5G: Cutting through the spin

Andrew Collinson,
Partner & Research Director, STL Partners

In war, truth is the first casualty

The telecoms industry is gearing up for the next global contest over #5G. As is usual at the start of hostilities, the propoganda battle for belief comes first. There are huge costs to falling for the wrong line on this, so here is my survival guide.

5G has recently become breathlessly exciting. It was the headline news at CES this year: 5G will change everything!

You may detect a note of irony in my tone. For those short in the irony detector department: there was a note of irony in my tone.

It’s understandable that a lot of people get excited about a new wave of technology. It’s a part of many of our jobs to be on the lookout for new stuff and figure out how it’s going to work, and it’s great when something interesting happens.

It’s also important to keep your wits about you. A lot of information is already in the air, and not all of it is what it seems. I won’t name and shame in public, though I’m sure you’ve seen a few articles and thought: “really?!”

But let’s be fair: for the equipment makers and suppliers, pumping the hype is really important. It’s part of their job. They need the telecoms operators to buy all their new stuff.

If you are working at Ericsson, Nokia or Huawei for example, you will wish for 5G to be the next multi-billion dollar wave of capital rolling in your direction.

For handset and chipset makers, it’s the next reason to upgrade to a new, expensive smartphone. For Silicon Valley, it’s the next ‘pipe to fill with innovation’ (as Ben Evans neatly put it here).

So naturally, all these players need and want to build the excitement and momentum.

Everybody in the house say ‘woo’

The snag is, for most operators it holds significantly less excitement. Sure, they’ll all wave a 5G flag and go ‘woo’, but when it comes to spending lots of money on it, there’s a lot less enthusiasm.

This is because it’s hard for operators to see new growth in network revenues from 5G.

We’ve pretty much reached ‘peak connectivity’ - people and companies just won’t spend much more on it, as evidenced by the declining trend in mobile operator revenues.

Sure, people will use more data, but most won’t pay more for it. All the technological improvements will just make it cheaper per unit.

Verizon, for one, is pretty keen on 5G. It’s hot on fixed wireless access (FWA), and has found a way to reduce the costs in the core of its network that helps significantly on the overall costs picture.

But what about all the fancy 5G stuff, you know: cars, augmented and virtual reality, massive IoT, etc.?

We’ve looked a lot at the new revenue opportunities in our research and these wonderful things will indeed come to us. But not for a while yet for a variety of reasons. And when they do, they’ll likely help ‘fill the pipe’ but they wont necessarily mean that people will pay telcos more for it.

What will operators actually do?

We’ve also spent a lot of time thinking about the likely 5G future, and we can see some different scenarios emerging.

There are increasingly clear groups among operators, a few charging ahead, others wanting to look like they’re charging ahead without actually doing (spending) much, and a lot still carefully sitting on their hands for now.

Our forthcoming 5G Strategies report will give a lot more detail on the ways operators are planning to go to market. The main author, Dave Burstein, talks about some of the content in our latest free webinar (you can sign up to watch a recording here if you missed it).

So the most important decision is now: what new services are operators going to invest in and deliver?

My colleague Chris Barraclough is working on a significant new piece of analysis that details the differences between how operators and tech companies invest, which we’ll publish before MWC19. Chris is also presenting on the 5G webinar, and a key aspect of his analysis is the relative balance between capital investments in infrastructure and operational investments in service research and development (see below).

Chris will show that operators need to change tack if they want to grow, and not just throw all the money at 5G.

Worshipping at the Tomb of Connectivity?

Operators will blow it on 5G if they over-promise and under deliver. There’s a lot of desire to re-badge top-end LTE (and frankly anything) as 5G.

While its understandable that operators want to position themselves as keenly as possible, the communications around this could get very confusing. What really is 5G, and how does a customer know if her phone will actually work on it?

There is a risk this will be particularly opaque in the initial ‘phoney war’, where operators talk about ‘launching 5G’ in selected cities, and others re-badge top-end LTE.

Too much hype about this will turn into market apathy, as the all the conflicting noise results in collective confusion.

And ultimately, if telcos are just lured into a capex investment war by the attractions of the habit of playing the same old ‘build a new xG network’ game, they will simply further enshrine themselves in a tomb of low return connectivity.

How to ride the 5G wave

First up, it’s a good thing that 5G is driving market interest for operators. This presents an opportunity to discuss with different players in the market “what do you actually need?”

But rather than rush to sell them a few more SIM cards, operators should listen a bit more carefully, and think how else they could help solve real world problems.

There’s also an opportunity here for telcos to rethink and remake their roles in the whole game.

Sure, they will need to compete with each other in connectivity markets.

But they should also learn from the many industry failures we’ve seen where telcos don’t recognise how providing a unified approach to new services can create new markets for the good of all.

In a way, the challenge of the investment case for 5G could be a very good thing for operators. Maybe it will give them the opportunity to think hard, and commit to building some innovative new services? We will see.

5G is also part of a much bigger trend - what we’re calling the Coordination Age. In this, 5G will just be one of the tools or components for people and companies to make their worlds run better. It will form part of a wider ecosystem enabling new applications and behaviours. Telcos have an opportunity to use the transition to the Coordination Age to redefine themselves for customers, employees and regulators and government.

This should start with how they think about what they are and what they do, and become increasingly material as they change their investment strategies to reflect new priorities.

It’s an opportunity to re-engage the telecoms workforce with a renewed and meaningful purpose and a powerful reason to change.

There’s then an opportunity to open a new dialogue with regulators and government who share the desire to make the Coordination Age work in their societies. Done right, this could really create a 'sea change' for operators.

There are two paths you can go by

Over time, 5G could be a massively helpful technology for the industry.

There will be benefits, and let's face it, we all love a bit of new tech glitter.

But it’s going to start in a very piecemeal way. In most places, 5G will initially evolve in small ‘islands’ of connectivity, and it will be a while before it’s available to the majority in most markets.

Within this, operators have a choice:

• Keep going in the same old pattern of capex investment in a smart pipe, but with diminishing returns and market relevance.

• Adapt to the new world, build useful new services and redefine themselves within the societies they exist in.

Both could work, but will look and feel very different for all of those engaged in every respect.