By William Webb
The expectation around 5G surpasses all previous generations. We are told it will herald a digital utopia with services beyond our dreams and gigabit data rates. But that is not how things appear to be working out. Instead, 5G may just be a minor upgrade to 4G networks, performed by increasingly cash-strapped mobile operators. For better services consumers may look to Wi-Fi and to alternative providers. Rather than delivering the crowning achievement of 40 years of mobile success, 5G may be the first indication that its best days are past.
Ten years ago the iPhone was introduced, bringing about the most dramatic change in the use of telecommunications ever seen. Since then there has not been much technological change but data usage, app usage and new business models have grown astoundingly.
Each generation of mobile phone technology tends to occur on a ten-yearly cycle and we are now contemplating 5G. So a key question is whether this trend will continue for the next ten years. Will we see another hundred-fold increase in data usage, ever more apps and more dramatic changes in the way we live our lives, or was this a one-off change that has now mostly run its course? Or will other factors such as coverage become more important?
5G is predicated on assuming the data usage trend will continue, and will even accelerate, and that latency will also become more critical. It broadly aims to deliver even more capacity and even faster speeds than 4G. To many this feels right – it is hard to remember a time when things were not growing fast. This future would see widespread use of virtual and augmented reality, autonomous cars that need low-latency Gbit connectivity, body-cams, ubiquitous Internet of Things (IoT) and many things we cannot currently imagine. It would be delivered through the current industry structure of fixed operators, mobile network operators (MNOs) and large manufacturers. In such a future, the key issues might include privacy, security, ensuring equal access for all and more broadly helping those left behind by rapid societal change.
But nothing can grow forever and cold, hard logic suggests we may be at peak growth now, with the rate of growth falling and demand levelling out perhaps by 2027.1 This alternative future has us reaching a point where we do not have the time to watch any more video downloads and find VR a minority occupation restricted to the home. IoT usage continues to emerge slowly and needs little bandwidth. MNOs do not invest because there is no likelihood of increased revenues. But ubiquitous connectivity becomes ever-more important and to achieve it we will get much better at using multiple networks. Google’s Project Fi pointed the way to a future where Wi-Fi is the first choice for connectivity, with cellular used as back-up when needed. Wi-Fi would increasingly provide coverage in buildings, on trains and in dense areas with voice calls taking place using IP-based solutions such as WhatsApp. Not only would this keep costs down and improve not-spots, it would also herald a shake-up in industry structure with operators becoming more like wholesale providers. Users would be able to take greater control: apps might allow them to discover the best mobile operator and Wi-Fi networks for their daily lives and to tailor connectivity packages to suit, in turn spurring a range of connectivity providers to deliver better solutions. The key implications would be seen first in the industry structure, with more third-party service providers, blurred boundaries between fixed and mobile, new types of competition and an urgent need for reformed regulation.
So which future transpires?
Most would initially assume that the next ten years will be like the last ten years and as a result 5G will focus on more speed and capacity and drive continued growth in data usage. But there are many flaws with this vision, the biggest of which is that it is too expensive. Despite consuming vastly more data than ever before, we are not prepared to pay more for it. Across the world, revenues at mobile operators have been flat or in decline. For example, Timotheus Höttges, Chief Executive of Deutsche Telekom (DT), recently noted that European operators’ earnings before interest and tax (EBIT) have fallen by 44 percent in the last 10 years, while an FCC report2 showed US ARPUs had declined 7% in the last year alone. MNOs still remember launching 4G as a premium service which had little take-up causing them to quickly re-offer it for the same price as 3G. So simplistically, 5G looks like it will cost the operators more and yet not result in any increase in revenue – that is clearly not a sound business case.
Whether 5G will cost more rather depends on what 5G actually is. Amazingly, given that some claim they are already trialling 5G, there is still little consensus on what constitutes 5G. Looking at various trials, announcements and developments, there appears to be four possible models.
The most likely is that 5G is a small improvement on the 4G radio interface, enabling higher speeds and lower latencies. This is embodied in the so-called “new radio” and might be a minor upgrade to base stations. It is often called enhanced mobile broadband. But this 5G would hardly be noticed by consumers and nor would it deliver much to the operators.
A second variant is so-called massive machine communications, more normally known as Internet of Things (IoT). But 4G is delivering this capability with technologies such as NB-IoT and the current thinking is that this will continue to be the IoT mechanism for 5G. So nothing new here.
A more speculative concept is sometimes called ultra-reliable and low-latency communications and might deliver blisteringly fast speeds using new frequency bands far above anything currently used for cellular. Consumers would notice this, primarily because it would require tens of thousands of base stations in each city. But most operators now accept that the costs of such a deployment and the technical risks involved are unmanageable.
Finally, some such as AT&T and Verizon in the US, have re-purposed a mobile technology to fixed communications and are proposing to use 5G-like solutions to deliver broadband to the home, in a concept known as fixed-wireless access (FWA). Most would not class this as 5G, but Verizon and AT&T have chosen to do so, confusing the picture. FWA has been tried with every previous mobile generation – but never succeeded at scale.
Whether anyone will pay more for 5G depends on what it is. If it is the first option set out above – enhanced mobile broadband (EMB) – then it is highly unlikely that anyone will notice any difference or pay more for it. Happily, EMB does not cost the operators much either. So expect announcements from about 2018 onwards that networks are now 5G, but do not expect to notice any difference either in performance or in ARPU.
We can dismiss the second and fourth options above (IoT and FWA) as either happening in 4G, or not being relevant to this 5G discussion. That leaves the ultra-reliable communications. The mobile operators had been hoping that new applications such as autonomous cars, would find this connectivity indispensable and be willing to pay large fees for it, but over the last year or so realisation has started to set in that this is unlikely. Autonomous cars are, well, autonomous, and do not need connectivity beyond that currently available (otherwise, how would all the tests in California and elsewhere be happening?). Remote surgery is often cited as an application, but there are not many remote surgeons in the world, and they tend to operate from buildings with good fibre connectivity anyway. Despite claims to the contrary by equipment vendors desperate to sell 5G base stations, new revenue streams of any significance are unlikely and “build it and they will come” is a huge risk with such an expensive deployment approach.
But perhaps it was always so – perhaps each new generation required a leap of faith? There is a belief in the industry that the odd-numbered generations have been loss-making while the even-numbered ones have been profitable. 2G fixed the security and capacity issues in 1G and was a great success. 3G was a leap into the unknown world of data and did not quite get it right. 4G corrected the problems with 3G and has been successful. 5G appears to be another leap into the unknown. But unlike 3G which happened during a tech bubble, 5G is happening in an era of austerity.
We started with a question – as to whether the next ten years would be the same as the past, or would see an alternative world where the demand for ubiquitous connectivity moves us towards widespread Wi-Fi as a key access mechanism. The discussion above suggests that of all the things 5G could be, it will actually end up as just a minor enhancement to 4G, something we hardly notice and which merely enables the mobile operators to accommodate a few more years of capacity growth. Mobile revenues will continue to decline or flat-line and operators will continue to limit investment. This opens the way for the Wi-Fi alternatives, on trains, in buildings and so on. That in turn leads to a world where we seek connectivity providers who can deliver bundled services – like Google with Project-Fi in the US.
So 5G will bring about a change, but not the move to a utopian gigabit-connected digital society that the industry anticipates. The failure of 5G to shift the current model via new services and new revenue streams will expose weaknesses across the cellular value chain and highlight that the action is now happening elsewhere. For those involved in the industry from operators to manufacturers to regulators, this will be a seismic shift. For those using mobile phones it might just be a change of provider and the benefit of connectivity everywhere.
About the Author
Professor William Webb provides technical and strategic consultancy across the wireless communications space. His activities include advising CEOs, Government Ministers, and regulatory bodies. William is also the part-time CEO of the Weightless SIG, the standards body developing a new global M2M technology and was President of the IET – Europe’s largest Professional Engineering body during 14/15. He is also a Visiting Professor at multiple universities and a Fellow of the Royal Academy of Engineering, the IEEE and the IET.
1. William Webb, 2016, “The 5G Myth”, Amazon.
2. See http://transition.fcc.gov/Daily_Releases/Daily_Business/2017/db0907/DOC-346595A1.pdf