Industry Voices—Madden: Why 5G?

Samsung 5G (Samsung)
Verizon and Samsung are among the many companies investing in 5G equipment and services.

As I have been studying 5G broadband over the past three years, the main question on my mind has been “why.” Why would a mobile operator invest billions of dollars in a new mobile network, when the ARPU for mobile broadband is not likely to increase?

The answer to this question is now becoming clear. Multiple demos at the Mobile World Congress last week are on track to beat the cost targets that we laid out more than two years ago, so that we can expect an order of magnitude reduction in cost per GB. The importance of this cannot be overstated.

Think about it:

  • With 2G, we knew exactly what we were doing. The goal of 2G was to cut the cord on the telephone, and convert the trillion-dollar wired telecom market into a wireless telecom market.
  • In 3G, the industry had big dreams but in the end 3G really came down to email. The BlackBerry became the poster child for staying connected by email. Smartphone adoption skyrocketed as enterprises started to pay for employee subscriptions.
  • The change to an all-IP network with 4G put the internet in your pocket. By the 2012 timeframe, the wired internet had grown to a trillion-dollar business, so LTE growth was clearly tied to more access to a large existing market.

Many people do not use 4G for their primary internet connection because of cost. Even in countries with excellent LTE networks, end users typically use about 5 GB on a mobile device, and more than 50 GB over a fixed broadband connection. So 4G has made the mobile Internet possible, but not affordable.

If the mobile connection became cheaper, what would people do with it? Video content is, by far, the largest driver of internet traffic. Various forms of video represent more than 70% of traffic, and video is also the fastest growing application on the Internet. We estimate that various forms of video will comprise more than 80% of traffic in 2021. Video is the future of mobile.

Mobile operators clearly see this. AT&T and Verizon are both chasing content, trying to acquire entertainment companies and internet content providers as well as video distribution companies. They’ve also moved to support unlimited data plans, to remove the primary barrier to video usage on LTE.

Take a simple example of a 4 GB HD movie rental. The media company charges about $4-5, but delivering the 4 GB file carries a cost between $5 and $8 using LTE. Too high! With 5G, our cost model indicates that the movie can be delivered for $1.

So, by combining the mobile network and the video content, mobile operators have found a revenue opportunity. They won’t make much on the delivery, but they’ll make a bundle on the content itself.

Joe Madden is Principal Analyst at Mobile Experts LLC, a network of market and technology experts that analyze wireless markets. The team provides detailed research on Small Cell, Base Station, Carrier Wi-Fi, and IoT markets. Mr. Madden currently focuses on trends in 5G, IoT, and Enterprise markets for wireless infrastructure. Over 26 years in mobile communications, he accurately predicted the rise of Digital Predistortion, Remote Radio Heads, Small Cells, and the rise of a Mobile IT market. He validates his ideas with mobile and cable operators, as well as semiconductor suppliers to find the match between business models and technology. Mr. Madden holds a Physics degree from UCLA. Despite learning about economics at Stanford, he still obeys the laws of physics.