lower cost. Virtualization requires a forklift upgrade, which is inevitable for telecom operators at this stage, but also paves the way for future upgrades, as it is defined primarily by software and establishes new opportunities to deliver Edge applications that carriers can generate revenue. Keep in mind that telecom operators will not be able to avoid these infrastructure improvements forever and will need them to support the upcoming 6G and 7G capabilities, so this is a proposal now or later. The urgent business challenge is how to use this new infrastructure while building it and before reaching 100% 5G coverage.
Telcos will continue to build its Edge and virtualize its radio networks and bring it even closer to its customers. As part of this, there is an opportunity to switch to private 5G networks, which are targeted at key uses. Switching from 5G public to private 5G on the edge may be the best opportunity for telecom operators to see a stable return on investment in their 5G infrastructure.
In Part 2 of this series we will dive into the cases of using private 5G networks and how telecommunications companies can use their experience and partnerships to build and manage cost-effective private 5G networks.