5G is among the hottest “buzz words” in the global telecom business for good reasons: it might be transformative in several ways, driving big industry revenue changes; changing the value of network assets and blending “mobile” and “fixed” networks in new ways.
Beyond the obvious capabilities of the new network though, is the huge question of business model. True, 5G will offer gigabit speeds for smartphone users and low latency for apps that require that feature. But the question has to be asked: how much more incremental revenue will 5G produce?
In other words, if most customers already are buying 4G mobile access, what incremental advantages, and incremental spending, might occur as 5G is available? Consider that, in some markets where gigabit access already is available, as well as speeds below 100 Mbps and in the mid-100s of megabits per second, what percentage of customers actually choose to buy the faster tier of service?
And that is one danger for 5G. Although it will boost speeds for smartphone users, will customers want to pay extra for that speed? If not, will they be content with 4G offers? And if that is true, what is the investment return from 5G?
There might be other important angles as well. Strategically, 5G will tend to favor “integrated providers” owning both mobile and fixed assets; bigger providers over smaller providers; and capital-rich providers over capital-restrained service providers. On the other hand, expected availability of unlicensed and shared spectrum will make possible services that do not require purchase of licensed spectrum, or require less capital investment in such spectrum. That will enable new competitors.
Also, although mobile services arguably always have affected core network requirements, 5G will be the first air interface that requires core network virtualization to support virtualized radio access.
Most important are changes related to the virtualization of networks (network functions virtualization and software defined networks). Though for generations the goal of every next generation network has been a greater ability to supply bandwidth on demand, 5G is the first mobile network to build on virtualized networks as a core requirement.
Virtualization will take many forms. Core networks will operate at lower cost, and gain ability to create on-demand bandwidth and specialized network features by “network slicing.” In other words, it will be possible to create custom networks that have distinct sets of capabilities.
Consider networks supporting “autonomous car” services. For safety reasons, the systems reporting in real time on road conditions, hazards, and incidents will require a very reliable, secure connection, with very low latency and high availability so it can make decisions in milliseconds.
That might also be a “value-added” network, sold at a relatively higher price than a best-effort consumer internet application that delivers content to such vehicles.
Another slice of the network could be collecting other measurements from different devices inside the car that do not require constant supervision, such as servicing parameters that need to be transmitted back to the service center by the car’s service date, perhaps once a year.
Such features might even use overlay networks optimized for very low cost, very low bandwidth and long battery life.
In other words, core networks might be configured with different attributes to match different use cases and price points.
Other forms of virtualization will be key, as well. 5G might be the first mobile network that fully integrates use of unlicensed spectrum and shared spectrum, beyond switching between mobile and Wi-Fi networks. Whole mobile networks might also operate solely in unlicensed spectrum.
Since 5G also will be built on use of small cells, backhaul assets will be quite valuable, boosting prospects for integrated providers owning both fixed and mobile assets.
Also, 5G might be the first mobile network whose revenue streams are substantially driven by services provided to machines, servers and sensors, not human beings.
In that sense, it is the business model that is the greatest 5G challenge. In the end, which entities will see new revenues sufficient to justify the investment? Which entities might struggle? And how important a platform will 5G be, to support brand new revenue sources? If an entity does not believe new service revenues from IoT will be significant, what does that do for the business case?