DT CTO: Costs Must Fall or 5G 'Won't Work'

A senior executive at Deutsche Telekom says that 5G costs must fall significantly if rollout is to prove economical.

Iain Morris, International Editor

February 28, 2017

4 Min Read
DT CTO: Costs Must Fall or 5G 'Won't Work'

BARCELONA -- Mobile World Congress 2017 -- Bruno Jacobfeuerborn, Deutsche Telekom's chief technology officer, says greater industry collaboration is needed to reduce the cost of rolling out a 5G radio network and that some established vendors may not survive the transition from 4G to 5G.

The stark warning came in the same week the German operator, which maintains networks in several markets across central and eastern Europe, promised to make 5G services available across "100%" of its network footprint, without providing a clear timeframe for the upgrade. (See DT Plots 5G Across Entire Footprint.)

Depending on the form that 5G eventually takes, the costs of using higher spectrum bands to build a 5G network could be astronomical. Timotheus Höttges, Deutsche Telekom AG (NYSE: DT)'s CEO, yesterday told attendees at this year's Mobile World Congress that the cost of blanketing Europe with 5G services could be anywhere between €300 billion ($318 billion) and €500 billion ($529 billion).

Jacobfeuerborn's chief concern is on the radio side, which he expects to account for between 50% and 70% of the final bill. That is largely because of the "network densification" that may happen with 5G. Expectations are that 5G will largely use higher spectrum bands than older network technologies. And because signals do not travel as far in these higher ranges, that could necessitate the rollout of much more site equipment.

"If you ask a vendor what a small cell for 5G costs and they say the same as with 4G, it really doesn't work," says Jacobfeuerborn. "Most of the costs are in the radio access network and we have to get that under control."

Indeed, according to a recent report from Barclays that Jacobfeuerborn showed to Light Reading, the 5G investment case does not look at all encouraging for players that are not incumbents in a particular market.

Barclays reckons the return on capital employed, or ROCE (a common investment measure), needs to be at least 8% for operators to be able to finance 5G rollout. Incumbents like Deutsche Telekom are likely to have a higher ROCE, according to its research, but Tier 3 mobile network operators fall well short of the mark, and the overall industry barely hits the 8% target.

"We have to collaborate as an industry to drive the cost down -- we can't work in the same way as previously," says Jacobfeuerborn. "This will change the landscape and some vendors will disappear and some new ones will come into the game -- it is going to be a disruptive moment in time."

Jacobfeuerborn cites the Terragraph initiative from social networking giant Facebook as an example of the kind of innovation and partnership that could help to improve 5G economics.

Unveiled in April last year, Terragraph uses unlicensed spectrum in the 60GHz range to provide high-speed connectivity in more densely populated communities. Facebook has said it will make Terragraph available to operators through its Telecom Infra Project, an industry collaboration that notably involves Deutsche Telekom, and that the cost point it is targeting for the wireless technology is "significantly" less than that of rival connectivity solutions from traditional vendors. (See Facebook Lauds Terragraph Cost Savings.)

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Deutsche Telekom is also looking at network sharing as a means of reducing the capital expenditure bill. "If you look at the US where tower companies are buying fiber to connect sites, that is a trend I see happening [in Europe] in future," he says.

Another option could be to rely on lower spectrum bands than the 28GHz and adjacent ranges, which have been attracting so much of the 5G attention in other parts of the world.

In Europe, operators are likely to make use of so-called "mid-band" spectrum, such as the 3.5GHz range. Yet even here Jacobfeuerborn expresses skepticism that operators would be able to make use of their existing site topology when introducing 5G.

"Most of the operators don't have the grid to support 3.5GHz," he says. "We will have to see what is possible -- below 6GHz we should get some [benefits] and of course we have to use lower frequency bands as well, but we do need more bandwidth."

Jacobfeuerborn also plays down the importance of introducing more software and virtualization technologies into core networks. "Core networks represent less than 25% of the cost," he says. "Virtualization won't solve the economical challenge."

A strong likelihood is that cost challenges slow down the rate at which 5G is introduced, especially given the improvements being made to 4G technology.

"We will survive beyond 2020 because 4G will evolve further and it will of course still be used in 2022, 2023 and 2024," he says. "It is not going to be the big bang with 5G -- we have LTE-Advanced and LTE-Advanced Pro so that [4G] is developing much faster than before."

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

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About the Author(s)

Iain Morris

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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