(Christoph Scholz, CC BY-SA 2.0)
The next two years will be a period when the lofty marketing used to describe 5G, that is, the fifth generation of mobile networks, will begin to transform into the hard reality of the telecommunications industry. Real users and the spreadsheets of financiers and strategists in the telecommunications companies will start verifying the promises contained in the producers’ presentations and the calculations from the reports prepared by consulting companies and industry analysts.
The reports published in recent years indicated enormous optimism about the benefits that 5G mobile networks could bring to the economy. In a widely cited report entitled “The 5G economy: How 5G technology will contribute to the global economy”, published in January 2017, the company IHS Markit estimated that in 2035 the fifth generation of mobile networks will bring to the global economy USD12.3 trillion, or the equivalent of 4.6 per cent of global GDP expected at that time. Out of this amount, industrial companies are supposed to account for almost USD3.4 trillion, while the ICT sector will account for USD1.4bn. The analysts at IHS Markit also expect benefits exceeding USD1bn in trade (where they will amount to almost USD1.3bn) and in public services (nearly USD1.1bn). The authors of the report estimate that 5G technology will add 0.2 percentage points on average to annual global economic growth in the years 2020-2035.
The European Commission also has its expectations regarding the impact of 5G networks on the European Union economy. In autumn 2016, it was estimated that by 2025 the successful implementation of the 5G mobile network could give EU member states more than EUR113bn in additional revenues per year. Four branches of the economy will benefit the most: the automotive industry (EUR42.2bn), health care (EUR8.3bn), transport (EUR5.5bn) and public utilities (EUR6.5bn). The Commission predicts that approximately 2.4 million jobs may be created directly and indirectly thanks to 5G.
Based on the European Commission’s estimates, in January 2018, the Polish Ministry of Digital Affairs published a draft document entitled “The 5G Strategy for Poland”, in which it indicated that, “by 2025 the implementation of 5G technology in Poland will generate additional revenues of EUR13bn and will contribute to the creation of 570 thousand new jobs.”
Not everything goes as planned
It is necessary to keep in mind that both the analysis of the European Commission and the draft strategy prepared by the Ministry of Digital Affairs assumed that 5G networks would be introduced commercially in 2020, and that 5G services would be available in all cities and on the main communication routes by 2025. Today, there is no certainty that these deadlines will be met.
In the European Union’s document entitled “5G for Europe: An Action Plan” it was anticipated that the basic frequencies for 5G, i.e. the 700 MHz, 3.4-3.8 GHz and 26 GHz bands, will be made available to operators in all EU member states by June 2020.
At the end of December 2018, Poland applied to the European Commission for an extension of the deadline for the allocation of the 700 MHz band until end of June 2022 in order to ensure the coverage of the 5G network in non-urban areas. The request was based on the fact that this band is used by digital terrestrial television and also from issues created by the arrangements with Russia regarding the use of the band for the needs of the new mobile technology.
Poland also has a problem with the 3.4-3.8 GHz and the 26 GHz bands. In the past decade a large portion of the first frequency range has been made available by the Polish Office of Electronic Communications to either telecommunications operators, or to local governments. These beneficiaries have built the infrastructure and have launched services. The rights to these ranges will be valid for the next several years or even a dozen or more years. The authorities are currently looking for a way to free up that band for the needs of the 5G network. Meanwhile, the 26 GHz band is partly used by the military.
In Poland, there is one more barrier for 5G: the standards for electromagnetic radiation. These norms were adopted in the times of the Polish People’s Republic and are a lot more restrictive than those in force in most EU member states. The permitted limits for electromagnetic field radiation have to be raised in order for 5G networks to be able to develop and function — at least for some time — alongside the existing mobile networks based on older technologies. This idea is opposed by the section of the society which has so far protested against the expansion of cellular networks.
In turn, German operators have pointed out that the expectations of the local telecommunications market regulator regarding the quality of services to be offered along communication routes are impossible to meet using the lower frequencies made available to the operators (the 700 MHz band). However, the use of higher frequencies (3.4-3.8 GHz) will require a very dense construction of new base stations, which will significantly increase the cost of investment in the 5G networks.
Very high bitrates
In the marketing messages, 5G networks are primarily presented in the context of their very high bitrates: up to 10 Gb/s, or 10 times more than today’s fastest optic fiber connections offered by telecom companies in Poland, and over 4,000 times more than the actual average speed of mobile LTE internet in Polish cellular networks. Additionally, 5G networks are supposed to have very low latency (less than 1 ms, compared to approximately 40 ms in Polish LTE networks). They will also be able to service an enormous number of devices simultaneously (up to 1 million per km²) and will ensure universal coverage and greater network capacity (up to 10,000 times higher compared to the currently operating networks).
This marketing message omits the information that the bitrate depends — just as in the LTE (4G) technology used by mobile operators today — on the bandwidth available to the operator, as well as the number of users simultaneously using one base station antenna, and also on the actual bitrate of the backhaul network that connects the base station with the core network.
The marketing messages usually do not mention the fact that wide bandwidths are available in high frequencies (so-called millimeter waves), whose disadvantage is low range and high sensitivity to any interference, such as rain, snow, tree leaves, or the walls of buildings.
All this means that only in exceptional cases will the bit rate be as high as in the marketing messages, and high enough to allow us to instantly download 4K movies from the cloud. In practice, it may turn out that the average bitrate available for the consumers will only be a dozen or several dozen times higher than what is actually available today in the LTE networks. In extreme situations it may not differ significantly from what 4G currently offers.
Spending money in order to earn money
The equipment suppliers were the first to spend money on the 5G technology. Research and development expenditure has reached billions of dollars a year in the case of each of the major manufacturers of telecommunications equipment, and they haven’t ended yet. “The wide availability of „real 5G” is still years away, ” says Walt Piecyk, an analyst at BTIG.
The launch of the mass market sales of devices adapted for the new technology is crucial for the equipment suppliers. Their business activity is cyclical in nature, and the peak level of sales associated with the implementation of LTE technology by the operators was reached in 2015. Since then, the equipment market has been systematically shrinking. However, there are signs that it started to bounce back in 2018.
Manufacturers are already starting to recover the incurred costs by selling their solutions to the first few 5G networks in the world. According to the research company IDC, the market of 5G equipment was worth over USD500m in 2018, and will reach USD26bn in 2022.
At the beginning of the year the Chinese manufacturer Huawei boasted that it has already delivered 10,000 commercial 5G base stations. Solutions from Ericsson, Nokia and Samsung are also being installed in the newly launched commercial networks.
Operators are investing in 5G in order to avoid the saturation of the networks with data transmission, which is increasing by tens of per cent each year. The second reason is that the transmission of data using 5G is cheaper than today’s LTE networks.
The actual amounts that operators end up investing in the construction of the 5G network will largely depend on the selected model of network construction. The cheapest solution is to build a joint network. The most expensive option will be for each operator present in a given country to build their network separately. One mid-way solution would be, for example, the cooperation of two operators in the development of a network or its fragments.
In South Korea, where commercial 5G networks were launched in December last year, the government forced operators to cooperate. The mobile networks share the masts, antenna mountings, and other infrastructure components, including cables and fiber optics, as well as the pipework. This is supposed to reduce investment costs by up to USD1bn over 10 years.
T-Mobile US and Sprint, the two American mobile operators which are planning to merge, have announced that they will invest nearly USD40bn in a national 5G network within three years after closing the deal. AT&T, which is the second largest mobile operator in the United States, estimates that the total investments on one 5G base station will reach between USD20,000 and USD50,000, depending on the type of station. Nokia predicts that such expenses for an object built from scratch would reach from USD40,000 to USD50,000.
The European Commission estimates that the construction of the 5G network will cost the European operators a total of EUR56bn by 2025. In turn, the Ministry of Digital Affairs says that in Poland these costs will reach between EUR2.6bn and EUR4.7bn, depending on the adopted network construction model. This expenditure will be associated both with the purchase of hardware that will be installed on already existing towers and masts, as well as the construction, equipment and connection of brand new transmitters.
The costs incurred on the construction of the 5G network will not be limited to the base stations and solutions directly related to the radio technology. They will also involve investment in the backhaul network, which – due to the bitrates expected in 5G ratio network – should primarily be built using fiber optics. The research company Dell’Oro Group estimates that in the period of five years ending in 2022, investments in fiber-optic transport networks related to 5G will consume USD75bn worldwide.
What will the operators offer?
In reality, companies are now in the process of identifying and creating the services that will start to drive the demand for the 5G network. It seems that services for companies and corporations will be introduced before services dedicated to consumers. The latter will not show greater interest in the new technology until the first affordable 5G smartphones are introduced on the market. And this is unlikely to happen this year.
According to the predictions of the analysts, over the next 4-5 years, that is, in the period that can be forecast with reasonable accuracy, there are no indications that 5G will have a significant impact on specific industries. When the forecast period is extended to over a dozen years, the impact also isn’t as high as had been predicted in the reports from a few years ago. The current forecasts show, among others, lower expectations regarding the number of Internet of Things devices connected to mobile networks.
The Danish research company Berg Insight, which specializes in the analysis of the Internet of Things (IoT) applications, predicts that by 2022 the market of intelligent transport systems (ITS) in Europe will grow at a rate of 7 per cent per year on average, and that its value will reach EUR1.4bn in 2022. Growth in the United States in the same period is forecasted to amount to 7.5 per cent per year on average — with the value of the market reaching EUR1.37bn in 2022.
Berg Insight emphasizes that public transport companies are becoming increasingly aware of the benefits of ITS, while passengers are increasingly expecting real-time information (e.g. the possibility of planning trips, taking into account possible delays or the possibility of remote payment for the rides). It’s just that in four years — just like today — in most cases LTE networks will be sufficient to transmit this information.
Experts claim that 5G will play a huge role in Industry 4.0. It will liberate industrial robots and specialized devices placed on production lines from all the cables necessary today and will allow for them to be controlled wirelessly in real time. This will enable plants to quickly reconfigure production lines and to adapt them to the current needs, allowing for cheaper production of even short product series.
Such activities will be carried out using private networks intended for a given industrial plant or technology park and not the public mobile networks used by the public. According to Nokia, industrial devices connected to the 5G network could be up to 160 per cent more efficient than when they are connected to the LTE network.
The flagship marketing example of the mass application of 5G technology are autonomous vehicles. They are supposed to utilize all the advantages of this technology, such as the high bitrates, the low latency, as well as the ability to handle a large number of devices located in a small area. According to Intel, 5G will play the role of oxygen in the ecosystem of fully autonomous vehicles (“level 5” cars). The German car manufacturer BMW also claims that 5G will be necessary for such cars.
Widely available “level 5” vehicles are still far away, however. The biggest optimists — like BMW — point to the first half of the next decade, but do not specify the exact year. Others — like Renault-Nissan — mention the year 2025, but the predictions also include more distant dates.
The Israeli manufacturer of autonomous vehicle systems Mobileye seems to be the most cautious. Its president, Amnon Shashua, points out, that “level 5” vehicles must be able to operate in all weather conditions, that is, not only on a sunny day, but also during heavy rain, thick fog, or a snowstorm that will surprise the vehicle on an icy road. Mr. Shashua estimates that sensors that allow driving in such conditions should appear within five or ten years.
Benefits for entertainment
The OECD notes in its report entitled “IoT Measurement and Applications”, that the forecasts regarding the amount of data generated and transmitted by a single fully autonomous vehicle vary widely. Some indicate the production of 20 GB of data a day, while others claim that as much as 100 GB of data could be produced per second.
Not all the data will have to be transmitted to the outside on an ongoing basis, but in any case it is almost impossible to send the rest using the LTE networks, especially considering that some devices — video cameras and laser radars — will require bitrates of dozens of Mb/s at the time of transmission, while others will “only” need very low latency. Such requirements can only be met by 5G.
A lobbying organization representing the interests of the mobile industry, known as the GSMA Association, has examined consumers’ expectations regarding 5G. Faster speed of data transmission was indicated by 54 per cent out of the 15 thousand respondents surveyed in 16 countries, while 41 per cent pointed to an improvement in the network coverage. Only every fourth surveyed consumer expects new services. In the summary of the research results, the GSMA Association stated that, “consumers currently see 5G as the logical continuation of previous generations of mobile technology.”
According to the experts, when it comes to the consumer market, 5G technology — apart from smartphones — will primarily be used for video and entertainment, including games and the utilization of augmented and virtual reality. The research company Ovum estimated in the report entitled “5G Economics of Entertainment”, that in the years 2019-2028 the media and entertainment industry will obtain USD1.3 trillion in revenues thanks to the 5G technology.
This year’s edition of the Consumer Electronics Show (a consumer electronics trade fair held in Las Vegas at the beginning of January) did not bring too much new information concerning the planned use of 5G technology in devices intended for the consumers. Moreover, as noted by the commentators, Cristiano Amon, the head of Qualcomm, which is the world’s leading manufacturer of semiconductors used in smartphones and modems, did not make good on his promise last year to present a 5G smartphone ready for distribution. He only announced that more than 30 different 5G devices would be introduced on the consumer market this year. Perhaps the first of these devices will be presented at the end of February, during the 2019 Mobile World Congress taking place in Barcelona.