I am not a golfer, but I am told that you must have good “short” (i.e., putting and chipping) and “long” (driving off of a tee) games to win at golf. In mobile telecom or any large-scale business, there is always tension between an operator’s desire to invest for the future but not to overinvest too quickly. The “short” game for the operators is to keep their high fixed-cost networks fully utilized, adding capacity as demand grows. The “long” game is to move strategically into new business areas. It's tricky to achieve both at the same time.
Our recent study on 5G business cases centers on mobile broadband and fixed wireless replacement for residential broadband. The detailed calculations show that the motivations behind 5G investments vary widely, according to operator and region. Certain situations warrant, even urgently require, 5G investment to keep up with end-user demand. Multifaceted opportunities will likely drive operators to adopt 5G more aggressively—but there are also situations in which it wouldn’t be prudent.
In a competitive market where the underlying demand drivers continue to grow, the 5G business model is fairly simple: Leverage additional spectrum and 5G technologies like massive MIMO to expand capacity at a lower cost per GB. The use of 5G can reduce cost per GB faster than the compression of retail pricing per GB, so operating margin can expand. Keeping ahead of rising demand through more efficient delivery of gigabytes is the name of the game. As illustrated below, 5G investment allows operators to increase network capacity to keep ahead of traffic growth. Profits can increase due to the lower unit cost. The alternative—maintaining the LTE network without 5G investment—faces the consequences of churn and lower revenue due to a capacity “crunch.”
Meanwhile, the long game for 5G is a strategic shift: setting up the mobile network to be a universal broadband connectivity platform for both fixed and mobile scenarios. A large swath of millimeter wave spectrum in conjunction with network densification in dense urban areas allows some operators to expand beyond mobility to offer fixed wireless home broadband services. Our modeling shows that operators can attain profitable fixed wireless business with a reasonable expectation around market penetration (less than 30%) in dense markets. While interesting industrial applications in the enterprise segment can further enhance a 5G business case, the fixed and mobile use cases provide a strong baseline from which to build up the 5G business case.
Improving the short game of lowering the unit cost of mobile connectivity alone is a credible business case for 5G investment. Setting up for the long game where fixed and mobile connectivity services can be offered on a converged network adds a strategic element to the 5G business case. Coming availability of spectrum will enable mobile operators to expand market opportunities beyond mobility and improve both short and long games as the fixed and mobile markets continue to converge toward an integrated model.
As a famed golfer, Ben Hogan, once said, “Placing the ball in the right position for the next shot is 80% of winning golf.” Will 5G and the large blocks of spectrum coming to market set mobile operators up for long-term success? In most cases, the answer is yes. We analyzed multiple 5G investment cases. Most of them are straight shots down the fairway. One is in the sand bunker, and one drops into the water. So the 5G game will take careful planning and a smooth swing.
Kyung Mun is a senior analyst at Mobile Experts LLC. Mobile Experts is a network of market and technology experts that provides market analysis on the mobile infrastructure and mobile handset markets. Over the course of his 20+ years in the wireless and cable industries in a dynamic range of roles from engineering to product management and technology strategy, Mun has contributed to the advancement of mobile communication while working at leading companies in the mobile value chain including Motorola, Texas Instruments, Alcatel-Lucent and a few startups in between. He holds undergraduate and graduate degrees in electrical engineering from the University of Texas at Austin and Georgia Tech, and studied finance and strategy at Southern Methodist University.
"Industry Voices" are opinion columns written by outside contributors—often industry experts or analysts—who are invited to the conversation by FierceWireless staff. They do not represent the opinions of FierceWireless.