Network Slicing, Edge Computing and Private Networks Might Not be a Big Revenue Driver in Asia-Pac in 2025

You would be hard pressed to find any observers who do not believe edge computing, private networks and network slicing will lift revenue for mobile operators over the next decade In the Asia-Pacific or any other region.

The only question is the magnitude of those increases. And that is where matters get tricky. Some forecasts suggest sharp drop offs in Asia-Pacific mobile revenue through 2025, compared to trends up to 2019. 

But most forecasts call for revenue in the range of $230 billion to $390 billion by about 2025, with total revenue--fixed and mobile--closer to $500 billion in the region. 

If 5G revenue earned by mobile operators in the Asia-Pacific region by about 2025 reach $24 billion, then 5G would represent between six percent and 10 percent of mobile operator revenues.

If one assumes that consumer mobile connections represent 90 percent of 5G revenue in 2025, and using the higher figures of $24 billion in 5G revenue, then edge computing, network slicing and private networks together would only represent perhaps $2.4 billion in revenue.

That is a small amount contributed by three new revenue sources. 

But some believe 5G might contribute less, perhaps contributing $14 billion in mobile revenues  by about 2025. In that case, 5G would represent between four percent and six percent of mobile operator revenues in 2025. 

In that case network slicing, private networks and edge computing would be negligible revenue contributors, generating perhaps 1.4 percent of mobile operator revenues. 

At such levels, the impact of changes in subscription volume, average revenue per account, increases in internet access revenues and market share changes will have far more impact on mobile operator revenues than network slicing, edge computing and private networks.

5G Needs 2 GHz of Mid-Band Spectrum Everywhere, Says GSMA

All countries must prioritize having 2 GHz of mid-band spectrum available for mobile industry use by 2030, GSMA head of spectrum Luciana Camargos says. In many countries, clearing that much spectrum cannot be done simply by awarding new spectrum, but will have to include refarming of spectrum already allocated to other users, he argues. 

The key frequencies cluster around 3500 MHz, with many countries assigning capacity in the 3400 MHz to 3800 MHz, with some also awarding the 3300 MHz t 3400 MHz band, he says.

Others are looking at 3800 MHz to 4200 MHz. 

“In some countries this may prove difficult given the traditional use of this spectrum by satellite operators,” GSMA says. 

source: GSMA 

Fixed Wireless Driving T-Mobile and Verizon Home Broadband Adds

Fixed wireless might be a niche, but it is an important niche for Verizon and T-Mobile home broadband businesses. In its first quarter of 2022, for example, fixed wireless supplied 85 percent of Verizon net home broadband account additions. 

For its part, T-Mobile got fully a third of total net home broadband additions in the U.S. market in 2021, and all of those accounts gained used fixed wireless. 

Observers will continue to debate how important fixed wireless might ultimately prove to be, as a means for telcos to take market share. 

In the first quarter of 2022, “we had 194,000 fixed wireless access net adds across the portfolio, which is 2.5 times our 4Q '21 performance,” says Matt Ellis, Verizon CFO. For context, consider that Verizon added 229,000 total net internet access accounts. 

So fixed wireless accounted for 85 percent of Verizon’s home broadband account growth in the first  quarter of 2022. Fios fiber-to-the-home connections grew by 60,000 net accounts, by way of comparison. 

source: Verizon 

Globally, most fixed wireless connections will continue to rely on 4G. 5G is likely to be more important in the U.S. market, especially as a platform allowing mobile operators and telcos to take market share from cable operators. 

Will Short-Range Connectivity Still Rule IoT in 2030?

Whatever else one might say about the internet of things, it seems clear there will be many billions of sensors that require some sort of connection to broader internet resources.

But the types of possible connections are myriad, with choices ranging from bits per second data rates up to Gbps rates, with a corresponding range of connectivity platforms and services. Many apps and devices will be able to use standard Wi-Fi for connectivity or other short-range connectivity solutions such as Bluetooth. 

Others might require either mobile or satellite network connections. 

source: Eseye, Transforma Insights 

There remains debate about whether specialized low power data networks or mobile networks will be the biggest supplier of connections, compared to use of private network options. Most observers likely believe most connections will use short-range connectivity platforms using unlicensed spectrum. 

Of perhaps 27 billion IoT devices and sensors at work by 2030, perhaps a third will use some form of wide area network connection, according to Transforma Insights data. One reason is that so many IoT connections will be consumer focused. Such connections most often use a short-range method of connectivity.

Most of the WAN connections will serve business or enterprise use cases.

5G Payoff in 5 to 10 Years? Yes, says Verizon

5G “ is going to pay off  big time in the next five to 10 years,” says Hans Vestberg, Verizon CEO, as business services ranging from mobile edge computing to private networks; internet of things  and fixed wireless access produce incremental new revenues. 

That is the mobile parallel to ramped-up investments in fiber-to-home facilities planned by telcos and cable operators. The value is not so much incremental new revenues but the ability to remain competitive in the access markets. 

Nobody really expects consumer internet access revenue to grow at anything but low single-digit rates. Internet service providers face higher usage and flat revenues that require continual capacity upgrades with marginal ability to raise rates. 

Like it or not, mobile or fixed data demand will keep increasing faster than the ability of ISPs to raise prices. For mobile operators, that means 5G is required simply to keep pace with end user data demand, as fixed network operators will have to keep boosting capacity as well. 

Investors and industry executives alike would prefer to point to higher revenues that scale more linearly with new infrastructure. That simply is not the way the business works. The internet access business is a case of “more capex with minor revenue lift.” 

But “you get to keep your business.”

T-Mobile Fixed Wireless Accounted for a Third of All U.S. Home Broadband Net Additions in 2021

T-Mobile says it now has one million home broadband customers after one year of marketing. 

About 40 million homes nationwide can buy 5G Home Internet services using fixed wireless. 

To put that into perspective, in 2021 some 2.8 million net accounts were added in the U.S. market, according to Leichtman Research Group. So T-Mobile’s fixed wireless represented more than a third of all net account additions in the U.S. home broadband market.

"You Get to Keep Your Business" is the Foundational Underpinning of 5G

It now is possible to suggest that a fundamental business problem in the internet era affects both mobile and fixed networks. In both cases, the fundamental issue for connectivity providers is the financial return from network upgrades, whether seen in fiber to the home or 5G and future mobile networks. 

Simply, in a competitive market, capital intensity tends to increase as upgrades to fiber access or mobile networks happen. But revenue does not increase to match. Instead, the pattern is that bandwidth supply grows more exponentially, while customer revenue can grow only linearly, at low single digit rates. 

Higher capital intensity with inelastic revenue growth is therefore the key strategic problem. 

It is a bad scenario, when looked at in traditional financial terms. The capital investments, however, essentially are strategic. Many decades ago, a telco executive facing competition from cable operators concluded that the upside of FTTH was not “more revenue” but “we get to keep our business.”

That is not the sort of analysis a financial analyst would find appealing. 

But that is essentially what upgrades to 5G (and future upgrades) mean. More capital-intensive networks must be deployed to preserve what already exists: the ability to serve customer demand in terms of capacity (gigabytes used) and speed. 

Telco upgrades to FTTH essentially represent the same sort of value: consumer and business account market share is protected from predation and loss to competitors. Spending more money to protect what one already has might not sound like a victory. 

But it is far better than the alternative: continued share loss to competitors and ultimately, a non-viable business model. Sustainability and survival, in other words, is the upside. Revenue growth is nice, but survival is essential. 

The basic issue is that end user demand for data increases almost linearly with time, while the amount of money paid to use networks increases only marginally, if at all, in some cases. 

GlobalData, for example, expects U.S. 5G services will generate average revenue per user of $45.56 during 2022, with 4G generating ARPU of $26.41. 

But matters could change. GlobalData expects that U.S. 5G ARPU will be more than double 4G ARPU in 2023. If that happens, it is almost certainly going to be driven by new use cases and revenue streams such as edge computing, network slicing or content services, we can speculate. 

It is hard to imagine that much growth from consumer data plan price increases. Up to this point, much of the ARPU increase has  been driven by customer upgrades to unlimited usage plans. The obvious problem there is that this is basically a one-time source of revenue lift.

By definition, once a customer plan is upgraded to unlimited usage, usage cannot, itself, drive incremental revenue growth. Price increases largely reflecting inflation adjustments will happen, but beyond that, data usage will not drive ARPU growth. 

source: GlobalData 

Mobile operator executives are right to worry about the financial return from 5G. Those networks are more expensive than 4G. But the alternative is going out of business. 

Traditional financial analysis still matters. Firms will be punished if higher capex results in either the same or lower revenue. But the fundamental problem remains: higher capex now is required to preserve the ability to compete for business.

New revenue and use cases ultimately will be found. But those revenues might only compensate for declines in legacy parts of the business. It is an unappetizing prospect, but a realistic possibility. 

FTTH and 5G succeed if service providers continue to operate and continue to generate profits. For the most part, single-digit revenue increases might be the best outcome. That will not be easy to defend if capex increases more than that. But that is the nature of a connectivity provider’s position in the internet era. 

Bandwidth always must increase. Revenue will grow very slowly. The financial returns from increased capex will be paltry. But firm extinction is the inevitable result, if the investments are not made. 

“You get to stay in business,” like it or not, is the strategic driver of capex. “Higher revenue” is nice if it can be obtained. But it is largely adjustments in other parts of the business model that will help drive such results. 

It is fine to question the 5G or FTTH payback model, and to take other steps to support the business model when those investments are made. But traditional investment criteria will be hard to satisfy, without other adjustments of the payback model.

Spectrum Sharing is Akin to Better Land Use

Radio spectrum is similar to land: it is a finite resource. We cannot generally create new land, and frequencies able to support mobile or wireless communications--radio frequencies--cannot be manufactured at all. 

That constraint noted, various technological means are available to increase effective usage of spectrum. Mobile networks increase usage of a fixed amount of spectrum by increasing the amount of reuse: building smaller cells instead of relatively few big cells. By decreasing cell radii by 50 percent, four smaller cells are created where there once was one original cell, allowing four times the use of any fixed amount of radio spectrum.

Spatial division, time division and frequency division are other traditional ways of reusing a fixed amount of spectrum. Newer ways involve licensing mechanisms that allow multiple classes of users (a license holder and other sub-licensees; a license holder and other unlicensed users) to share use of a fixed spectrum resource. 

“Listen before talk” protocols allow many unlicensed users of Wi-Fi spectrum to access a finite number of channels. Newer database approaches monitor channels in real time, allowing additional users to transmit when the license holder of record is not using the channels. 

Historically, use of smaller cells has arguably driven most mobile industry effective spectrum increase. New spectrum allocations have been the second driver of capacity increases. Some benefit also comes from better signal modulation and radio techniques. 

There is a reason so much attention now is being paid to “non-traditional” radio frequencies higher in frequency that have not been used for mobile applications because of poor signal propagation. Above 10 GHz and up to perhaps 300 GHz, point-to-point applications have dominated. 

But millimeter (30 GHz to 300 GHz) and teraHertz spectrum (300 GHz to 3000 GHz) is where most of the unassigned radio frequency spectrum remains. Aside from availability, the other issue is that radio frequency and capacity are directly related. 

 

source: Ofcom 

Higher frequencies feature higher capacity. The simple matter is that mobile data rates (capacity or “bandwidth”) increase with frequency because it is precisely frequency that underpins data rates. The faster a radio wave oscillates, the more data it can carry. 

source: Researchgate 

In other words, the more times a radio wave oscillates between its +1 and -1 conditions, the more symbols can be represented, all other things being equal. 

Spectrum sharing has not been as popular a concept elsewhere in the world as in the United States, but the United Kingdom seems headed towards greater use of spectrum sharing. 

The advantages are many. It takes time and costs money to relocate existing users of any spectrum when that resource is reallocated to some new use. Allowing new users and uses when those resources are unused is more efficient. It avoids the effort and cost of moving users to new frequencies. 

Spectrum sharing also is a faster way of bringing new capacity to market, as it intensifies use of already-allocated resources without harming the interests of existing license holders.

Mid-Band is the Priority Now, but Millimeter Wave Will Be More Important by 2024

Millimeter wave spectrum does not get nearly the immediate attention that mid-band spectrum gets for rapidly building out U.S. 5G networks. But that will change in late 2023 and 2024, according to Mobile Experts. 

"With the limited number of capex dollars, there is too much near-term return on the C-band deployments to ignore,” says Mobile Experts analyst Dan McNamara.

New needs for capacity that mid-band spectrum cannot handle are the driver. 

In the following illustration, the width of the blue bars roughly illustrates the amount of capacity at different frequencies. The horizontal axis represents the frequency spectrum from approximately 1 GHz to 90 GHz on a relative scale (mobile services tend to use frequencies at 600 MHz to 800 MHz at the low end).

The orange bars show the approximately 11 GHz (capacity, not frequency)  of new spectrum released by the FCC for both licensed and unlicensed use. Note that the total amount of new bandwidth is orders of magnitude more than all bandwidth presently available for mobile purposes.

Europe and Asia are working towards commercialization of much of that spectrum as well.

The red and green blocks show frequency allocations for the aerospace, defense and satellite communications industries, parts of which might ultimately be available using shared spectrum mechanisms.

source: Anokiwave

U.S. Cable Gets 29% Share in 4Q in 2021

5G is not the only important driver of behavior in the U.S. mobile industry. Competition is likely causing revenue per account pressure as some mobile virtual network operators and facilities-based providers rely on promotional pricing to maintain share positions or drive account growth. 

U.S. cable operators, arguably the foremost forces in the MVNO market, gained 29 percent of domestic mobile industry phone account net additions in the fourth quarter of  2021, according to MoffettNathanson. 

source: MoffettNathanson, LightReading 

Sometimes Demand--Not Supply--Explains Take Rates

Where it comes to supply and demand, pundits often assume that slower 5G uptake is to be blamed on supply, not demand. That is not necessarily the case. Subscriber levels for 4G in a few European countries have always been below what we might expect, and availability cannot, at this point, be the main culprit. 

Some might point to lagging 5G uptake and suspect that supply issues are at work. 

source: Ookla 

Customer demand also shapes uptake. Nearly half of all German mobile subscriptions appear to use 3G, instead of 4G. nearly a decade after 4G was introduced, according to a study by Opensignal. 

Governments and policymakers always are quick to quantify supply-based gaps in uptake, quality or availability of communications services, which is among the reasons stories about any form of digital divide are evergreen. 

Most often, studies about service gaps rely on supply or demand indices, including network availability, typical speeds and cost. 

Demand side choices by consumers tend to be overlooked. In other words, some “gaps” might reflect consumer choices, not failures of supply. And that matters for 5G, as much as it did for 4G.

We often are surprised at the resilience of legacy services, as those use of legacy services is always a case of supply failure. Not always. Sometimes demand choices are at work. In other words, a huge percentage of German mobile users seem to be opting to remain on 3G networks even when 4G networks now are in good supply, with good performance metrics. 

Why Millimeter Wave 5G Requires Smaller Cells

Frequency and reach are inversely correlated: the higher the signal frequency, the lower the distance those signals will travel. That matters for 5G, and will matter more with every succeeding mobile generation, as the available radio frequencies available to support future networks are almost completely in the millimeter and teraHertz regions. 

source: Surecall 

That is an issue for outdoor and indoor signal propagation, but especially troublesome for indoor signal reception. 

To be sure, signal attenuation at any frequency is an inverse square law. If one doubles the distance, signal loss is much more than 50 percent. A loss of 3 decibels is a loss of 50 percent. Conversely, a 3 dB gain is twice the power. 

source: Semfio Networks 

Power losses, which translate into distance limitations, are quite severe in the first meter a radio signal leaves an antenna, and are increased in magnitude as signal frequency increases. 

Signals at 5 GHz attenuate well more than 50 percent, compared to a 2.4 GHz signal, half a meter from signal launch. At one meter, signals at 5 GHz have dropped by two 50-percent stages: half at half a meter and another 50 percent reduction by one meter from the signal launch. 

In other words, most of the signal actually has dissipated in the first eight meters from the radio, no matter what the frequency. But signal loss is proportional to signal frequency as well. 

As a practical matter, that means smaller cells are required as signal frequency increases. 

source: Powerful Signal

5G Has been Deployed Faster than 4G

Though it might not seem to be the case, 5G has been deployed faster than 4G, looking at coverage. 

source: CTIA, Amdocs 

Since 2G, the first digital mobile platform, adoption times for each succeeding platform also have gotten shorter. 

source: Counterpoint Research 

5G Value is Utilitarian: Preserve User Experience

Though much speculation about new 5G use cases abounds, the practical driver is about as utilitarian as it gets. In some markets, mobile customers are using so much data that the 4G networks were getting congested. 

In other words, as always, next-generation mobile network was needed simply to boost capacity.  

As always is the case, mobile operators had to move to add much more capacity ahead of demand growth that would have led to congested networks and diminishing experience. 

source: BandwidthX 

Paradoxically, for all the talk of new features, 5G is necessary simply to add capacity to the network. Though smaller cell sizes traditionally have been the main way most new capacity is added, it is arguably more costly and difficult than adding new spectrum. 

In the case of millimeter wave spectrum, perhaps both issues occur simultaneously: the new spectrum requires use of small cells. In the early days, millimeter wave has been used almost exclusively to augment capacity of urban, high-use cell outdoor cell sites. 

Eventually that will change. We will see more use of millimeter wave indoors in high-traffic areas. 

When Opensignal  analyzed the mobile data consumed by millimeter wave  5G users, Opensignal found that 5G accounted for a much larger share of the total mobile data consumed. 

“Our T-Mobile users who connected to mmWave 5G consumed 58.6 percent of their mobile data  on 5G networks, followed by AT&T at 41.3 percent and Verizon at 18.7 percent,” Opensignal says. 

source: Tefficient 

Much of the concern about 5G payback models is warranted. Higher capital investment without an increase in revenue is always a problem. But it is the lesser of two evils. Without an increase in capacity made possible by 5G, mobile user experience would worsen. 

source: Statista 

Fancy new apps or not, 5G is a utilitarian move to increase mobile network capacity and preserve user experience.

More Fixed Wireless than FTTH Accounts to be Added in 2022, New Street Research Predicts

5G fixed wireless is a niche, but an important niche for Verizon and T-Mobile as well as wireless internet service providers. In fact, analysts at New Street Research expect more fixed wireless accounts will be added in 2022 than fiber to home accounts. 

source: NSR Data

5G Handsets Lead Sales in Most Global Markets

Handset sales are not the same thing as network activations. In other words, a 5G device does not require use of a 5G network. It can run in 4G mode. But device sales do indicate the eventual movement of the customer base towards the latest-generation network. 

With the caveat that current market share (sales) is not the same thing as installed base, 5G devices are the norm in most markets save the Middle East Africa region. 

source: Strategy Analytics

5G is Important, But Compared to What?

As somebody who has spent lots of time following 5G, I also get the feeling I have seen this before, and I do not mean I have watched 3G and 4G arrive. No, it is something else. 

It is ancient history for many, but I can also recall expectations about the Telecommunications Act of 1996, the biggest change in telecom regulation since 1934 or the breakup of the AT&T monopoly in 1984. 

The Telecom Act essentially focused on opening up voice switch and access lines to competition. But it happened just as the internet was about to become the driving force of just about everything. Note the inflection point in internet usage in North America around 1994. 

source: Our World in Data 

The point is that use of internet apps and services is loosely coupled to the facilities that allow the access. Once access is available--it does not matter who “owns” the access facilities--all lawful apps can be used.

That separation into layers means the impact of internet apps and services is essentially decoupled from the ownership of access facilities. Under monopoly or competitive access provider regimes, the internet grows irrespective of the regime. 

source: W3.org 

The old adage about generals always preparing to fight the last war seems germane here. Policymakers focused on concrete measures to introduce competition by forcing wholesale access to voice services and access loops, expecting that facilities-based competition, lower prices and more service innovation would follow. 

Well, that did happen, though not the way most expected. Even disregarding the internet, telecom services moved to mobility. That is the way most people prefer to use voice services. It is the platform for messaging, social media, coordination, navigation, commerce and content. 

The Telecom Act was largely focused on fixed network change. 

We can argue that the Telecom Act actually did lead to investment in access facilities that make broadband internet apps possible. But we also can argue that widespread mobility adoption and the unregulated competition in that segment of the business has mattered more in terms of innovation, lower prices and greater competition. 

That is the sense I get from 5G. It is better than 4G in terms of performance, to be sure. And its full impact is not yet apparent because we are still early in adoption. 

But I also suspect it will  not matter as much as some hope. With Web 3.0; metaverse; blockchain; crypto; artificial and virtual reality coming, it seems to me 5G will not be as important. 

Just as the Telecom Act might not have produced as much innovation and change as mobility and the internet, so too might 5G be--relatively speaking--less important.