As the industry marches toward 5G and all its promises of faster speeds, ultralow latency and massive connections, we have been wondering what business cases would prompt operators to make 5G network investments.
Fancy new applications like connected cars, AR/VR and gaming are certainly alluring and seem likely with ecosystem partners making investments toward these areas in time for 5G network services. While we remain optimistic that industrial IoT and other new applications will provide incremental revenue, our latest 5G business case analysis looked at three “mainstream” use cases:
- 5G/millimeter-wave fixed wireless access for home broadband.
- 5G-enhanced mobile broadband.
- Mobile broadband and OTT video bundle.
(We acknowledge that a business case analysis is only as good as underlying assumptions driving the model. Hence, we provide our “cost per GB” calculator and the full business model with adjustable “knobs” to change key cost assumptions and other factors like pricing, churn, etc., so that you can tailor for your specific use case and market conditions.)
An ROI analysis can swing positively or negatively depending on many factors such as base station and spectrum costs, technology capabilities, pricing, churn and numerous other factors.
For example, the below chart shows monthly network costs of a 5G millimeter wave fixed wireless base station at various cell ranges. The chart indicates that 5G fixed wireless, for a city-like housing density of 2000 homes per km2, becomes economically viable at around 8-20% market penetration with 300-500m cell radius. Depending on the assumption of cell range, the 5G fixed wireless economics can make (e.g., 300m cell radius or greater is compelling), or break (e.g., 100m cell radius is not viable) the business case.
By the way, Verizon’s recent “5G home broadband” announcement and our findings suggest that 5G millimeter wave systems can reach favorable distances delivering competitive throughput speeds to make the 5G fixed wireless economics viable in most urban settings.
A search for an optimal return on 5G investment will differ from one operator to the next. Operators that use millimeter wave and massive MIMO support in 5G will get significantly lower cost per GB for mobile broadband, and in some cases, video bundle services. This is the key: Operators need to bring their cost down because their revenue per GB is dropping fast.
In a competitive environment like the U.S., the 5G business case is compelling because operators that don’t keep up with high capacity networks will lose their customers to churn. The primary business case will be the “meat and potato” business of providing connectivity services to personal devices and homes—even before considering fancy new applications like connected car, AR/VR and other cool applications.
Like 4G/LTE before it, 5G will continue to evolve. Delivering a low cost-per-bit network platform is a good foundation for 5G investment; incremental business opportunities from industrial IoT and other cool applications are gravy.