Telecom’s 5G future

5G: Creating an opportunity for CSPs to position for growth

Today, the telecommunications industry stands on the brink of a pivotal new era—one in which advances in multiple technological areas, specifically 5G, edge computing, and AI, are congregating to fundamentally change the world. These technologies have the potential to alter how consumers communicate, consume content, work together, and interact with the environment. As well, they are poised to shift the dynamics of industries, both inside and outside of telecommunications.

The focus of this IBM Institute for Business Value (IBV) Research Insights report is two-fold: it is designed to explain how new 5G technology will unlock entirely new groundbreaking applications simply not possible today. Also, it will detail how communications service providers(CSPs) can use this technology to create value and enhance revenue in both the enterprise and consumer spaces.

From a broad perspective, 5G has the potential to empower people, societies, organizations, and enterprises. It is a game-changer, with the capacity to create huge opportunities for a wide range of industries. For telecommunications, 5G could open opportunities for much-needed new revenue streams. However, CSPs are proceeding with caution because of the high risks and investments involved in moving toward ubiquitous 5G networks.

For example, according to a report on 5G spending from Greensill, the world’s biggest non-bank provider of working capital solutions, infrastructure upgrades will need global investment in the neighborhood of USD 1 trillion. Rolling out 5G requires denser (than 4G) arrays of masts and small cells, an intensive fiber-optic backhaul, and many other new infrastructure elements.

Furthermore, additional—mostly high-priced—5G spectrum has to be acquired. And these are only the anticipated CSP investments. They don’t include, for instance, upgrading Internet of Things (IoT) devices.

Additionally, CSPs will need to make these large investments during a period of relatively flat revenue growth. In 2018, the annual year-over-year revenue growth was 1.4 percent—less than half of global GDP growth. And after a small pick-up in 2019 and 2020, the growth is expected to slow to around 1 percent by 2025, according to the GSM Association (GSMA).

Even more, CSPs still have to amortize their 4G core networks. 4G has made a gigantic leap in network capabilities, but substantial investment was required to accomplish this. The first 4G services came online in the early 2010s. Between 2010 and 2018, CSPs spent well over USD 1 trillion globally on upgrading their networks to 4G. And many CSPs are still upgrading to cope with growing demand.

As a result, most CSPs will not prioritize the core network in the first stages of 5G deployment. Instead, “islands” of 5G New Radio (NR) coverage will be added to the 4G core, mainly to solve the capacity issue. This evolutionary approach will be the natural approach for most CSPs, allowing them to lessen initial investments with the revenue potential remaining small.

5G: Addressing today’s pain points of smartphone users

There is a general agreement that the greatest potential for CSPs to generate revenue from 5G is in industry applications, including the IoT. However, that requires building networks in which 5G NR is paired with a 5G core and huge investments. A significant amount of work remains to upgrade technology, standards, support systems, and business models. It could be the middle of the decade before all of this is sufficiently accomplished.

Consequently, early 5G services will focus on addressing current pain points of smartphone users, particularly those related to the explosive growth in mobile video. Mobile video, according to Cisco, will account for 79 percent of total mobile data traffic by the end of 2022.