As Ofcom prepares to publish its auction regulations for the 2.3GHz and 3.4GHz spectrum bands, it seems timely to ask “Is 5G the future for mobile networks, or are we heading into a bubble?.”
Wireless technology has moved along smoothly and profitably along the generations, with each bringing substantial improvements on the next, making 5G appear to be a natural next step. The data-hungry world craves more and more mobile connectivity, but is it possible we’re nearing a natural limit for just how much mobile connectivity we need? Could 4G actually be the peak?
This is the argument William Webb poses in his book, The 5G Myth, which argues the 5G vision is flawed. Webb, who’s CEO of IoT standards body Weightless SIG and a former President of the Institution of Engineering and Technology, argues that the tech hasn’t advanced far enough to deliver 5G, there’s no business case for mobile operators to provide it, and in any case we don’t actually need higher speeds than 4G. Webb asserts that what we should focus on is bringing universal 4G connectivity to the many places that don’t currently have it.
Has the 5G story been oversold?
Webb’s position remains the minority view: AT&T, and Verizon in collaboration with Samsung, are separately launching trial 5G networks in the US in the latter half of the year, and other hardware providers like Ericsson and Huawei have also put a lot of resources into 5G. But when we spoke with Webb just before Christmas he pointed out that since his book was first released in November 2016, there’s been something of a change in tone on 5G across the industry. “At Huawei’s Global Mobile Broadband Forum in London, held in November, both BT and Vodafone stood up and said that 5G has no real business benefits,” says Webb. “Before then, I’d had no end of people coming to me privately saying, ‘You’re right, but we can’t say it publicly’.”
It’s dangerous to come out seeming to be against progress, says Webb. “But the position of mobile operators has gradually got worse and worse as revenues have declined. Analysts have become increasingly concerned about capex on any new network rollout. … I think it’s partially this caution from the investment community that’s led to the operators to come around.” BT CEO Gavin Patterson said in November that the advantages of going from 3G to 4G were clear as they improved on poor performance: “[But] we haven’t found that for 5G. It will be a better performance, no doubt about that, but the business case isn’t there.” Vodafone CTO Johan Wibergh echoed the sentiment: “We have a tendency to overhype things.”
Part of the problem is that no one really knows what 5G is. In his book, Webb lists the common promises by manufacturers: 1,000x rise in mobile data volumes; 10-100x rise in connected devices; 5x lower latency; 10-100x increase in peak data rates; 10x battery life extension. At first glance the need for this may look about right – we are in a connected devices boom with IoT, smart homes, smart healthcare and smart everything else. But Webb argues that most of this heavy lifting will actually be covered by wifi. Mobile data growth is primarily driven by video watched on personal gadgets, and there’s a natural limit to how much Netflix each of us can possibly watch on the bus.
We saw mobile data demand explode with the launch of the iPhone. Webb writes that data use grew around 100-fold in the five years to 2011, and has continued to increase since then. But Webb argues that there is already evidence that personal data usage will eventually plateau.
Asked how he can be sure we won’t see another iPhone moment, Webb says it’s always possible. But, he adds, the mobile data boom was anticipated during the 3G auctions of the early 2000s. “Now, we don’t have anything quite like that, where we can see something coming. Instead, we have something much more vague, a ‘something’ that might come along.” This may well be the case, says Webb, but if you’re running a business it’s not a good reason to bet your bottom line. It’s a bit like the reason why we don’t have flying cars: the fact that it’s possible to create something fantastic doesn’t mean it’s financially viable to roll it out.
Acuity Partner Marcus Allchurch, says “3G spectrum auctions proved very costly for many operators, and indeed the 4G auctions saw much more conservative pricing. In spite of that there is no doubt that usage and business cases have leapt forward with each new generation. New applications will certainly appear and take advantage of the benefits of 5G.”.
The case for universal connectivity
Even if Webb is right – that 4G connectivity is good enough – there’s still a big job outstanding for telecoms industry players. There are lots of places within Europe that lack 4G, and even in major cities like London and Berlin there are plenty of places where there’s no phone signal whatsoever, most noticeably along train lines or inside buildings. It’s a story with far less flair, Webb laughs, but he encourages us to think about it: would you rather have 10x connectivity wherever there’s already 4G, or would you prefer to just have 4G everywhere?
Webb has a lot of ideas as to how this could be achieved, including linking up wifi routers and hotspots deployed by individuals in their homes rather than waiting for base stations. “The UK government has just updated its 5G strategy – it talks of putting better connectivity on trains, for example. This suggests they’re starting to pick up on some of the [universal connectivity argument],” says Webb. “But there’s yet to be a holistic picture.”
What does this mean for M&A?
Webb makes a compelling argument for why there’s plenty of things that the telecoms industry could be doing instead of pushing forward with 5G. While providers like BT and Vodafone have started to voice their scepticism, the likes of Verizon and AT&T are pushing ahead. At this point we think it’s difficult to say with certainty where the future will take us on the 5G question, and indeed how quickly we are likely to get there.
What we do know is that even if you’re sure of what’s coming up ahead, it’s tricky to get telecoms innovation right without some trial and error. For example, operators had the key to delivering mobile location-services, but in the end they lost out to Google who swept in and did it without them. Acuity’s experience is that there is a huge amount of work going into 5G, from chip-makers through to operators, and we expect to see a lot of exciting innovation as tech companies – both existing players and new entrants – try and work out how to deliver the next generation of mobile services; there will be plenty of M&A activity as the survivors sweep in to secure the spoils.
“5G affects the whole mobile telecoms ecosystem with many different entities and thousands of players. A lot of hopes have been pinned on 5G generating revenue, and when it becomes apparent that this won’t happen any time soon, companies that have been making losses will be forced to admit there is no obvious future,” says Webb. “Rescuing them will likely involve merger, or splitting and selling parts. Obvious companies to suffer will be Nokia and Ericsson. Other large suppliers to the telcos will also be affected.”
The manufacturing base has already started to fracture a bit, adds Webb: Motorola, Lucent, Nortel Marconi and others have gone under, split up or been sold. “Those that are looking more marginal will likely find things harder rather than easier in the coming years, and that may precipitate changes.”
UK Digital Minister Matt Hancock said in December’s government statement on 5G: “We want the UK to be a global leader in 5G so that we can take early advantage of the benefits that this new technology offers.” The government recently committed £25 million to 5G test beds, adding to the previously promised £160 million. This suggests there will be at least initial opportunities for companies that want to bet on 5G. But even so this will be a game of patience: the first deployments of 5G in the UK aren’t expected to get started until around 2020.