SPECTRUM ALLOCATIONS IN THE 3.5GHZ BAND 25 (SOURCE: GSMA INTELLIGENCE)
2.3.1 Market readiness and timing
The timing of 5G deployment is dependent on market readiness
5G is a question of ‘when’ and not ‘if’ for most markets and operators. The decision on when to launch 5G will be based on triggers that are localised for each market, given the different stages of 5G readiness across markets.
For example, a looming capacity crunch for mobile broadband or an identified enterprise need in a market are credible triggers for 5G launch. Ericsson28 reports that average smartphone data usage by 2023 will range from 7GB/month in in Sub-Saharan Africa to 48GB/
month in North America.
Even if the 5G launch trigger has not been reached, users and policymakers in highly developed mobile markets with a focus on technology leadership will expect 5G to be available soon. Many markets with at least 80% 4G coverage and 60% smartphone adoption will fall in this category.
Customers’ ability and willingness to pay a premium for 5G services will be an important consideration in most markets. Any operator expectation on charging a premium for eMBB will need to be tested, given that over the last ten years, customers have used ever growing amounts of data over faster connections, while ARPU has stagnated and even declined in many developed markets.
28. https://www.ericsson.com/en/mobility-report/reports/june-2018
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The competitive environment going into the 5G era remains challenging in many markets around the world.
This is unlikely to abate anytime soon and intense intra- operator competition will remain a big market force for the foreseeable future. Many operators are also increasingly competing with non-operator companies, for example in TV and content services where operators have made acquisitions (e.g. AT&T’s acquisition of Time Warner) as well as IoT, where some operators aim to expand beyond connectivity and provide vertical solutions.
Competition has been instrumental in driving costs down, developing innovative products and services, and expanding coverage globally. Operators will continue to play their part in ensuring that the mobile industry remains a source of value creation and growth driver for the global economy.
A supportive policy framework and a level playing field between competitors is vital in enabling a market environment that supports the ability of the industry to invest in 5G. When these conditions are less ideal, or supportive, industry financial health may be negatively impacted. For example, a comparison of selected countries and regions outlined in Figure 2.3.1 below suggests Europe was the only region in the world where revenues during the 4G era fell. This may undermine the capacity of the operators in the region to pursue an aggressive 5G rollout strategy.
2.3.3 5G competitive landscape
Competition will remain fierce in the 5G era
FIGURE 2.3.1
MOBILE REVENUES AND FORECASTS IN $ BILLIONS FOR SELECTED COUNTRIES AND REGIONS (SOURCE: GSMA INTELLIGENCE)
0
Latvia
2018 Australia
2018 United
Kingdom 2018
Czech Republic
2018
Italy
2018 Spain
2018 United Arab Emirates
2018
Korea South 2018
Ireland
2018 Finland 2018
50 50 50
390
130 350
70 280
93 200
100 200
67 200
50 200
50 150
38 125
31
100 150 200 250 300 350 400
Amount of MHz
assigned Average amount of MHz per winner
$ 0
$ 50
$ 100
$ 150
$ 200
$ 250
$ 300
$ 350
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Europe China Japan South Korea United States
of America
EU US
China China US EU
577
105
11 2
58 58
Average connections, millions Average mobile revenues, USD billions
5G Readiness & Enabling Conditions
76
Telecoms is a capital intensive industry and having sufficient scale can provide huge benefits for all stakeholders in a market. Markets with sufficient scale can better influence the global trajectory of 5G development and are also able to achieve low unit costs of network rollout (i.e. economies of scale). These will create significant incentives for early 5G rollout.
Figure 2.3.2 illustrates the lack of scale for operators in the EU. Each of the market-leading operators in China and the US (accounting for more than 95% of all connections) has an average of at least 100 million connections and generates an average of $58 billion in annual revenues.
In contrast, leading operators in the EU have an average of 11 million connections and $2 billion annual
revenues. With sufficient scale, operators in China and the US have considerable financial muscle to support 5G deployment and a large base of customers to drive down the cost per connection for 5G.
To mitigate this, operators in individual markets that are subscale can consolidate, collaborate or align their 5G strategies to achieve better economies of scale.
This can be in-country (e.g. through network sharing or consolidation) or across borders (e.g. harmonising the use of spectrum and timing of auctions). This is a task for all stakeholders in the market, including policymakers and operators. The announcement of the Nordics 5G corridor is an example of a
collaboration that facilitates technology and spectrum harmonisation, and improves the incentives for network launch29.
FIGURE 2.3.2
AVERAGE CONNECTIONS AND MOBILE REVENUES FOR OPERATORS IN CHINA, EU AND US (FY 2017) (SOURCE: GSMA INTELLIGENCE)
2.3.4 5G and benefits of scale
Size and economies of scale are beneficial to 5G commercialisation
0
Latvia
2018 Australia
2018 United
Kingdom 2018
Czech Republic
2018
Italy
2018 Spain
2018 United Arab Emirates
2018
Korea South 2018
Ireland
2018 Finland 2018
50 50 50
390
130 350
70 280
93 200
100 200
67 200
50 200
50 150
38 125
31
100 150 200 250 300 350 400
Amount of MHz
assigned Average amount of MHz per winner
$ 0
$ 50
$ 100
$ 150
$ 200
$ 250
$ 300
$ 350
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Europe China Japan South Korea United States
of America
EU US
China China US EU
577
105
11 2
58 58
Average connections, millions Average mobile revenues, USD billions
29. https://www.government.se/press-releases/2018/05/new-nordic-cooperation-on-5g/
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While early 5G devices will be mostly customer premises equipment (CPE) for Fixed Wireless Access (FWA) or wireless routers, the availability of 5G phones from 2019 will be a pivotal moment that will drive customer adoption of 5G.
The smartphone market has matured, leading to a lengthening of the smartphone replacement cycle. In this reality, connection speed alone is unlikely to be a sufficient driver for mass-market upgrade to 5G devices as users will wait to see if the new or improved features warrant replacement of the smartphones every 12 to 18 months. The device ecosystem, including 5G devices, is hoping for an ‘iPhone moment’, similar to the new customer experience created by the iPhone in 2007.
There are also disincentives that could deter customers.
Affordability is a major concern, given early indications that the wholesale cost of 5G handsets, when they are
introduced in 2019, will be more than $750 and that only 9% of Chinese customers buy phones with wholesale prices of over $50030. The implication is that high device prices could threaten the economies of scale from China that ought to accelerate global 5G rollout.
In addition, battery capacity, performance and safety for early 5G handsets will be a key success factor. Adoption will be seriously impacted if early 5G handsets cannot last 24 hours on one charge, or if customers need to switch off 5G in order to make the battery last longer. Concerns about safety of 5G handsets will also be notable, whether as a result of battery safety, fire hazard or avoiding electromagnetic radiation. In September 2017, the GSMA produced the paper “5G, the Internet of Things (IoT) and Wearable Devices - What do the new uses of wireless technologies mean for radio frequency exposure?” to provide more clarity on EMF concerns in the 5G era.