In Business Model, Internet Access, Mobile, Spectrum

It is not as clear, now, as it will eventually be, that the telecom business is entering a period of uncertainty as great as any it has faced in the past, principally because the industry business model is becoming increasingly uncertain. That is not to say the issues are insurmountable; only to note that uncertainty arguably is growing, not decreasing.

Fundamentally, the issues can be summed up in the phrase “dumb pipe,” which more accurately should be phrased “low value, low profit margin dumb pipe,” which is the business consequence of value shifting elsewhere in the communications, app and content ecosystems.

And 5G is not going to be an exception. Indeed, some mobile executives believe 5G really will be different from prior mobile generations, in terms of business model.

Most significantly, the business case is more speculative. “No customers will need 5G for current services,” said Telenor CEO Sigve Brekke. Note the phrase: “No customers will need 5G,” at least in terms of current services.

So the clear implication is that new use cases will have to be created, as they do not already exist. Some will say that was substantially the case for 3G and 4G as well, and that also is substantially true.

The difference is that 5G will face 4G networks that offer hundreds of megabits per second to gigabit levels of internet access bandwidth, plus voice and messaging. So it is hard to see what big new unmet need exists to be filled by 5G.

That, in a nutshell, is why many believe 5G will succeed or fail as it is able to create huge new use cases and revenue streams based on services purchased by enterprises to support internet of things apps. In other words, 5G will be the first mobile generation whose success and value hinges on services for “non-human users.”

Also significantly, Brekke believes 5G will be quite different from prior generations in another sense: where mobile-only deployments were possible in the past, 5G will require ownership of fixed network assets.

The reason: dense networks of small cells, with extraordinary requirements for backhaul, will increase the cost of backhaul services in the mobile business model. At the same time, one clear new use case for 5G–its use as a consumer gigabit-speed internet access platform–requires such dense small cell networks.

Some idea of how dense can be grasped in the phrase fiber to the light pole. What is really different about dense small cell networks is that, for the first time, the total cost of the infrastructure might be dominated by the cost of the trunking network, not the radio access network.

It remains to be seen if the actual cost of a fixed wireless connection using 28 GHz and 39 GHz assets will actually be “miniscule,” as Verizon executives have suggested. But Verizon already believes it can deliver gigabit speeds at distances of perhaps 1,000 feet or so, using such frequencies.  

That is important since street lights are spaced at distances from 100 feet (30.5 meters) to 400 feet (122 meters) on local roads. In principle, putting radios on every other light pole could mean a radio radius of about 200 feet to 800 feet, well within tested propagation ranges. Putting radios on every light pole would shrink the radius to 100 feet to 400 feet, and allow for more path diversity, in case of obstructions.

If, as some others expect, millimeter wave small cells have a transmission radius of about 50 meters (165 feet) to 200 meters (perhaps a tenth of a mile), it is easy to predict that an unusually-dense backhaul network easily can support radio drops from small cell networks that could number as many as 100,000 in an area such as Manhattan.

Put simply, 5G might represent a new era where “mobile networks” are not viable, absent ownership of ubiquitous fixed network assets. That would be the ultimate “revenge of the fixed network operators.”

Essentially, the long-term structure of the telecom and mobile business possibly is dictated by ownership of the backhaul networks supporting dense small cell deployments. In most countries, that is a far-smaller number of service providers than has been the case in the earlier mobile eras.

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