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Will telecom operators survive 5G?

Semiconductor For You by Semiconductor For You
December 11, 2018
in Articles, Semiconductor News
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5G-TelecomThe two biggest telecom network providers have been in the news for the wrong reasons this week. Every crisis has their winners though. In this case open source telecom hardware will be the clear winner. Several major telecom operators are getting behind the idea of open source telecom equipment (OpenRAN) on which multiple software vendors can install their solutions and compete. Hardware can be mass produced at unseen low prices. Doing away with hardware and software lock-in, will allow also services to be freely purchased from any consultancy firm. 5G mobile base stations will resemble a cloud server that is shared by many. Doing the operations and support for such a solution is what every IT consultancy has been doing for years, I.e. Supporting hardware, an operating system and software from third-parties. However reducing the costs of 5G deployment is not good enough.

Why is the telecom business model broken?

The dirty little secret of the telecom world is that 5G will be exponentially more expensive to deploy than previous generations. Unlike 3G and 4G, every couple of houses and in every building floor, you will need a 5G base station. 5G is only high speed at short distance if there are lots of walls, hence you need many base stations.

Telecom operators have arrived at a point where they can’t afford to buy this amount of base stations. The situation gets even worse. Nobody has yet proven that 5G will be a money printing machine. Very few new services really need ultra high speed and if they do then it is very unlikely customers will pay substantially extra for them. Video on demand will appreciate 8K movies on the go, but unfortunately nobody will be able to notice the difference between 4K and 8K on a small phone screen. Who is going to pay for using 10x more data if you can’t see the difference?

Internet of Things (IoT) is the other magical word that is going to solve the telecom broken business model. For any IoT solution to get to critical mass you need nationwide coverage. Sigfox and LoRa are cheap technologies to deploy, I.e. One base station every 10 to 50 km, but still UK coverage is very spotty. As a result, IoT is not happening at the scales that were predicted. With the first 5G mobile phones costing over £1,000, any business case to deploy 1 million connected IoT devices becomes very difficult. Take into account also the enormous power requirements and only a very small subset of use cases can actually use 5G. No 5G coverage without IoT; no IoT without 5G coverage.

Self-driving cars will be the miraculous 5G business case solution?

Yet again innovators might not count telecom operators as their preferred suppliers. SpaceX is launching Starlink, a 14,000 plus network of high-speed satellites. What if autonomous driving Tesla’s don’t need any terrestrial telecom provider?

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So what is the solution?

Telecom operators need to start innovating and rethink their complete business model if they want to be successful going forward. The same for all their suppliers. In a world of exponentially growing cost and complexity, you want to make things as easy as possible for the customer. From a business perspective this means all you can eat data plans. Customers will not want to pay per SMS or call if they can get video calls for free via an app. So simplify all the backend systems, all those complex standards, and everything related to it because customers will pay for data and value; and they see no value in SMS and calling.

The most important step is to create new value for customers and others that will want to pay. Open source base stations are not enough in this sense. Every one should own their own base station and even multiple. The trick here is to commoditize software defined radio to cost below $10 per chip and to embed them into any large home appliance, e.g. A TV, a fridge, an oven, a boiler,… This way telecom operators don’t need to roll out base stations every two houses. Each of these “new base stations” as well as the few that are there to cover the streets should now be app enabled. This means that a consumer or a telecom operator can install apps on these devices, just like you can on a mobile phone, let’s call them edge apps to differentiate. The new value for telecom operators will be in creating an edge app economy. The first edge apps will be infrastructure focused, I.e. 5G protocol and spectrum. However afterwards it will be hard to predict which edge apps will be the biggest winners. Will it be simple apps that help you connect your family and friends via a social login, or keep your children safe on the big bad Internet and most importantly control their time spend online. Or will it be Netflix on the edge in which disk space on fridges is sold for caching content. Netflix might no longer stream from a central server but instead from the neighbor’s fridge. Or will the edge apps be making your house intelligent and secure? There are a million more possibilities but just like Apple and Google, telecom operators don’t need to be in the business of inventing apps. They just need to enable the edge app economy to prosper and get in on the revenue.

Is it too late?

Unfortunately we might be too late for most telecom operators because few have shown to be worthy competitors in the digital world and be able to successfully compete with the digital tech giants. In the next 5 years we will see many go under because in a 5G world where you need to create ecosystems of edge app developers to survive and thrive, tech giants are actually better placed to take over the industry. However I am always happy to be proven wrong…

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Tags: 5GTelecomwireless
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