LONDON -- Unveiling details of the UK's first 5G service during a Wednesday press conference here at London's swanky Madison bar, with glorious rooftop views of nearby St Paul's Cathedral, Marc Allera, the CEO of BT mobile subsidiary EE, hailed the occasion as a "special" and "exciting" day. But investors in BT were unmoved. Shares in the UK telecom incumbent closed at £2.04 ($2.58) on the London Stock Exchange on May 22, barely above their level a day earlier. Markets were not buying into the story that this was a weighty, historic event for BT.

The arrival of 5G has given rise to the existential angst typically found in a Milan Kundera novel. Operators like BT will need to invest billions to roll out nationwide 5G networks -- about four times as much as they spent on 4G, according to one estimate -- and yet experience has shown that faster connectivity does not translate into revenue growth. The industry is presenting 5G as a skeleton key that will unlock the door to new markets outside the consumer smartphone sector. But this version of the technology is still being hammered into shape, and the business case remains unclear. One danger is that web giants and others reap the benefits of what the telcos build.

Figure 1: What's It All For? EE's Marc Allera ponders the meaning of 5G at a press conference in central London.

BT says its 5G rollout will have three phases. In Phase 1, which starts on May 30 and will last until 2022, it will focus heavily on what the industry calls "enhanced mobile broadband," or pumping up connection speeds for customers of smartphones and other devices. Phase 2, in 2022, will introduce a next-generation "core," promising some of those new services on which telcos have pinned their hopes for revenue growth.

Starting in 2023, Phase 3 will build on that core upgrade. With the ability to host IT resources in different parts of the network, BT should be able to cut the journey time for a data signal from more than 30 milliseconds today to around 10 milliseconds in the future. This "latency" reduction, says Howard Watson, BT's chief technology and information officer, will be important for augmented reality and information processing. "If you think about the Internet of Things, the bandwidth needs are [often] quite low, but the latency might be critical if devices are trying to communicate locally with other devices," he says.

Companies outside the telecom sector are touting the same message. Niantic, the games company behind Pokémon Go, has been working with Germany's Deutsche Telekom -- a BT shareholder -- on trials of a new virtual-reality dodgeball game that requires low-latency connections. Wizards Unite, a forthcoming Harry Potter game that excites BT, may also demand more advanced mobile networks than are currently available. "The synchronization of multiple players in the same game requires a very fast transfer of information about what everyone is doing," says John Hanke, Niantic's CEO. "This has to be done at latencies in the range of 10 milliseconds."

But until those whizzy new features arrive, BT will have to promote 5G in more familiar ways. "This is about giving customers the best mobile experience and connection they have ever had, even where it is busy," said Allera at BT's press conference, as if reading from an ancient treatise on the philosophical tenets of the telco. "4G is great but growth in data use and the laws of physics mean new technology is needed. And that technology is 5G."

Telecom analysts say BT deserves credit for propelling the UK into the ranks of 5G leaders. That could attract companies like Niantic that want to take advantage of 5G's capabilities -- the Ubers and Netflixs of the future. An interesting UK development involves Google. Hoping to give the country's 5G ecosystem a push, BT is to provide a 5G connection between its own lab and the web giant's central London campus. "That will give the developer and campus community the ability to develop the next generation of transformative apps and experiences," says Supriya Gujral, Google's senior director of global partner marketing.

Underwhelmed
Yet analysts seem underwhelmed by the Phase 1 consumer proposition. With handset plans starting at £54 ($68) per month, against average revenue per user of £21.50 ($27) at the post-paid mobile business, the appetite for an upgrade may be small. "Ultimately, consumer demand for 5G is unproven," said Paolo Pescatore, a tech, media and telco analyst at PP Foresight, in emailed remarks. "Asking them to pay a premium will be challenging … The initial premium will quickly erode, as we've seen with previous generations."

Kester Mann, the director of consumer and connectivity research for CCS Insight, harbors similar reservations. "EE's launch highlighted that the shift from 4G to 5G is an evolutionary one, as it focused on offering a more reliable mobile experience," he said in an email. "Its new 5G propositions contain little that is truly innovative but address existing customer pain points without over-inflating expectations."

BT's first-mover advantage will be short lived. Vodafone plans to introduce its own 5G service in July. Telefónica's O2 business and CK Hutchison's Three will join them later this year or early in 2020. What's more, relatively few customers will be able to access EE's 5G service in 2019. The 1,500 mobile sites due for a 5G upgrade by year end account for just 8% of the total -- although, says Allera, they carry about a quarter of all data traffic. Availability will not be much better a year from now, when BT expects to have 2,000 sites in operation.

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How much will all this cost? BT plans to invest £3.7-£3.8 billion ($4.7-$4.8 billion) in overall capital expenditure in the current fiscal year, down from about £4 billion ($5.1 billion) in the previous one. But a rollout of higher-speed fixed and mobile networks lasting several years will make it hard to reduce capital intensity, and there is little wiggle room. Sales were down 1% last year, to about £23.4 billion ($29.6 billion), and BT -- unlike Vodafone -- has not slashed its dividend. Philip Jansen, who took over as CEO this year, is sticking with a plan to cut 13,000 jobs as he tries to reduce costs. But despite those efforts, BT's workforce gained nearly 1,000 employees last year as it hired the engineers it needs for network deployment. With 106,742 employees on its books in March, BT remains one of Europe's most bloated and least efficient telecom incumbents.

Perhaps the best anyone can hope for is that the 5G rollout proceeds smoothly and without the disruption that a ban on Huawei, one of BT's main 5G equipment suppliers, would inevitably cause. The UK government has yet to publish the supply chain review that could limit the activities of the Chinese vendor, which hawkish US politicians regard as a "backdoor" for Chinese spies. Even if UK authorities are lenient, new trade restrictions, preventing US companies from dealing with Chinese vendors, could also hinder the BT rollout by gumming up Huawei's supply chain -- although Ren Zhengfei, Huawei's founder, insists his company can manage without US components.

In any case, Huawei will have a presence in EE's mobile core -- the part of the network that makes government spooks nervous -- until at least 2022, when BT will switch to a new core provided by Cisco, Ericsson or Nokia, all three of which are currently in trials with the UK operator. Over that period, BT will do with 5G what operators do best, serving up faster connections to smartphone-obsessed customers. Whether 5G becomes a weightier and more significant thing depends on what happens next.

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— Iain Morris, International Editor, Light Reading