Over 50% of the world’s LTE subscribers are in the US right now. With aggressive 4G deployments aided by the thriving application ecosystem, US wrestled back the leadership mantle of the mobile world. While consumers are enjoying their mobile broadband devices and services, chatter around 5G has begun. Some new to the industry might be perplexed by all the talk of a technology cycle that is years away. However, if we study the 35 year old history of the mobile industry, things are going according to the plan.
All the major mobile markets have started to focus on defining 5G and the subsequent launch dates. Even Europe, which still has a long way to go before their 4G networks are built out have set their sights on 5G to recapture the mantle and the pride of the GSM days. Korea and Japan led the world in 3G but lost the lead of 4G to the US. They both are eager to be considered leaders in 5G. Japanese government has set the ambitious goal of having 5G by the Tokyo Olympics in 2020 (Russia wants to do it by 2018 for the FIFA World cup). US regulators have also started to talk about 5G and thefuture spectrum needs as well.
Students of the industry will observe that these network technologies evolve over a 20 year cycle. In general, the time to peak (the point where the net revenues for the technology peak and start dropping) is generally slower than the time from peak to sunset. This is primarily because as the last generation is peaking, investments and roll-outs of the new generation of technology starts thus taking away the share at a faster pace. On an average, the time-to-peak has been 12 years while the time from peak-to-sunset has been 7 years. Obviously, there are shifts in different countries depending on spectrum auctions; competitive dynamics, investment availability but they largely follow the 20 year cycle. For each of these 20 year cycles, the R&D and standardization time period of 7-8 years typically precedes the first major deployments of the network technology. So overall, these are big cycles of 25-30 years from initial concepts to the last subscription getting off the network technology. The research work for 5G got started in 2012 and we might have our first networks by 2018-2020.
While there is no consensus yet on what 5G will feel and look like, there is some agreement on the types of performance criterion that are worth considering. Some of the performance goals for 5G under discussion are:
The first four generations have largely followed the same business model that of “metering.” The operator typically invested in assets such as spectrum, network build out, operational capacity, etc. and then built the business based on the usage. In the early days, it was more of a linear model with tight correlation between the usage and the cost of the usage but as the markets matured, the past revenue curves melded into the new ones. That’s the reason voice and messaging are offered as unlimited packages designed around the data services.
Will 5G offer new business models or explore a different relationship between usage and cost? Will consumers warm up to the idea of value-based pricing? Or Will access just become a commodity layer like water and electricity and most of the value will reside in the platform and application layers? Though we have started to see the shifts, how fast will future accelerate? Will the ecosystem landscape be markedly different than what we have in place today? We will answer these questions in due course.
Another important question for the industry will be around the control points. From 1G to 3G, the industry clearly revolved around the operators. Almost all of the revenue in the industry flowed through the operators and they controlled in excess of 75% of the industry revenue. However, primarily because of the broadband capability of the networks, the emergence of the powerful computing platforms in iOS and Android, and very powerful computing devices, the picture in the 4G era is changing. We estimate that the overall control of the industry revenues by the operators will shrink to 50% or lower within the next 5 years. This doesn’t mean that the operator revenues will decline in aggregate, they will continue to increase 1-3% globally but the ecosystem is growing much faster and as such the operator share will decline.
With 5G, it is very likely, that a highly distributed application and services ecosystem will become the dominant industry source of revenue around which rest of the mobile solar system will evolve. The tectonic shifts are likely to result in fewer mobile operators in the 5G technology era. Most of the countries will have 2 or 3 major operators. Given that so much mobile traffic is indoor, we will see the wireline and wireless operate merge at a frantic pace in the next 5 years. Many will also become content owners, banks, and might even operate car companies. On the flip side, we might see the rise of non-traditional MVNOs wherein vertical industry players will bundle in IP access with their services.
The noise around 5G will only grow louder in 2015 but it is normal. All mobile network technology evolutions have gone through the same cycle in the last 35 years and 5G will be no different. However, the ecosystem and the control points in 2025 are likely to look markedly different from the first three cycles. Tighten your seat belts and enjoy the ride.
|Chetan Sharma is the President and CEO of Chetan Sharma Consulting – a global management consulting firm focused on the mobile space. Chetan has been in the industry since the 1G days and is often found working with clients around the globe on strategies applicable to 4G, 5G and beyond. He is an author of over a dozen books and over 150 papers/articles on wireless. @chetansharma|