Sep 24, 2021 Telecom

The Economics of 5G for Telcos

By Michael Entner

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5G has already made its mark on our public consciousness, but is there a strong business case for it? This two-part series looks at the economics of 5G, from the challenges of public 5G networks to the potential for private 5G networks.

As carriers continue their rollouts of 5G, and tout the benefits of the technology, it’s past time to look at the economics of those implementations. Are there enough compelling reasons for consumers and businesses to move to 5G? And is there a good enough return on investment (ROI) for telcos to commit to the upgraded infrastructure required by 5G?

Wireless generations: from 3G to 5G

Let’s take a look back at the two most recent generations of wireless technology before 5G came along. The introduction of 3G heralded the arrival of mobile internet on smartphones. You could video chat with a friend or watch YouTube on your phone (albeit at low resolution) and consumers loved this. What they didn’t necessarily love was the choppy video and sound, and frequently the dropped connections. 4G, then brought significant improvements in both speed and reliability. You could host high-quality, videoconferences, stream HD videos, and game your heart out on your phone or your tablet. Consumers, already on the move, became addicted to the fast, solid connectivity that 4G provided. From weather reports to video news and email and chats with friends, we’re using 4G every time we get on the network.

While 5G provides even faster speeds, better security, and significantly more reliability, it’s not offering new capabilities for consumers the way 4G did. Most consumers, already paying a lot for their cell phones and plans, aren’t seeing any strong reason to pay extra for 5G. That leaves telcos with a huge economic issue: how to pay for 5G network and get a solid return on that expensive infrastructure investment.

Challenges with the 5G ecosystem

While 5G technology offers significant improvements in throughput, reliability, and latency, there are definitely challenges that telcos and their partners need to face before 5G adoption can become widespread.

Let’s start with 5G mobile applications. Until 5G has 100% nationwide coverage, you can’t build a mobile app that needs 5G connectivity 24/7. Think of a nationwide truck system using 5G to run their inventory and routing management software. An 18-wheeler leaves JFK airport in New York City and the 5G app can see where that truck is and recommend the fastest route, avoiding construction, accidents, and other delays. But by the time that truck gets into the Poconos a hundred miles away, 5G has vanished and the app must run on 4G, slowing the routing software down just enough that the truck gets caught in a traffic jam, causing a cascade of delivery issues.

The amount and type of spectrum available for 5G is yet another challenge. For example, 5G coverage with millimeter wave technology is very, very fast and can carry a lot of data. But, and this is huge, it can't penetrate buildings (and other solid objects) very well. Every time it hits a wall, the signal degrades substantially, to the point where you may lose the signal or suffer a serious degradation in throughput. One solution is to put antennas everywhere (even inside buildings), which means more equipment, more cost, more maintenance and more management of all that infrastructure.

Currently there is a substantial amount of spectrum that would be suitable for 5G tied up on 3G networks. Carriers must slowly back out of those commitments so as not to interrupt service to existing customers still running on 3G equipment (utility meters, sensors, tracking devices, etc.).  Incentivizing customers with low cost or in some cases free 5G phones is actually one way to reclaim some of that spectrum and be able to move to 5G and away from millimeter wave technology.

Finally, and this is the biggest challenge, telcos need to identify where they can monetize 5G. Moving to 5g involves significant forklift upgrades of hardware and software, but telcos are not yet seeing how to get a return on all that investment.

Monetizing 5G with “Private 5G”

Currently, virtualized radio access networks (vRAN) offer a way to deliver 5G radio services rapidly, at a higher density, and at a lower cost. Virtualization does require a forklift upgrade, which is unavoidable for the telcos at this point, but it also paves the way for future upgradability, because it is primarily software defined and it establishes new Edge application delivery capabilities which the carriers can monetize. Keep in mind that telcos will not be able to avoid these infrastructure upgrades forever and will need them to support coming 6G and 7G capabilities, so it’s a now or later proposition. The pressing business challenge is how to leverage that new infrastructure while building it and before we reach 100% 5G coverage.

Telcos will keep building out their Edge and virtualizing their radio networks, and push that even closer to their customers. As part of this, there is an opportunity to move into private 5G networks that target key uses cases. Pivoting from 5G public to private 5G at the edge may be the best opportunity for telcos to see solid ROI on their 5G infrastructure.

In part 2 of this series, we’ll dive into the use cases for private 5G networks and how telcos can leverage their expertise and partnerships to build and manage cost-effective private 5G networks.

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