Europe’s 5G field of dreams: if we build it, will they come?
| DOI | https://doi.org/10.1108/DPRG-06-2017-0030 |
| Published date | 14 August 2017 |
| Date | 14 August 2017 |
| Pages | 337-352 |
| Author | Simon Forge,Colin Blackman |
| Subject Matter | Information & knowledge management,Information management & governance,Information policy |
Europe’s 5G field of dreams: if we build
it, will they come?
Simon Forge and Colin Blackman
Simon Forge is Director
at SCF Associates Ltd,
Buckinghamshire, UK.
Colin Blackman is Director at
Camford Associates Ltd,
Cambridge, Cambridgeshire,
UK, and CEPS Digital Forum,
Centre for European Policy
Studies, Brussels, Belgium.
Abstract
Purpose –Proponents of 5G predict a huge market for 5G goods and services with millions of new jobs
being created. The purpose of this paper is to make a realistic assessment of the 5G initiative, with a
focus on Europe.
Design/methodology/approach –The paper reviews the technical, economic and policy literature to
analyse the case for 5G in Europe.
Findings –The 5G initiative in Europe, as well as globally, has so far failed to assess objectively the
future needs of its customers, whether consumer or business, to articulate a set of sound business
cases.
Originality/value –There is little independent assessment of 5G in the academic literature. The paper
makes an original contribution through questioning the dominant supply-driven industry perspective.
Keywords Public policy, Europe, Communication technologies, Industrial policy, 5G,
Mobile radio systems
Paper type Viewpoint
1. Looking Beyond the Industry Hype
The concept of a fifth generation of mobile telecommunications (5G) is attracting a storm
level of interest in the European telecommunications industry, and has done so
progressively over the past five years. It has been carefully marketed to capture the
imagination of politicians, governments, policy makers and now regulators because of the
promise of the next generation of mobile communications that will finally bring broadband
internet wirelessly to the masses. Its promise is to seed new jobs, new consumer and
professional services and whole new markets in broadband offerings, both in content and
their services as well as the infrastructure.
However, as is common with advances in technology, there is a need to look beyond the
industry hype to assess appropriate policy support. In reality, the underpinnings of what is
being promoted as 5G radio technology are extremely complex technically (Blackman and
Forge, 2016). Moreover, the complexities are still far from being resolved. Its basic
operating premise is to use many more units, or cells, with an architecture that has been the
basis of mobile radio since the early 1990s, ever since the somewhat unexpected take-off
of the first digital mobile telephony generation, GSM. However, recent attempts to meld
internet access into the mobile handset, through two generations of mobile cellular radio,
as GSM may be viewed as limited and only partially successful.
1.1 Telecom sector travails
The telecommunications industry sees 5G as the successor to long-term evolution of UMTS
(LTE), and as the next global market that will serve smart consumer devices, with a major
role in enabling the Internet of Things (IoT). In large part, this is a necessity because
Received 14 June 2017
Revised 14 June 2017
Accepted 27 June 2017
DOI 10.1108/DPRG-06-2017-0030 VOL. 19 NO. 5 2017, pp. 337-352, © Emerald Publishing Limited, ISSN 2398-5038 DIGITAL POLICY, REGULATION AND GOVERNANCE PAGE 337
telecom operators’ revenues are stagnating and, as a consequence, the equipment
manufacturing industry (e.g. Ericsson, Nokia/ Alcatel Lucent) is struggling.
1.1.1 Just why is this? First, recent developments in software-defined networks are paying
off, as far less network equipment is needed in the form of outside plant. The multiple
hardware units required previously have begun to disappear with the uptake of software to
provide these network functions (termed network function virtualisation). That means
placing all the switching, routing and network management logic in software in a data
centre, rather than out in the field in remote switching centres, so that the outside plant
shrinks in deployment volume and value. The old idea from the 1980s of out-of-area of
switching has become the industry norm and quite soon will form its foundation.
By rolling out this new concept in networking, vendors are making mobile network
operators (MNOs) more efficient. But they are also cannibalising their hardware sales.
Moreover, the revenue streams are not only smaller but also different in terms of cash flow
streams. Revenues will come in terms of operational expenditure, licences and
maintenance fees spread over many years. That tends to replace the massive MNO
investments in large amounts of hardware as capex events for a new generation of mobile
communications, and subsequently, MNO investments every few years to first buy and then
regularly upgrade a host of base station transceivers, gateways, IP switches, base station
controllers and master switching centres, together with their ancillary equipment, ranging
from signal boosters to batteries, to air-conditioning units and intruder alarms.
Second, the supply industry is also being forced to shed capacity as the MNOs’ expected
payoffs from the latest mobile generation, i.e. 4G, LTE and its latest upgrades, have not
delivered sufficient new revenues from broadband (Purdy, 2016). Consequently, new
spending by the MNOs on mobile broadband networks is lower than anticipated.
Furthermore, mobile broadband revenue streams are lower than expected as consumers
prefer to offload their potential mobile traffic to fixed broadband and nomadic Wi-Fi to enjoy
over-the-top (OTT) services at much lower cost and often with higher quality.
MNOs are, therefore, in a cleft stick – they may need to keep broadband pricing high to
stifle consumption and so avoid network saturation with session blocking as consumer
demand for streaming video data goes exponential. Their fall-back strategy is to go with the
flow and offload mobile broadband to Wi-Fi networks. So, MNOs are investing in Wi-Fi
networks for nomadic users as well as in LTE for mobile broadband. The knock-on effect of
that is that the MNOs have not received the hoped-for new revenue and profit streams from
mobile broadband, and thus, the funding needed to rapidly pay off and then profit from the
LTE renewal of their 3G UMTS networks. Moreover, some operators owning both mobile
and fixed broadband services, such as the incumbents in the EU, may be trying to profit
from a balancing strategy of optimising broadband cash flows from both sources. To avoid
cannibalising fixed broadband revenue streams by mobile broadband substitution, they
may be maintaining higher mobile data tariffs per GB while under-investing in base station
upgrades, which saves on capital, to the extent of limiting use of all the spectrum they have
won at auction. However, the unused spectrum still has the effect of excluding new
competition from entering the market. The overall effect is to extend the life of the existing
generations of technology – GSM and UMTS – beyond 2021, which limits new revenues
streams from LTE for both suppliers and the MNOs, as shown in Figure 1.
1.2 Build it and they will come
These difficulties are not only fuelling the hype behind 5G but also explain the industry’s
special pleading with government for public support for 5G. The key question, however, is
whether 5G enables services that consumers – both business and individuals – are willing
to pay for. In this respect, the 5G initiative in Europe, as well as globally, has so far failed
to assess objectively the future needs of its customers, whether consumer or business, or
both, in terms of a set of sound business cases. So the question that needs to be asked is,
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