5G is a Delicate Balance Between
A New Series by Hayim Porat
How many of you have heard that 5G will change the world as we know it? While this statement may be a bit extreme, there is no doubt that this ‘G’ is a completely different beast than the previous mobile generations. For the first time, the industry will be called upon to cross a variety of previously untraversed divides:
- Mobile vs. fixed,
- Human vs. machine, and
- Static vs. dynamic
5G, as opposed to its predecessors, is all about the services. And this will require a major change in the way networks are designed, built and operated.
Many believe that when new radio capabilities are teamed up with a network flexible and intelligent enough to dynamically handle a huge range of protocols, the 5G network will be able to tackle specific services in a way not possible with the previous ‘G’s. However, the transition to 5G networks is not as intuitive as one might think. And while a range of technologies exist today which will make this transition easier – some of them are not yet mature enough, nor their implementation ‘easy’ or cost-effective enough.
There are many questions only now being asked, regarding the coming move to 5G — ROI, rollout, hardware/software issues and a sometimes heated discussion of the smart core vs intelligent edge. Answers however, seem harder to come by. Understanding the parameters and the criteria which will affect the success is key.
Welcome to 5G is a Delicate Balance Between…, my newest series, in which I will be discussing the various aspects affecting the evolution to 5G networks over the next few years. The first question to ask, of course, is whether the investments required to achieve 5G capabilities provide returns that justify those investments. Carriers have been evaluating this question for some time now and yet the answer is, for many, still elusive.
Investment VS ROI
Largely, the discussion on ROI has focused on the cost of building up 5G network capabilities versus the ability to then monetize these new capabilities. In this equation one must take into consideration the cost versus the revenues side of this equation.
Cost Side of the Equation
Costs of rolling out 5G network capabilities are expected to be enormous. Spectrum bids and cost of new radio technologies are only the beginning. On the networking side, investments will be required across the network. From new hardware (which supports Massive MIMO, millimeter waves and enables network slicing or include assurance counters, for example), new software (from VNFs to SDN), new orchestration capabilities and the list goes on.
Some of the technology exists (for example NFV, or assurance counters), but for the most part few have gone beyond POC or niche implementations. Some of the technology does not exist, for example AI for networks, although many vendors are taking initial steps to develop such solutions. In all, the technologies required have not yet seen the wide-scale implementations that are required to ensure 5G capabilities.
Let’s also not forget investment required for assuring those services which will enable carriers to charge a premium. Unfortunately, truly assuring services is an expensive task. Not only do you need to invest in the infrastructures, dynamic resource allocation, counters and monitoring equipment, you also need to instill proactive monitoring and regulating capabilities in the networks themselves both in the radio and in fixed side.
Bottom-line, to build a 5G capable network will require an investment of massive proportions!
Revenue Side of the Equation
Now let’s talk about the revenue side.
Much has been said about the business case for 5G and many agree that initial expectations may have been overly optimistic. The industry differentiates between 3 types of services made possible by 5G:
- enhanced mobile broadband (eMBB)
- massive machine-type communication, and
- ultra-reliable, low-latency communications
So let’s take them one at a time:
In my opinion the fastest time to money can be realized from eMBB. Couple points to make on this: 1) Additional revenues will likely arrive by connecting new users and new accounts, utilizing fixed wireless connectivity, especially in areas where traditional fiber won’t work. But, 2) as I’ve said before, the biggest misconception is that consumers will be willing to pay more for faster speeds. We’ve seen this before. Yes initially there may be an uptick in revenues, but in the end, the increased speed does not translate to higher ARPU overtime because speed is a commodity.
Rather, consumers will pay more for premium services which offer them unique value, not just a mere best effort speed.
Massive machine-type communication (sometimes known as IoT)
A new kind of connectivity linking machines, sensors such as smart meters, and software will be available. Regarding revenue opportunity, two comments: 1) the jury is still out on who exactly will pay for this connectivity and how much with the availability of cloud OTT based IOT APIs. And 2) industry leaders have openly admitted that “there’s been a problem turning that vision into a monetized reality.”
Ultra-reliable, low-latency services
And regarding the URLL communications, these require the massive investment in service assurance. Industry 4.0 factories demand 99.9999% availability, even more than the currently stringent 5 nines accepted in the telco industry, and latency on par with Ethernet cables. Simple penalties for service level agreement (SLA) failure will not be enough to ensure satisfaction, for the most part. This would require installation of complete individual 5G setups in the factories themselves, making the Telco providers to be IT service providers.
Steps to ROI
The key need here, then, is the ability to build out the potential for those necessary features in today’s network infrastructure cost effectively. Steps must be taken today to prepare for 5G without a “rip-and-replace” mindset.
It should now be clear that, in order to achieve viable returns on 5G investments, steps must be taken today that leverage existing and in-development network infrastructure and architecture to the fullest extent possible while remaining flexible and scalable, even while operating in varied landscapes. It needs to be capable of servicing each market slice independently without replacing large swaths of the network for 5G operability.
When you think about it 5G is so far ahead of existing networks that you can’t expect everything to happen in one day. You can create a network with a lot of capabilities and services and then try to sell applications as well as connectivity. As a carrier, you need to better understand and build the required business models to convince customers to buy the services you’ve expensively enabled. On the other hand, not investing can lead to a loss of market share and first mover advantage as your competitors hit the ground running.
See you next time as we examine another balance in the 5G evolution. To learn more about 5G requirements download our white paper here.