Mobile industry faces challenge which will have with consequences for mobile network operators, policymakers, consumers, and businesses. The ability of current 4G technology to handle fast-rising traffic demand, led by huge demand for data, is rapidly approaching its end of its capacity.
It is that 4G capacity in large cities will be exhausted in next 2 years. Capacity increase by site densification (increasing the number of cell towers and antennas in heavy traffic areas) is expensive and often-unpopular measure. Advanced 5G technologies present the best & least expensive, way to avoid near-term capacity demand and avoid densification.
Widespread use of unlimited data plans and relatively low prices, monetization of traffic growth has become a major challenge thus making the decision of investment in building out 5G infrastructure difficult.
Even though some Telcos have started rolling out 5G network in clusters, still the transition is not happening broadly or quickly enough. At this speed the consumers will not be able to make full use of the latest technologies and advanced applications, such as connected medical devices & augmented reality. Businesses will not be able to take full advantage of the Internet of Things (IoT) which will affect their global competitiveness.
Economic payback on digital infrastructure investment is inordinately quick—often less than one year. Telco industry have the opportunity to solve the problem of exponential traffic growth, but all participants—network operators, policymakers, regulators, and telco ecosystem partners—need to ramp up their commitment to 5G. Network operators need to assess infrastructure investment and they need to think through the opportunities for new pricing structures and products and services that enhanced network capabilities present. Sticking with 4G is not sustainable, neither is building and operating a 5G network on 4G business models.
ISSUE WITH 4G IN CURRENT SCENARIO
Three problems for mobile network: exponential traffic growth, unsustainable site densification, and little incentive to invest in building out networks.
Cellular traffic demand continues to grow exponentially, driven largely by video applications, Traffic growth forecasts vary among countries and operators, growth rates are expected to range from 30% to 58% annually until 2021.
Current 4G networks cannot support this enormous data growth without massive site densification, which has significant economic and social implications. Our simulations show that in a typical large city like New York, San Francisco, Seattle or Dallas, network infrastructure density will need to almost triple after 2021 to accommodate continued growth. This is an unrealistic expectation given the expense, time, and unpopularity involved in adding new sites. Network operators already struggle to commission a few new sites in urban areas because of legal and regulatory issues. The lead time for new permits is long. Local opposition to new towers can be intense. In addition, already-dense network grids with low inter-site distances prevent operators in many markets from further densification within current power limits.
Network operators have little incentive for investment. Traffic growth today is largely driven by video applications, which telco’s struggle to monetize, especially in the unlimited data plans. Telco revenues have either remained mostly constant or declined slowly:
HOW 5G CAN CHANGE THE SITUATION
5G has the ability to both substantially expand network capacity and lower that capacity’s cost since the data capacity of 5G networks is far greater than that of 4G networks. This is the result of two factors: 5G technology’s ability to use much more spectrum and the use of new technologies, such as massive MIMO, which together can deliver a many-fold increase in capacity over 4G.
The problem is that many Network Operators have little ability to monetize increase in traffic under unlimited data plans, which is illustrated by an analysis of operators’ network costs including both capex and opex. Looking at the costs for a typical operator starting with actual capex and opex of the typical 4G investment cycle, the costs of serving increasing traffic demand with 4G technology will triple from 2020 to 2025, driven largely by site densification. Under a 5G scenario, however, an operator would not need to resort to network densification until 2025, with the exception of a few select hot spots or indoor areas. As a result, its average annual network spending would be about half of what it would be under 4G, although the cost to build out a 5G network would still be 60% higher than the densification vs new network rollout, which constitutes a serious financial challenge for telcos.
GAME PLAN TO LAUNCH A SUCESSFUL 5G NETWORK
What would be a profitable deployment of 5G network. There has to be a blend of cost-lowering and revenue-enhancing measures, let’s look at a series of scenarios based on different assumptions:
- A 4G-only case
- A 5G base case
- The 5G case applying network optimization measures, example smart deployment and value-based rollout
- The 5G optimized case adding cost reduction measures, better contracts with equipment partners & tower companies, new technologies, such as automation and virtualization.
- The cost reduction scenario with revenue enhancement steps, such as restructured pricing plans for 5G and developing new 5G use cases.
It should be possible to drive a profit increase from 5G when either costs are reduced or the new revenue potential is large. Telcos can at least match their current levels of profitability with an integrated plan that incorporates all of the network optimization, cost reduction, and revenue-boosting measures. They can also benefit from help from other players in the public sector and the broader telco ecosystem.
MOBILE NETWORK OPERATORS
More than anything, Network Operators have to change how they think about 5G, which has multiple aspects—more capacity, lower latency, network slicing by quality of service. Network operators need to lower the cost of network deployment, stabilize or increase ARPU, and create new revenue streams.
Smart deployment using a site-specific traffic forecast can improve the relationship between network capacity supply and demand, and thus reduce average network spending. Prioritizing site construction and capacity upgrades in ROI-oriented way can further reduce network spending. Smart partnerships based on infrastructure and network sharing can lead to capex and opex savings. Network sharing will become more important with 5G, particularly in two areas: small-cell networks in urban and concentrated business areas and suburban / rural regions where 5G investments otherwise could be significantly delayed by cost considerations.
Many mobile networks today operate multiple technologies—such as 2G, 3G, 4G which increases complexity and cost. They should look at shutting down inefficient legacy 2G and 3G networks, they will also need to work toward much more automation and virtualization to help manage the rising cost and complexity of the remaining networks. Operators that do not have legacy infrastructure and deploy 5G network can employ a high degree of automation and benefit from a significant cost advantage
Some operators also have the opportunity to repurpose 4G equipment from urban to suburban or rural sites. This can help them deploy 5G at more sustainable network spending levels without compromising on the value creation of new use case and applications.
There are also multiple opportunities in 5G deployments for mobile network operators to expand existing revenue streams and develop new ones. These include enhanced mobile broadband, which is both a key to protecting their current revenue base and an opportunity to price 5G as a new technology because it delivers better customer experience and quality. Network operators can use fixed-wireless access also known as wireless to the home to enter fixed-line broadband markets. The business cases for 5G fixed wireless vary strongly by market, wholesale environment, competitive setting, and available infrastructure, but it is forecasted that if it could contribute around 10% of the total revenue in next 5 years.
Network slicing enables multiple virtual networks to run on a shared physical infrastructure. With this capability, operators can offer dedicated networks to service providers with mission-critical needs—emergency services, industrial automation, and medical devices. Devices and sensors on the so-called massive IoT like in a smart home have their own set of network requirements that differ from the mission-critical applications. Networks using 5G are well suited to serve customers needing low-power, low-bandwidth connectivity that can handle lots of low-energy devices emitting combined high quantities of data. Moreover, these networks can be deployed quickly and with limited capex.
HOW POLICYMAKERS & REGULATORS CAN HELP
Policymakers & regulators need a change in thinking and approach on the part of public-sector stakeholders. Past policy has focused on incentivizing competition and keeping prices low, which have benefited consumers and underpinned development of a competitive market. Today, however, with traffic rising and ARPUs stable or falling, the new priority for both policy and regulation should be investment, especially in the next-generation infrastructure that can enable further technological advances.
six areas in which reforms can collectively cut operators opex and capex costs. These include the following:
- Access to fronthaul and backhaul infrastructure
- Access to advantageous site locations for macro and small cells
- Additional, affordable spectrum
- Freedom and incentive to establish small-cell network-sharing agreements
- Regulatory facilitation of small-cell deployment
- Harmonized power density limits based on recommendations by the World Health Organization and the International Commission on Non-Ionizing Radiation Protection
- In addition to the above, governments can take a lead in implementing technology in the public sector that requires deployment of 5G.
TELCOM INDUSTRY ECOSYSTEM & IT’S PARTNERS
A number of non operator participants in the telco ecosystem can also facilitate deployment of 5G. Tower companies need to develop their own business models for 5G. In particular, pricing, which is often based on antenna size and weight, could be reviewed and potentially reworked to incentivize operators to accelerate 5G rollout. Tower companies can also play a key role in advancing smart network sharing among operators.
OEM & software companies, need to work closely with their operator partners to pilot 5G equipment and make sure that operators are aware of the technological possibilities that 5G encompasses. Handset makers need to design, test, manufacture, and distribute 5G-ready handsets in parallel with the still-evolving development of 5G technical specifications. Handsets also need to be able to work on both legacy and new 5G networks, in particular the 3.x GHz band, which will be the major capacity band for 5G in the near term.
Over-the-top (OTT) content and service providers benefit from 5G digital infrastructure, which enables them to enhance their offerings and create innovative new products. The largely cost-free content and service delivery approach taken by OTT companies in the past may be less effective in this transition, especially because ultra-low latency is an important feature for advanced services, and service providers will want to integrate their offerings into the telco infrastructure for that. OTT players should explore partnering options with network operators to build innovative services that depend on advanced digital infrastructure.
If the deployment of 5G will be delayed and fragmented the loser will include telecommunications industry, consumers, businesses, and national economies. If, on the other hand, the stakeholders of the mobile ecosystem pull together, they can be winners in the mobile and digital economies of the future.