Are you ready for 5G?
Smart
operators will consider seven no-regrets moves to position themselves for
advantage amid radically changing industry dynamics.
The fifth generation of
wireless technology promises
lightning-fast speed, incredibly low latency, and the capacity to carry massive
numbers of connections simultaneously. Not surprisingly, the imminent arrival
of 5G is creating a buzz in both the industry and the wider world.
Although standards will
not be fully defined until the 2019 World Radiocommunications Conference, early
progress indicates that two distinct “flavors” will emerge: low- and mid-band
5G focused on spectrum below 6 gigahertz and high-band 5G on spectrum above 6
gigahertz, particularly in the millimeter wave bands. Both these flavors will
be used to augment and enhance existing LTE networks rather than replace them.
The paradox of the 5G use cases
The focus to date has
been on four key use cases that 5G will enable:
Enhanced mobile
broadband.
Faster speed, lower
latency, and greater capacity could enable on-the-go, ultra-high-definition
video, virtual reality, and other advanced applications. However, wireless data
prices are falling and growth in demand can be met in other ways (for example,
densification of LTE networks and Wi-Fi off-loading). Another hurdle is that
constant connectivity—a must-have for mobile broadband—will be severely limited
for high-band 5G due to propagation losses at higher frequencies.
Internet of Things.
With the explosive
growth in the number of connected devices, existing networks are struggling to
keep pace. The advent of 5G will unlock the potential of the Internet of Things (IoT) by enabling more connections at once (up to one
million per square kilometer) at very low power. This could create additional
monthly revenues for carriers, but average IoT revenues will be a fraction of
those for mobile broadband because of low usage. Moreover, 5G will have to compete
against other technologies, such as Wi-Fi and Zigbee.
Mission-critical
control.
As connected devices
become increasingly central in applications that demand absolute
reliability—medical devices and vehicle safety systems, for instance—latency
will serve as a limiting factor. Because 5G has the potential to deliver
significantly lower latency (to about one millisecond), it opens the door to
use cases in healthcare, utilities, and other time-critical contexts. But, as
with IoT, operators can expect the associated revenue to be incremental at
best.
Fixed wireless access.
Fixed wireless access
(FWA) has existed for years, primarily in areas with no viable wired broadband.
5G, particularly in the millimeter wave spectrum, is capable of delivering
speeds of more than 100 Mbps to the home, making it a viable alternative to
wired broadband in many markets, especially in markets without fiber. As such,
5G FWA could represent a truly new revenue stream for wireless operators, but
typically only in areas where consumers don’t already have access to fiber to
the home and DOCSIS 3.0/3.1 cable broadband.
Yet the economics,
business model, and ability to monetize these use cases at scale in the near
term to justify a nationwide rollout of 5G in any country today remain unclear.
That said, 5G’s performance characteristics are getting proponents excited
about the next wave of killer applications that could justify such deployment
before too long.
The economics
In considering the
economics of 5G, it’s best to look separately at the two flavors discussed
earlier.
A low- to
mid-band 5G network, especially in bands below two gigahertz, would look
and cost much the same as current LTE networks. For example, deployment costs
would be similar for cell sites of comparable density.
Delivering the promised
performance improvements of 5G through high-band spectrum, on the
other hand, would require a fundamentally different architecture with much
denser networks—something like 15 to 20 sites per square kilometer in highly
populated urban environments, as opposed to two to five sites today. The total
cost of ownership of deploying small cells at this density would be four to six
times higher than for LTE macro-cell deployment. Unless costs fall
dramatically, wireless operators will need to rethink their approach to
deploying 5G in these bands and carefully review their business case. Although
some of them are already exploring the potential of the use cases described
earlier, these use cases are unlikely to generate enough incremental revenue to
justify nationwide or near-nationwide deployment in high-band spectrum.
As a result, we expect
high-band 5G to be deployed selectively in those micromarkets where the
economics work best. Nationwide networks are unlikely to materialize in the short
to medium term. Low-band deployment could be a different story because of the
much more moderate investments required. Carriers in some markets could seek to
gain a competitive advantage by marketing a low-band 5G network to existing and
potential subscribers.
The timeline
Given the challenging
economics, at least for now, the buildout of 5G won’t happen overnight. Market
trials and small-scale launches will continue to grab headlines, but
large-scale deployment is unlikely to take place until the early 2020s.
There is no
one-size-fits-all approach for rolling out 5G, given the number of factors that
come into play at both the national and local level, including fiber
availability, spectrum availability, and local regulation. In practical terms,
most operators are likely to opt for low-band 5G in the near term while
trialing—and in some cases deploying—high-band 5G in key micromarkets.
What should carriers do?
Wireless operators need
to start preparing for 5G now. As they flesh out their approach, they should
monitor the landscape for new entrants to the market—especially moves by cable
and wireline operators to use their fiber assets and street-furniture access to
deploy 5G networks.
In the meanwhile, we
see seven no-regrets moves that operators should take, some of which will
complement their ongoing initiatives to increase the density of their LTE
networks:
1. Develop 5G offers.
5G’s performance
characteristics provide reasons to be excited about the next wave of killer use
cases. Operators should flesh out these use cases, develop corresponding
customer offers and business cases, and develop the ecosystem (devices and app
developers, for example) necessary to take the offers to prospective customers.
2. Plan at the
micromarket level.
To date, all rollouts
of wireless technology in developed markets have ultimately extended
nationwide, and building an overlay on top of the previous generation of the
technology has proved to be a valid approach for both technological and
commercial reasons. But as mentioned earlier, 5G—and especially high-band
5G—will be different because of its economics. Rollout decisions are likely to
be made at the level of micromarkets, based on their individual economics. To
equip themselves for such an approach, wireless operators need to develop new
technical and commercial capabilities such as using advanced analytics to identify and prioritize micromarkets for 5G
deployment.
3. Rethink network
deployment and operations.
Given the much greater
density of cell sites required for high-band 5G, the traditional model for
macro-cell deployment will be too expensive and impractical to adopt. With its
highly customized approach to network deployment, sites can take more than six
months to go live. To reduce deployment time and costs, operators should
rethink their processes, digitizing and automating them as much as possible. And to cut the costs of
operating and maintaining a network, operators may also have to reexamine their
view of network architecture and reliability. For example, could they design a
network with a higher tolerance for node failure by emulating the approach that
Google, Facebook, and other tech giants use for servers in their data centers?
4. Consider sharing the
cost.
Operators facing high
deployment costs should consider the potential benefits of network sharing. Even in countries where operators have been reluctant
to entertain the idea, such as the United States, the challenging economics of
5G should force serious reconsideration. A successful sharing approach will
require operators to begin by answering three questions: whom to
share with, where to share, and what to
share.
5. Secure access to key
resources.
Wireless operators must
secure access to fiber backhaul, prime cell-tower locations, and street
furniture, as these resources will be critical to 5G, especially high-band 5G.
6. Work closely with
regulatory authorities.
From spectrum auctions
to street-furniture access and from network sharing to government funding,
regulation will have a material effect on the cost and speed of 5G deployment.
Operators that maintain a positive working relationship with regulatory
authorities will be best placed to contribute their perspective on regulation
as it develops.
7. Develop a
comprehensive spectrum strategy.
Spectrum will be the
life-blood of 5G, as it has long been for wireless networks. But developing a
spectrum strategy will be more complicated for 5G, as it includes both licensed
and unlicensed spectrum. Operators will need to move quickly to formulate a
strategy that straddles the whole spectrum.
The advent of 5G will
have a profound impact not just on wireless operators but on participants across the communications value
chain. From tower companies to local governments, back-haul providers to
original equipment manufacturers, and over-the-top programming providers to
handset manufactures, 5G will radically alter industry dynamics. The time to
plan a strategy for this transformative new technology is now.
By Mark Collins, Arnab Das, Alexandre Ménard, and Dev Patel February 2018
https://www.mckinsey.com/industries/telecommunications/our-insights/are-you-ready-for-5g?cid=other-eml-alt-mip-mck-oth-1802&hlkid=45fafb550146442bb058799e1f610854&hctky=1627601&hdpid=33ced573-471c-4a91-859e-c60e93b75630
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