By now, you’ve already heard many times about gigabit speeds and millisecond latency. But you also know that cool technology does not automatically result in commercial success.
5G is especially puzzling, because we can’t easily point to the “killer application” that will drive revenue. With 2G, we replaced phones with wireless phones. With 3G and 4G, we put the wired Internet into your pocket. In each case, there was a widely adopted application that was simply converted to wireless. There’s no big wired market left to convert to wireless.
Personally, I don’t believe that new 5G applications will drive a lot of revenue. Virtual reality? No, that’s short-range wireless, not mobile. Massive IoT? No, we have cheaper solutions for that. Critical IoT? Maybe, but that revenue will grow very slowly.
No, new applications are not the answer to the 5G business case. The real problem that faces mobile operators comes down to this: They need to deliver more data, but revenue growth is slowing down. Take a look at Verizon’s anemic earnings outlook. They need more data at lower cost. And since about 70% of data traffic is video content, this means that operators really need a cheaper pipe for video.
We’ve been tracking the estimated cost of a mobile 5G network and the likely architecture that it will follow. Over the past two years, our predictions about the structure of the 5G network have been correct so far: the LTE control plane will be used, and operators will rely on both low-band (<6 GHz) and high-band (20+ GHz) spectrum to achieve both coverage and capacity. As the industry reaches consensus on these concepts, we’ve been locking them in to our cost model.
Today, our cost model tells us that 5G should be able to achieve a 10x reduction in cost per bit, compared with LTE. It’s still higher than the target we set two years ago, but 5G cost estimates are getting low enough to make success look likely.
So, we’re reaching a level of comfort, knowing that 5G will be cheap enough to provide profitable wireless services. The next question centers on “how fast will it be deployed”?
Lower cost by itself will not trigger a rapid upgrade for 5G worldwide. With 2G, 3G, and 4G, each new service created a need for a nationwide network rollout. Ten years ago, mobile telecom was a growth market, so quick investment was best. ARPU was still increasing, so operators and banks dove into the investments headfirst. Those conditions don’t exist anymore.
In the case of 5G, the investment profile is likely to be slower than you expect, because we will see the behavior of a mature, established industry—not the dynamics of a growth market.
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.