Vodafone Wants to Avoid a 5G Arms Race

Arms races--for spectrum, acquisition targets, network capex--can be devastating. So Vodafone wants to stay out of such races.  

“We want to co-lead in 5G,” says Nick Read, Vodafone CEO. “It means we don't want to go faster or slower than the fastest player in the marketplace.”

“If you're an incumbent, are you really going to allow us to lead on 5G?” he rhetorically asks. Vodafone clearly believes it is better not to provoke such an investment arms race, which it can ill afford.

The other reason for caution is that Vodafone sees the value of 5G as largely incremental and supportive of consumer internet access demand, not an immediate driver of new revenue sources.

“Now in the immediate term, as we roll out 5G, the immediate benefit we see is around cost,” said Read.  In other words, 5G will supply additional capacity at lower cost than does 4G, as 4G similarly supplied lower-cost capacity compared to 3G.

source: Vodafone

How Much Incremental Revenue Will 5G Produce?

Early in the introduction of 4G networks, many argued that the value, and financial return, would come from growth of data revenues and other application revenue, which would offset declining voice and messaging revenue.

Note the list of new apps and use cases expected to drive new revenues and use cases. Many of them resemble the advantages cited for 5G networks. In retrospect, it is fair to note that expectations for new revenue sources has been less than predicted, the contribution of data revenue greater than expected.

source: AltmanVilandrie

Still, not even higher data revenues have been enough to offset a decline in average revenue per user.

source: Syntonic

By some estimates, the meaningful new revenue Verizon has created in recent years--that can affect the revenue volume--do not flow from the actual mobile network itself, but content efforts  that generate advertising revenues.

AT&T earns a greater percentage of total revenue from content assets, but the point is the same: significant new revenues based on mobile use cases and apps have not had much material impact on revenue.

source: Credit Suisse

That is not to say such revenues cannot be created; only that it has proven quite challenging. That is why some of us believe Verizon’s fixed wireless initiative is likely to produce the greatest amount of identifiable “new” revenue, from new sources, in the early 5G era.

And that is largely for situational reasons: Verizon has the smallest “households passed” footprint of any of its major rivals, telco or cable. It therefore has the greatest financial upside from using fixed wireless to attack existing suppliers of fixed network internet access outside its own fixed network region.

It is early to predict how 5G might develop. But experience with 4G suggests it will not be easy to create meaningful new revenue from new use cases, in the early going. Mobile entertainment video services likely are the first place to look for revenue upside big enough to matter.

And what likely will matter is not the total volume of mobile advertising and subscription revenue in total, but the amount that mobile service providers can garner. Generally speaking, that means owning the actual services, and the subscriptions and ad revenues that can be generated on those services.

The bottom line is that, in the early going, it is going to be tough to identify just how much incremental new revenue 5G generates for mobile service providers. Many will count the value of the 5G access account. Some of us consider that mostly product substitution (5G for 4G), and a form of cannibalization, producing marginal, if any, incremental revenue.

Fixed wireless and mobile subscriptions seem the two candidates for early material success. Verizon targets the former, AT&T the latter.

Meaningful new IoT revenue will take longer to develop.

87% of IoT Devices Connect Using Short-Range Networks

In 2018, perhaps 87 percent of internet of things devices will be connected using a short-range (non-mobile) method. By 2024, short-range connections such as Wi-Fi or Bluetooth will represent 80 percent of connections, according to Ericsson.

In 2018 mobile connections represent about 12 percent of IoT connections, while low-power wide-area networks connect 13 percent of IoT devices. By 2024, mobile will connect 18 percent of IoT devices, while LPWA networks connect 20 percent of IoT devices, Ericsson argues.

source: Ericsson

Mobile Internet Access Speeds Will Grow 27% Annually to 2022

Globally, the average mobile network connection speed in 2017 was 8.7 Mbps. The average speed will more than triple and will be 28.5 Mbps by 2022, as faster 5G connections go commercial.

Average Mobile Access Speed (Mbps)
	2017	2018	2019	2020	2021	2022	CAGR 2017–2022
Global speed: All handsets	8.7	13.2	17.7	21.0	24.8	28.5	27%
Western Europe	16.0	23.6	31.2	37.2	43.8	50.5	26%
Central and Eastern Europe	10.1	12.9	15.7	19.5	22.8	26.2	21%
Middle East and Africa	4.4	6.9	9.4	11.2	13.2	15.3	28%
North America	16.3	21.6	27.0	31.9	36.9	42.0	21%
Asia Pacific	10.6	14.3	18.0	21.7	25.3	28.8	22%
Latin America	4.9	8.0	11.2	13.0	15.3	17.7	30%

source: Cisco

Fixed network internet access speeds will nearly double by 2022. By 2022, global fixed broadband speeds will reach 75.4 Mbps, up from 39 Mbps in 2017, growing globally at a 14-percent compound annual growth rate.

When Will Futuristic Apps Develop for 5G?

Even if faster networks have been a salient feature of each digital mobile generation, “speed,” as such, might not be the defining advantage of 5G networks. At least as 5G for Dummies sees matters, for the first time, speed is not the key innovation.

Though it is difficult to identify a single killer app for each generation, first email and then web browsing are reasonable examples of use cases and apps that were enabled by 3G (even if expectations were much more futuristic).

Streaming video and audio arguably are the consumer apps that 4G has enabled.   

source: Sprint

In the early going, at least, 5G is likely to be used to reinforce mobile capacity demand (fixed and mobile), and less to support truly-new use cases. In other words, applications that require ultra-low latency performance will develop later, over time.

That would not be unprecedented. Many futuristic services imagined for 3G did not appear until 4G, and some still have not emerged. Likewise, 4G was seen as the platform for yet other new use cases, but few of any scale have developed, beyond video and audio streaming, internet access substitution (using mobile in place of fixed networks for internet access).

So it would not be out of line to suggest that some futuristic 5G apps will flourish only in the next generation. The heavy lifting (greatest value) might come from more-prosaic use cases.

5G Now Looks More Evolutionary than Revolutionary, in Early Days

Given the huge differences in proposed use of 5G spectrum (low band, mid band, high band), it probably is not surprising that mobile operator architectural choices are disparate. It makes a huge difference whether new 5G efforts are anchored by low band or high band spectrum, for example.

Nor, given pressures in the business model, should we be terribly surprised that 5G investments are being carefully phased to match existing business models, while investment in the more-futuristic use cases is delayed.

Basically, that means most 5G investments, by most mobile operators, will be for capacity overlays to sustain the current consumer mobile broadband business. In a smaller number of cases, where a new use case is deemed feasible (fixed wireless out of region), 5G investment will aim to support a brand-new revenue stream. But the emphasis is on tapping existing demand, not supporting exotic new use cases of uncertain scale.

The best example is Verizon’s fixed wireless assault, and a possible similar attack by T-Mobile US, should its merger with Sprint be approved. Verizon sees an addressable market of perhaps 30 million homes. At a 20-percent capture rate, that implies a customer base of six million.

Assume a blended average revenue per account of $60 a month. That implies annual account revenue of $720. At six million accounts, Verizon would generate $4.3 billion in incremental revenues from access services.

T-Mobile US has argued it could gain 9.5 million new fixed wireless accounts. At the same $60 a month rate per account, that suggests an incremental $6.8 billion in annual revenue.

A new market representing revenues of $11 billion in the saturated consumer market is no small thing. Just as important, that revenue does not require discovery of some new consumer need; only a shifting of market share.

With that exception, “early 5G will be all about consumer mobile broadband delivering high speed to the handset, and ignoring new business models,” says Caroline Gabriel, Rethink Technology Research analyst.

In a new survey, Rethink Technology Research found that “the top goal for first phase 5G deployment are cost related, namely to support lower cost mobile broadband services, and mostly  to support the enhancement of conventional use cases.

source: Rethink Technology

That should not come as a big surprise. Most tier-one service providers are public companies, with a necessary obligation to show that investments generate a reasonable return in a reasonable amount of time. That always creates pressure to show rather-immediate returns.

And so long as capital investment can be phased, and basically held within the constraints of typical annual capex levels, there is far less business risk.

Service provider executives are a practical lot, taking prudent risks they can justify to financial markets. So, with the exception of 5G fixed wireless, which is a new use case, most of the initial 5G investments will target mobile broadband services.

To some extent the upside comes from required capacity improvements that must be made in any case. To some extent the upside will come from higher mobile broadband revenues, created by higher-priced services whose value is greater mobile internet access usage buckets or faster speeds or both.

5G is Like Any Other Network, Except When It Isn't

You might agree--or not--with this summary of 5G features. As with most things in telecommunications, 5G will be deployed and used in lots of ways. Its design parameters sometimes will be met on real-world networks, sometimes not. But that is true for all networks.

About the only constant is the air interface. Everything else--business model, deployment pace, spectrum, cell architecture, radio technology--can vary. 

5G Business Case Now Focuses More on Mobile Broadband

Given the huge differences in proposed use of 5G spectrum (low band, mid band, high band), it probably is not surprising that mobile operator architectural choices are disparate. It makes a huge difference whether new 5G efforts are anchored by low band or high band spectrum, for example.

Nor, given pressures in the business model, should we be terribly surprised that 5G investments are being carefully phased to match existing business models, while investment in the more-futuristic use cases is delayed.

Basically, that means most 5G investments, by most mobile operators, will be for capacity overlays to sustain the current consumer mobile broadband business. In a smaller number of cases, where a new use case is deemed feasible (fixed wireless out of region), 5G investment will aim to support a brand-new revenue stream. But the emphasis is on tapping existing demand, not supporting exotic new use cases of uncertain scale.

The best example is Verizon’s fixed wireless assault, and a possible similar attack by T-Mobile US, should its merger with Sprint be approved. Verizon sees an addressable market of perhaps 30 million homes. At a 20-percent capture rate, that implies a customer base of six million.

Assume a blended average revenue per account of $60 a month. That implies annual account revenue of $720. At six million accounts, Verizon would generate $4.3 billion in incremental revenues from access services.

T-Mobile US has argued it could gain 9.5 million new fixed wireless accounts. At the same $60 a month rate per account, that suggests an incremental $6.8 billion in annual revenue.

A new market representing revenues of $11 billion in the saturated consumer market is no small thing. Just as important, that revenue does not require discovery of some new consumer need; only a shifting of market share.

With that exception, “early 5G will be all about consumer mobile broadband delivering high speed to the handset, and ignoring new business models,” says Caroline Gabriel, Rethink Technology Research analyst.

In a new survey, Rethink Technology Research found that “the top goal for first phase 5G deployment are cost related, namely to support lower cost mobile broadband services, and mostly  to support the enhancement of conventional use cases.

source: Rethink Technology

That should not come as a big surprise. Most tier-one service providers are public companies, with a necessary obligation to show that investments generate a reasonable return in a reasonable amount of time. That always creates pressure to show rather-immediate returns.

And so long as capital investment can be phased, and basically held within the constraints of typical annual capex levels, there is far less business risk.

Service provider executives are a practical lot, taking prudent risks they can justify to financial markets. So, with the exception of 5G fixed wireless, which is a new use case, most of the initial 5G investments will target mobile broadband services.

To some extent the upside comes from required capacity improvements that must be made in any case. To some extent the upside will come from higher mobile broadband revenues, created by higher-priced services whose value is greater mobile internet access usage buckets or faster speeds or both.

Spectrum Prices are Key for Rural 5G

Wi-Fi has worked commercially because spectrum was free. And some now believe nearly-free spectrum might unlock use of millimeter wave capacity in rural areas. In the U.K. market, where national licenses have been standard, many now argue for mechanisms to unlock use of millimeter wave spectrum in rural areas that might otherwise lie fallow, using spectrum sharing methods.

In the U.S. market, the same sorts of principles (low cost spectrum access) are at play in the 24-GHz and 28-GHZ spectrum auctions, where service providers can choose where they wish to obtain licenses, and where minimum prices for rural areas are far lower than licenses for urbanized areas with high population, by up to four orders of magnitude.  

Spectrum sharing is the latest tool that could be used to provide better mobile and internet access services in rural areas, many now believe, especially when additional spectrum commercialization is in the millimeter wave bands.

Many of the same arguments apply to commercialized use of new unlicensed capacity in the millimeter wave bands. The basic argument is that national licensing will lead to a functional form of spectrum hoarding, as license holders will have clear incentives to deploy in urban areas, but almost no incentive to deploy in rural areas, where the requirement for use of small cells will create a difficult payback model.

Where low-band spectrum will work in rural areas for coverage, mid-band will work less well, and capacity in the 24 GHz to 28 GHz range might not work at all, in terms of a sustainable business model.

So many now believe that low-cost spectrum sharing is needed in rural areas, to commercialize use of millimeter wave capacity. Where a business model based on licensed millimeter spectrum and small cells might not work, many believe a model based on either unlicensed or low-cost shared spectrum might work.

source: IET

Will Wi-Fi Offload Change in 5G Era?

In the 5G era, service providers and device manufacturers will have to rethink connection strategy, as it is expected 5G networks will nearly always be faster than any other options.

Already, in  33 countries smartphone users now experience faster average download speeds using a mobile network than using Wi-Fi, according to OpenSignal mobile analytics.

In 50 countries, 63 percent of those studied, 4G networks offer a faster smartphone download experience than Wi-Fi.

Where it once made sense in most markets to automatically connect mobile customers to Wi-Fi, because Wi-Fi was faster, that might no longer make sense when 5G will be faster than Wi-Fi.

While “speed” is one dimension of experience, it also will matter--as it has in the past--if incentives exist to switch networks for cost reasons. And that is a matter of mobile operator strategy.

Participants in the ecosystem therefore “must rethink when and how to use Wi-Fi to complement the mobile experience,” OpenSignal suggests. In many cases, where tariffs, capacity and speed are aligned, it might not make sense to “force” customers onto Wi-Fi.

“Relying only on Wi-Fi for indoor experience will not be viable,” OpenSignal believes. In the 5G era, “consumers will increasingly override their smartphone’s automatic Wi-Fi choice, and instead select cellular, to find the fastest download speed.”

source: OpenSignal

Of course, bandwidth  aggregation might well solve such problems, allowing devices to use both Wi-Fi and the mobile network simultaneously.