Let's Talk About 5G Efficiency, Not Wacky Services

While vendors continue touting 5G as an opportunity to provide new revenue-generating services, operators are increasingly focused on it as an efficiency tool.

Iain Morris, International Editor

November 21, 2017

7 Min Read
Let's Talk About 5G Efficiency, Not Wacky Services

Rarely has the division between a pushy supplier and a down-at-heel telco been laid so bare.

Connecting farmyard animals and other dumb stuff to 5G networks will generate billions of dollars in new service revenues, was the message from Ken Hu, one of Huawei's chief executives, during a conference hosted by the Chinese equipment giant in London last week. Just minutes later, Johan Wibergh, Vodafone's chief technology officer, was on the same stage telling the audience that 5G is "overhyped." It was like watching a door being slammed shut in the face of a traveling salesman.

And there were more 5G doubts cast during the two days of Huawei's Mobile Broadband Forum event. Gavin Patterson, CEO of UK telecom incumbent BT Group plc (NYSE: BT; London: BTA), told attendees that he and other CEOs are "struggling" to pin down the business case for the next-generation mobile technology. In an afternoon breakout session, executives from Vodafone Group plc (NYSE: VOD) and Deutsche Telekom AG (NYSE: DT) gave short shrift to the technology's most ardent promoters. "We should stop talking 5G bullshit," said Santiago Tenorio, Vodafone's head of network strategy and architecture, echoing his boss's remarks, while Antje Williams, Deutsche Telekom's 5G executive program manager, insisted that 5G new radio, the most heavily publicized feature of the standard, is not particularly revolutionary. (See DT Is Not Going Radio Gaga About 5G.)

Figure 1: Wacky Races One of several technologies that Huawei showed off at last week's Global Mobile Broadband Forum, the flying taxi will account for a quarter of citizens' journeys by 2030, according to Dubai's transportation authority. Whether 5G will by then have given way to 6G is another matter... One of several technologies that Huawei showed off at last week's Global Mobile Broadband Forum, the flying taxi will account for a quarter of citizens' journeys by 2030, according to Dubai's transportation authority. Whether 5G will by then have given way to 6G is another matter...

Operators are not about to pull back on 5G, but their realistic priorities are not about near-term revenue growth. As vendors like Huawei Technologies Co. Ltd. and Sweden's Ericsson AB (Nasdaq: ERIC) continue to bang on about the 5G sales opportunity from connected cows, connected cars and connected everything, service providers are starting to regard 5G mainly as an opportunity to fatten profit margins through cost savings -- at least in the short term.

This 5G efficiency story is actually compelling. The 5G new radio alone is about ten times more cost efficient than 4G, Wibergh told conference attendees last week. As the volume of data traffic on networks continues to skyrocket, and revenues per bit are squeezed down, operators need every means possible to reduce costs. "The regulator requires operators to reduce charges for customers but also increase data rates, and operators are starting to promote unlimited data for customers," said Guangyi Liu, the wireless chief technology officer for the research unit of Chinese telco China Mobile Ltd. (NYSE: CHL), in explaining the pressure his company is under during last week's event. (See Nolle: In 2017, Cost Per Bit Exceeds Revenues and China Mobile to Deploy 10,000 5G Basestations by 2020.)

But a new and more efficient radio would be just one way of reducing expenses. For most chief technology officers, 5G has become synonymous with a network and operational transformation whose purpose is to make telcos look more like the cloud companies they admire and fear in equal measure. For all the fascination with a new radio, the real 5G revolution will come in the shape of more software-based and highly automated networks. And while these might unlock new business opportunities in time, the efficiency case is a much easier one to make now.

Take Germany's Deutsche Telekom, for instance, which has jettisoned its "growth areas" strategy from several years ago but still expects to realize at least €1.2 billion ($1.4 billion) in annual cost savings from network transformation. While executives rarely discuss 5G in the same breath as the "pan-net" project that is responsible for much of this overhaul, there is clearly an overlap on objectives. "Cloudification," pan-net's central tenet, is also a 5G goal, said Williams during last week's event. A technique called "network slicing," which builds on this cloudification, is another priority, allowing operators to operate multiple independent network services over the same infrastructure. Both will boost efficiency, if they work out as planned. (See DT's Pan-Net Still at Start of the Marathon.)

Next page: The wow factor

The wow factor
Yet an investment case based on cost savings lacks an obvious "wow factor." Berit Svendsson, the CEO of Telenor Norway, seemed to hint at this in June, when she said that operators would struggle to defend 5G investments without the possibility of "monetization." But despite the Huawei pitch, and some fanciful forecasts about revenues from the "Internet of Things," operators sound increasingly skeptical that 5G will spur sales growth in the years following its launch. (See How Much Will 5G Cost? No One Has a Clue.)

The divide between operators and their vendors is perhaps no surprise. If suppliers can persuade the market that 5G will buoy telco revenues, networks will be rolled out more quickly, to the benefit of those same suppliers. The comments from Wibergh and Patterson reinforce the view this will not happen. "Operators will upgrade 12% to 15% of their networks every year," predicts Bengt Nordström, CEO of the Northstream consulting group, which has long harbored doubts about 5G as a revenue opportunity for operators. "To reach 90% of the population with 5G may take seven to ten years."

Unless 5G does lead to sales growth, a more aggressive rollout schedule would have an impact on capital intensity (capital expenditure as a percentage of revenues), which usually tracks at between 15% and 20%. Any substantial increase in this metric seems improbable if operators are unconvinced that 5G is anything but an efficiency tool.

Want to know more about 5G? Check out our dedicated 5G content channel here on
Light Reading.

Even so, Wibergh is evidently worried the prevailing vendor rhetoric is obscuring the real short-term benefits of 5G. If those benefits are nearly all about cost savings, operators might not want customers to know too much. But neither might they want to inflate customer expectations about what 5G can do. In that regard, Huawei's hype looks unhelpful.

It could also complicate dealings with investors and analysts already dubious about 5G technology. An obvious risk is that investors overlook the cost savings while dismissing the marketing messages about self-driving cars and quadrupeds whose digestive habits are supposedly a bountiful source of data and revenues. Most agree that 5G will be useful and even economically important in various walks of life: They simply doubt that operators will get rich from it.

Showing investors how 5G -- and not just 5G radio -- can make telcos more streamlined, if not quite as dynamic as the web-scale Internet companies, is therefore critical. In conversations with Light Reading, executives from Ericsson and Finland's Nokia Corp. (NYSE: NOK) have acknowledged that 5G will co-exist with 4G for many years, and downplayed the possibility of a 5G-fueled surge in infrastructure spending. Yet their marketing tells a different tale. A presentation by Ken Hu about the efficient 5G telco might not have been as exciting as the one he gave, but, in hindsight, it may have been a lot more valuable from the perspective of his customers. (See Ericsson: 5G Unlikely to Kickstart Telco Spending.)

— Iain Morris, 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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