In Business Model, Internet Access, Mobile

Virtually all observers believe that there is a causal relationship between ubiquitous high-quality internet access and economic growth, even if nobody can prove the relationship is causal. So it is not surprising that some believe 5G will “cause” economic growth as well. Many have argued that mobile service adoption also causes growth.  

In other words, policymakers always assert–explicitly or implicitly–that faster internet access, affordably priced and supplied at scale, leads to higher economic growth and higher household income.  

That there is correlation between economic growth and results, and quality high speed internet access is hard to refute. The economies and countries with ubiquitous and higher-speed internet connections always are the economies and countries with higher gross domestic product and often GDP growth rates as well.

The problem is that causation might actually be the other way around. In other words, high economic growth, high GDP and high household incomes drive demand for quality broadband and mobility services. Put simply, people with lots of money buy more broadband, and will pay more for broadband, than poor people.

That argument, and the counter argument, cannot be proved, though there is universal agreement that better broadband is necessary to support economic growth.

But there are new and related arguments, namely that “5G is a race,” and that those countries and service providers that deploy earlier will reap benefits for a decade. The precedent often cited is “leadership” in 4G. Policymakers and analysts often say that U.S. “leadership” in 4G access lead to–or enabled–leadership in other areas, such as platforms, apps and services.

This is subtle. Is there is a general or universal correlation between early and ubiquitous deployment of 4G and leadership in platforms, apps and services? For example, nobody refutes the notion that the biggest global brands in internet platforms, apps and services are based in China and the United States.

But was 4G–or something else–responsible for that development? To be sure, 4G was the first mobile air interface whose “killer app” was mobile internet. So 4G enabled app development. But, though, necessary (you need the platform to enable the apps), was 4G sufficient?

Globally, 4G has not enabled similar levels of growth, something European policymakers directly or indirectly worry about.  If 4G really was the catalyst for economic growth, such growth should be heightened on a broader basis, and that has not clearly happened.

So one might argue the opposite position: fast 4G deployment allowed firms in some countries to move faster because they already were positioned to lead in mobile applications and services. To make the crude argument, Shenzen and Silicon Valley already existed, and already were best placed to lead in mobile internet apps, services and platforms.

So to the extent there is a race, it is not about 5G deployment as such, but the ability of innovators to use that platform. Are there network effects? Yes. But the network effects that matter are not so much the 4G or 5G platform, but the ability of app, platform and service innovators to capitalize on mobile broadband platforms.

In other words, what matters most is “first mover advantage” for “up the stack” suppliers of platforms, devices, apps and services able to maximize innovation based on the existence of 4G or 5G.

That is not to say 4G or 5G are unimportant. The platforms clearly are required, in the same sense that internet access is the requirement for any internet-based app, device, service or platform business to grow. But internet access availability only provides the opportunity to do something; it does not automatically lead to “leadership” in any “up the stack” area.

That is why firms such as Google and Facebook want everyone to have quality internet access at affordable prices: that is the precondition for their business models.

To the extent 5G is a “race,” it is a qualified race. Early deployment should benefit mobile service providers who move early, compared to competitors in their core markets. In other words, it is unhelpful to be a mobile service provider selling 4G, if major competitors sell 5G.

And yes, 5G is expected to be the enabler for many new use cases based on ultra-low latency, ultra-low cost sensors or edge computing enabled by 5G. But demand for such new use cases will not be uniform. China will be the single biggest IoT market, many predict. Others predict North America, and the United States likely in particular, will be the largest IoT revenue region.  

But IoT connectivity revenue might represent as little as five percent of the total value and total revenue for IoT apps and services.

So the big issue is not the race to deploy 5G but the ability to monetize IoT overall, and that will include 4G alternatives, Wi-Fi and other local connectivity substitutes, at the connection level. Still, most of the upside from IoT is in platforms, devices, apps and services, not connectivity.

In that sense, 5G is not so much a race between regions, nations or service providers, and more a race by platform, app, device and IoT service providers.

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