Having been otherwise engaged for a while – and also just back from a corona-type Easter break at home, here is again something on one of my favourite topics: 5G !
The traditional way of work for the mobile industry is to develop a new “G” and to capitalize on this new “G” for 10 years – while working on a new “G” in the pipeline. With the mobile industry I refer to mobile operators and their closest allies in the mobile ecosystem, the telco vendors. I have been part of this way of work all the time since it all started with the development of GSM in Europe in the mid-80s, but I am not sure it will stay this way.
This way of work that has been successfully established since the mid-80s is that telcos and telco vendors work together in standards bodies, developing 2G, then 3G, 4G and now 5G. Some are even talking about 6G (e.g. in China and Japan – refer one of my previous articles)! It works this way: A new standard is developed – and when it has eventually been deployed and launched by operators, telco suppliers have sold new network equipment according to the standard – and handset vendors (with their sub-suppliers, e.g. chip developers) have sold new handsets. For every new “G”, operators can then gradually sell more and more broadband connectivity to consumers, in many cases subsidizing handsets in order to sell to these consumers. On top of this, national governments, operating through telecom regulators, auction out new spectrum for every “G”, thus generating a lot of money for their national budgets.
It should be assumed that a lot of players have an interest in maintaining this system of new “Gs”. For operators, however, there has always been a flipside. Although their Capex, Opex and handset subsidies go up with every “G”, revenues are not necessarily higher – as consumers are not willing to pay more for more broadband (actually, rather less) – and for everyone in the ecosystem there is an ever increasing threat of new or existing players entering or widening their roles in the ecosystem. The question is therefore more pertinent than ever for 5G: Who will eventually benefit from the promises of 5G? Everyone will be challenged, maybe except the regulators – who will collect money in any case! Some examples are given below.
With every new “G”, the ecosystem is opened up for new entrants. When 2G was developed, the process was initially run by the operators (or actually, the national administrations) – and it was very simple. Operators bought kit from telco suppliers and sold telephony to consumers, who used mobile telephones, with integrated SMS messaging on top. After a while, the telco suppliers came much stronger into the standards process – and the mobile phones have now gradually become general internet devices.
For 3G and 4G, telco suppliers were driving the standards development process (very much because they are the ones 1) that understood how to develop the technical equipment and 2) that eventually needed to sell something). Operators, on their side, have been cutting down on standards staff for decades – leaving most of it to the telco suppliers. Lately, e.g. in the development of 5G, the standards development process has involved various other players also, be it software companies, OTTs, or even vertical sector representatives – and everyone has an interest, be it as a supplier, as a customer – or as some form of ecosystem player.
So what can we expect going forward? There has been a battle between the mobile operators and OTT players for years already, starting with OTTs substituting the very profitable SMS services with richer types of messaging services like e.g. WhatsApp, iMessage, KakaoTalk, Line, etc – and the operator response (after almost 10 years) is RCS. Similar developments have also been seen in the area of voice communication, starting with entrants like Skype etc – and we see, in particular these days under the corona lockdown, that various IP-based video communication services have a huge usage.
The ecosystem battle does not stop there. While operators have been subsidizing mobile device vendors for years (like e.g. Apple and Samsung), allowing them to grow to where they are today, the device vendors are also trying to expand their scope into the ecosystem e.g. through entering the messaging or communications services space in general – or through new developments like e.g. eSIM.
Operators, on their side, although they are very much stuck in the 10-year “G”-cycle above, i.e. “solving it the telco way” also try to experiment with new approaches, as they need to cut cost on a regular basis. Some of these approaches are new tweaks to the “telco way”, i.e. working together in various industry initiatives (like ONAP, TIP etc) – or through individual initiatives for network cloudification. This is, of course, a threat to the classical allies, the telco vendors – so it is not a straight-forward task.
Other approaches are more revolutionary. In this respect, I would start with referring to an initiative by my previous employer Telenor, something initially referred to internally as the “software telco”, now a company called Working Group Two, based on the idea of developing its own telco core network equipment using off-the shelf hardware and in-house software development. Others have taken this even further, e.g. Rakuten building its own end-to-end cloud-native mobile network in Japan, including OpenRAN. Reliance Jio announced early March that it has developed its own 5G gear – and we have also seen companies like Cisco, HPE, Microsoft and more moving in the same direction. Microsoft announced late March an agreement to acquire Affirmed Networks to deliver new opportunities for a global 5G ecosystem. HPE also unveiled its “5G as a service” portfolio early March. Others are also positioning themselves for “connectivity as a service without a mobile operator in sight”, like e.g. Villicom partnering with Mavenir … and more. Many of these examples pose not only a threat to traditional telco suppliers, but also to telcos.
Telco vendors (e.g. Ericsson) have for many years already offered managed services to operators, e.g. rolling out and operating networks on behalf of the operators. This has been a win-win scenario, as operators try every solution to save cost – and large telco vendors can benefit from economy of scale. For operators this means they have less control over their networks – and for telco vendors it means a lower barrier for getting into the operator business. Operators own their spectrum, of course, but referring to the new entrants above, some even offer 5G as a service without the need for operator owned spectrum, e.g. Federated Wireless using shared CBRS spectrum for 4G or 5G. When now large companies in the vertical sector, like e.g. various large companies in Germany (e.g. BMW, Bosch, Volkswagen, BASF and Lufthansa) and also Fujitsu in Japan, they might not need any operator to be involved at all. They can simply talk to a telco vendor. Of course, a large telco vendor like e.g. Ericsson or Huawei will be careful to upset their largest customers, so Ericsson has, for example, stated that “their go-to-market strategy for enterprise 5G is to work with operators”, e.g. like Ericsson’s partnership with Telefónica to deploy a private network for Mercedes Benz in Germany. What other telco vendors will do – and what Ericsson will do in the end, remains to be seen.
A final challenge around who will benefit from 5G in the end, apart from the regulators - and academics and consultants like myself, relates to the lack of setup and experience for an operator in offering tailored solutions to the vertical sectors. Providing even more broadband than 4G to consumers is a well-known business model, but other players than operators are probably better suited to compete in such a B2B market, e.g. telco vendors, OTT players, IT companies, platform providers or system integrators.
Time will show who will benefit from the promises of 5G eventually. What seems clear, however, is that this will be a great ecosystem battle going forward !!