The APAC region will be the leading investor in 5G over the next seven years, contributing more than a third of global capex on next generation networks. Three countries, China, Japan and South Korea will lead the 5G evolution in the region, and we forecast that, together, they will invest more than $280 billion from 2019 to 2025 inclusive (see chart, below, click to enlarge). Meanwhile India will have a much lower level of 5G adoption in 2025, but will still have some 88 million connections by that time.
Each of these countries has its own vision of what 5G will look like in the years ahead, and the best strategy for 5G implementation will depend on factors specific to each market. One of the key challenges of 5G deployment is network densification, which means more money spent on RAN. Each country has a different approach to tackle this problem: Chinese operators have an advantage in that they benefit from widespread land ownership by the state, which speeds up site acquisition. South Korean operators, while being extremely competitive, are opting for site sharing. Meanwhile, in Japan, RAN sharing agreements between operators, combined with the government’s green light of hosting RAN sites in traffic signal infrastructure, should help with decreasing the cost of network densification.
China’s industrial 5G ambitions
We expect that China will quickly become the world’s largest 5G market after the technology launches there later this year. It is determined to lead the 5G industrial revolution by strongly focusing on enterprise use cases and the digital transformation of the economy. The Chinese government is focused on cementing its position as one of the world’s leading economies for decades to come by using 5G to support further automation of its manufacturing processes, which would particularly help as the cost of labour in the country continues to increase. Having obtained the first 5G licences in early June 2019, operators are currently conducting trials and deploying base stations ahead of commercial launches planned from October, with China Mobile and China Unicom each targeting 40 cities, and China Telecom aiming at 46.
One crucial area where China‘s approach differs to other 5G deployment models so far is that all three of its mobile operators have announced plans to rollout 5G using standalone architecture (SA). During MWC19 Shanghai, China Telecom announced it will likely move to SA on both its core and RAN in 2020, to support ultra-low-latency applications and help keep the cost of 5G devices down. SA deployment in China presents a good opportunity for vendors to showcase the use cases not available in a non-standalone architecture (NSA), particularly as network slicing standards will be published in 2020. One example of a use case requiring network slicing is smart ports. China Unicom and Ericsson conducted trials at the port of Qingdao earlier this year, but until network slicing standards are in place, such an application cannot be launched commercially. The same applies to autonomous vehicles. China can act as a role model for vendor case studies of industrial 5G use cases, including massive IoT and ultra-reliable low-latency communication (URLLC) applications, driving the next wave of SA deployments in other regions of the world.
Strong support from the government is playing a crucial role in the scale of China’s 5G rollout. The two major challenges in SA deployment are the difficulty in obtaining sites required for densification, and creating sufficient fibre infrastructure to support the 5G RAN. One of China’s major advantages in deploying highly dense networks catering for low-latency applications is the fact that the land belongs to the government, which makes the process of site acquisition faster and easier. At the same time, the existing high level of fibre infrastructure coverage in China also will help Chinese MNOs to rollout SA at a faster pace and with lower initial transport investment than in other key 5G markets such as the USA.
South Korea – a pioneer of consumer 5G
South Korea was the first market globally to launch commercial 5G. All operators launched 5G at once in April for consumers, following the unveiling of limited-coverage, enterprise-only services in December 2018. Similarly to China, in South Korea the aim was to launch 5G ahead of others to avoid repeating the same scenario as with the 4G launch, when both countries had to play catch-up.
Having used NSA to launch 5G ahead of other markets, South Korean operators are upgrading it on the go. The lack of initial coverage and devices are among the two major inhibitors to user satisfaction with the new technology, particularly as 5G tariffs come at a premium to 4G. Despite that, the Korean media reported 260,000 5G connections one month after the launch and we forecast the market total to reach 3.8 million connections by end-2019.
While the operators have chosen not to use network sharing as one of the ways to speed up the coverage expansion, site-sharing has been employed to decrease the costs of network densification.
After establishing an early lead in the consumer market, South Korea is now aiming at the industrial use of 5G as the next step in its strategy. In April the Ministry of Science and ICT announced its “5G+” strategy, stating its goal to “reach KRW180 trillion [$152.9 billion] in production, 15 per cent of the global market, $73 billion in exports [and] employment of 600,000 people by 2026”.
Japan – playing the long game
Japan is also aiming to be one of the 5G leaders in the APAC region and globally, but is taking a different approach to get to that position, with the country’s operators focused on ensuring quality of service once 5G goes live.
Our forecast of Japan’s 5G investment curve slows a shallow slope from 2019 to 2021, but a significant acceleration after that. This reflects Japanese operators’ caution around all-in 5G deployment, with lots of trials with multiple vendors taking place at the moment. There will be a soft-launch in time for the Tokyo Olympic Games in 2020, but the bulk of investment will only come once the business case is clearer. Nevertheless, the Olympic Games present a good opportunity for Japanese operators to showcase their 5G network capabilities and demonstrate use cases beyond enhanced mobile broadband (EMBB).
These operators face the same densification challenge with 5G RAN as elsewhere in the world. However, there are some steps being taken to reduce capex. For example, KDDI and SoftBank this month agreed on 5G RAN network sharing. Feasibility tests should take place in autumn, and there is also speculation about a possible 5G joint venture tower company to allow the two operators to share the costs of deploying 5G in rural areas. Meanwhile, NTT Docomo has chosen a different strategy and has invested in tower company JTOWER, therefore betting on JTOWER’s existing sites to help with 5G densification.
Another new market player, Rakuten, is yet to show its capabilities in the Japanese market, although it is already cited as an example of a lower-cost network thanks to its cloud-native core, which also means lower operational costs in the long-run. It is too early to speculate about the operator’s pricing, but given that Rakuten’s existing MVNO is focused on low-end subscribers, it is reasonable to assume it will try to grow its 5G subscriber base by offering lower tariffs than its three competitors, although still at a premium to 4G.
India – strong potential despite financial challenges
Not all markets in the APAC region will develop 5G at the same pace. We forecast that only 7 per cent of total connections in India will be on 5G by 2025. One of the major reasons for the slower 5G rollout in India is the investment and adoption pattern for 4G in previous years. The emergence of Reliance Jio in 2016 boosted competition and sped 4G rollout, but also meant the industry’s capex to revenue ratio went over 30 per cent, way over the APAC average which was less than 20 per cent.
At the same time, increased competition drove prices down and hence revenues. So while mobile internet in India has become much more affordable in the past three years, to the point where India has one of the highest average rates of data traffic per connection in the world, operators stretched themselves trying to increase 4G coverage. With ARPU per unique subscriber in India being significantly lower than the APAC average and one of the lowest globally, it will be challenging for Indian operators to fund 5G at the same scale as eventually happened with 4G.
The premium price of 5G devices in the next couple of years will also act as an inhibitor to 5G uptake. However, India is still forecast to invest $16 billion in 5G infrastructure between 2019 and 2025, at a 20 per cent average capex to revenue ratio, and with a steadier investment pace than in the top APAC markets by capex, such as China, Japan and South Korea.
As discussed in GSMA Intelligence’s report India: becoming 5G-ready, the steps that can help India in speeding its 5G adoption are more reasonable spectrum pricing, and supportive investment and taxation policies to improve the financial health of the mobile industry.
– Alla Shabelnikova – senior analyst, Financials – 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.Subscribe to our daily newsletter Back