The year is 2019 and 5G is finally here. Or is it?
At MWC19 Barcelona, there were so many 5G announcements that it seemed the technology’s arrival was clearly upon us, or at least imminent. And, in fact, we now have two countries with commercial consumer 5G launches: the US and South Korea. Of course, in both cases the launches are limited in terms of coverage as well as the number of supported devices. And with services aimed at mass market consumers, the enterprise opportunity has yet to prove itself.
As we move further into 2019 (and then 2020), we’ll get more 5G devices and more operators ramping their 5G plans.
China Mobile is set to launch 5G in the second half of 2019, with China Telecom and China Unicom to follow in 2020. Japanese operators are also set to launch 5G in 2020, including the new operator Rakuten, which will undoubtedly disrupt the market and try to use the technology to grow its market share.
Combined, these early launches will generate significant knowledge and give more courage to other operators to follow the 5G pioneers. At the same time, new devices and spectrum should boost adoption of the technology and accelerate deployments…and therefore 5G spend.
That’s right, 5G will require more than just spectrum and devices. It will take capex spend.
So how much are we talking about?
In our newly expanded 2025 capex forecasts (to be released this week), we predict operators will spend over $1.3 trillion over the next seven years on networks. The bulk of that (75 per cent, or a little less than $1 trillion), will be allocated to 5G. The rest will primarily go into upgrading and expanding 4G networks, which will continue to coexist alongside 5G past the end of our forecast period. With 4G, the monetisation strategy was more or less clear: charging more for data, either per MB, or by increasing the size of data bundle. In reality, this strategy didn’t pan out and generate an ARPU uplift in all markets. By contrast, 5G, offers a more complex system, where the combination of multiple technologies serves a set of diverse, varied, complex monetisation scenarios: that fact will weigh on capex.
What’s the catch?
To its credit, the industry has concluded there will be no single killer app for 5G and operators will have to find an individual approach to revenue generation. This means 5G networks will have to be built in a modular way, to offer customised services, along with scalability. At the same time, operators will have to maintain a capex-to-revenue ratio low enough to keep investors happy. With all this factored in, it would be fair to say the global 5G investment cycle will be more gradual than the 4G one: capex will be spread out, with the global capex-to-revenue ratio not exceeding 18.5 per cent.
So what should the money be spent on?
One thing is for sure: 5G will require more network densification, which means a lot of investment will go into RAN. In fact, we forecast the share of RAN in total capex will grow from 62 per cent in 2018 to 86 per cent in 2025 (see chart, below, click to enlarge). In part, this is a function of densification. In part, it’s because many operators in the early 5G launch markets already have fibre in place to support the upgraded RAN, and many of the rest should also have sufficient backhaul already given that global 5G adoption will still only be around 16 per cent in 2025.
That said, it is important to mention that the distribution of core and RAN investments will vary regionally, depending on the core network development level in each country and individual operator. While we do not expect the share of sites connected via fibre backhaul to grow significantly before 2025, once 5G networks are up and running operators will have to think about investing into their transport networks to be able to increase their capacity.
Are there any ways to spend less?
NFV, SDN and Cloud RAN offer a way to roll out and upgrade equipment faster, with fewer people needed to maintain it and less physical space to deploy it. They promise easier and cheaper ways of switching between vendors, without the need to replace hardware supplied by one vendor to install the other. Meanwhile, network sharing can be a solution to costly RAN densification, especially in rural areas, where RoI is usually lower.
Some countries are even discussing the option of having one neutral host deploy 5G and wholesale it to other mobile operators. A neutral host could be a particularly viable option for countries with low ARPU and where operators already have a high net debt-to-EBITDA ratio.
Weighing on all 5G capex considerations is the fact that the overall business case for 5G is still unclear. And while multiple use cases present opportunities for operator revenue growth, the risks of failing to realise that growth remain significant. Ultimately operators will need to build their 5G networks according to the specific opportunities and constraints in the markets where they operate.
To that end, the number of different models for deploying and therefore financing 5G could run as high as that of the services it will eventually support.
– Alla Shabelnikova – senior analyst, Financial Data, GSMA Intelligence
The editorial views expressed in this article are solely those of the author and will not necessarily reflect the views of the GSMA, its Members or Associate Members.