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March 7, 2016
South Korea's SK Telecom and Japan's NTT DoCoMo want to show it off at the Olympic Games their countries will host in 2018 and 2020. MTS and MegaFon are planning similar demonstrations when the soccer World Cup comes to Russia in 2018. And AT&T and Verizon are even talking about field trials in the US market later this year. But despite all the muscular posturing on 5G, technology developments appear to be sprinting ahead of a clear business case for the emerging standard. (See AT&T Lights Fire Under 5G, Plans 2016 Trials, Russia's MTS to Trial 5G in 2018, Verizon CEO: US Commercial 5G Starts in 2017 and DoCoMo & EE Share 5G Visions.)
Figure 1: Obstacles Ahead Japan's NTT DoCoMo plans to showcase 5G at the Tokyo Olympics in 2020.
Technologically speaking, 5G certainly looks set to be more transformative than any of its predecessors. A new air interface will be able to support much faster and lower-latency connections than today's 3G and 4G networks. In theory, this means a single system will be able to handle everything from the bandwidth-gobbling virtual-reality services used by tomorrow's consumers to critical but low-speed machine-to-machine links. "This is what we do not have today," says Yves Bellego, the director of technical strategy for France's Orange (NYSE: FTE). "4G is basically optimized for smartphones." (See Is This the 5G You're Looking For? and Orange Sours on Cost Benefits of NFV.)
Yet 5G will be more than just a new air interface. By introducing software and virtualization technologies into their core networks, operators should be able to allocate network resources on the fly. Essentially, this could mean "spinning up" a service for a specific user group, such as sports fans at a stadium, as and when needed. (See AT&T: Virtualized Mobile Core Key to 5G.)
It is this marriage between radio and core network developments that promises to be the game-changer. Through a technique called "network slicing," operators could launch a range of highly differentiated network services, each aimed at a distinct vertical market but relying on the same infrastructure as the others. "There are use cases that we can't deliver on today that will be key in future," says Mats Svardh, the head of networks for Sweden's Telia Company . "These can't be delivered only by a new radio interface." (See NFV Key to 5G Business Case, Says TeliaSonera.)
Figure 2: Mats Svardh, TeliaSonera's head of networks, thinks virtualization will be a critical feature of new 5G networks.
In principle, network slicing should allow operators to market a variety of more sophisticated access products based on multiple tiers of pricing. But rules on net neutrality could deal a huge blow to such plans, according to Bjørn Taale Sandberg, the head of research for Norwegian incumbent Telenor Group (Nasdaq: TELN): US authorities forbid operators from prioritizing Internet traffic in exchange for payment. And while European Union legislation seems to give operators more leeway, its definition of what constitutes a "specialized" service exempt from the rules remains unclear. "Our 5G thinking is that you should be able to offer a bespoke quality of service without building separate physical networks," says Sandberg. "If regulation doesn't allow that, you forego an opportunity." (See Telecom Needs New Net Neutrality Story and Net Neutrality Rules Threaten 5G, NFV – Telenor.)
That uncertainty has grave implications for service providers plotting their 5G futures. If regulation turns out to be an obstacle to what Sandberg calls "smarter pricing," Telenor will be under more pressure to slash costs at its core access business, he acknowledges. Succeeding in new vertical markets, such as banking and advertising technology, will also become more important.
Next page: Regulatory wrangling
Confusion over net neutrality is not the only regulatory concern, however. In Europe, complaints about the broader regulatory framework for telecom are growing louder as operators fret over the sums they will need to spend on 5G and supporting technologies, including fiber-optic networks and new security systems. "If you want to build a hyper-connected gigabit society, the investments will be massive," says Vittorio Colao, the CEO of Vodafone Group plc (NYSE: VOD). (See Vodafone CEO: Europe Needs Uniform 5G Rules.)
One sore point remains the subject of consolidation. While Europe's biggest telcos want to see more of it, the region's authorities continue to look disapprovingly on mobile mergers within individual markets. There is even now a risk the gulf between operators and regulators will grow bigger with the arrival of 5G. According to Bengt Nordström, the CEO of consultancy and market research firm Northstream , UK regulatory authority Ofcom was "shocked" when he told them 5G would probably not bring new entrants into the mobile market. "That is simply not in their plan," he says.
In Nordström's view, 5G technology will not have enough impact on service provider economics to support prospective new players. Skeptical that network-slicing opportunities will do much for topline growth, he also notes the substantial costs of operating telecom infrastructure and subsidizing end-user equipment. "If you gave a player spectrum and network equipment for free it still wouldn't change the business case," he says.
Spectrum availability is a further worry. While much of the high-speed innovation is expected to involve the so-called "millimeter wave" frequency bands that lie above the 6GHz range, these airwaves are unlikely to be useful outside small-cell and indoor-coverage deployments. In parts of that market, however, it is hard to see why 5G would be more attractive than WiFi, forthcoming versions of which are also expected to support connection speeds of multiple gigabits per second. In some geographical markets, up to 85% of wireless data traffic is now being carried on WiFi as opposed to cellular networks, according to the Wireless Broadband Alliance (WBA), an industry association. "That trend is not going to go away," says Shrikant Shenwai, the CEO of the WBA, who insists that WiFi will have a major role to play within any future 5G ecosystem.
Figure 3: The 5G Roadmap Source: InterDigital.
To build their macro networks, operators ideally need spectrum between the 450MHz and 6GHz bands. Yet most of these airwaves currently support other technologies, and there are few signs of any industry-wide push to free them up, according to Nordström. "The industry needs to get together and focus on which band it makes available for 5G and on re-farming that band for 5G," he says.
Spectrum liberalization and re-farming are among several steps that Russia must take before its operators can start thinking about commercial 5G services, according to Vasyl Latsanych, the chief marketing officer of Mobile TeleSystems OJSC (MTS) (NYSE: MBT), the country's biggest operator. "Network sharing rules and practices [also] need to be secured before we can go into a totally new set-up like 5G," he tells Light Reading.
Figure 4: Vasyl Latsaynch, chief marketing officer of Russia's MTS, is skeptical there is much short-term need for 5G technology.
Although MTS is among a small group of operators around the world to have announced firm plans for trials of 5G, it is unconvinced of a pressing need for the technology. "We feel an obligation to be in pole position in the market but as of today we have skepticism about 5G over the next couple of years," says Latsanych. "It is a vendor game rather than a customer or carrier game." (See Russia's MTS Knocks 5G as 'Vendor Game'.)
Next page: The agile dumb pipe
The agile dumb pipe
One possibility is that 5G simply consigns telcos to the role of the dumb pipe by enabling them to play this part even more effectively. Air-interface developments should, of course, allow operators to serve a much broader range of connectivity markets without having to invest in networks besides the 5G one. New virtualization and software technologies might just turn them into more agile connectivity providers without really helping them to counter the services challenge from web-scale players.
In the Internet of Things (IoT) arena, in particular, analysts doubt that telcos will steal the show. "If they have ambitions to do more [than connectivity] they will have to engage in analytics, consulting and systems integration, which generally require skills they don't have," says Nordström, who reckons systems integrators like Accenture , with their long experience in numerous vertical markets, are the group most likely to profit from the IoT opportunity.
Want to know more about 5G? Check out our 5G content channel here on Light Reading.
The rollout of 5G in itself seems unlikely to help operators acquire the skills and capabilities to challenge these players. That does not mean business transformation is being ignored, but it does increase the pressure on operators to address the business and regulatory challenges surrounding 5G as technology standardization draws nearer. "People are still trying to work out what they will use 5G for," says Niall Norton, the CEO of telco software vendor Openet Telecom Ltd. . "The business models have yet to be invented -- how it is ultimately used will be determined in the next couple of years."
— Iain Morris, , News Editor, Light Reading
International Editor, Light Reading
Iain Morris joined Light Reading as News Editor at the start of 2015 -- and we mean, right at the start. His friends and family were still singing Auld Lang Syne as Iain started sourcing New Year's Eve UK mobile network congestion statistics. Prior to boosting Light Reading's UK-based editorial team numbers (he is based in London, south of the river), Iain was a successful freelance writer and editor who had been covering the telecoms sector for the past 15 years. His work has appeared in publications including The Economist (classy!) and The Observer, besides a variety of trade and business journals. He was previously the lead telecoms analyst for the Economist Intelligence Unit, and before that worked as a features editor at Telecommunications magazine. Iain started out in telecoms as an editor at consulting and market-research company Analysys (now Analysys Mason).
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