The business case for 5G

Mobile telephony has been making rapid strides in technology. Every decade or so, a new generation of network technology promises more speed, capacity, quality and uses.

With each generation, network operators invest capital to upgrade their infrastructure, with the firm belief that those investments will lead to more satisfied customers and reinvigorated revenues and profits.

The latest debate is about 5G technology and, how wise it is to implement it, despite the tremendous speed and potential it has displayed, even in India. ‘Why rush to invest in 5G now?’ ask pessimists, when technologies that will impel users to demand higher speeds and more bandwidth are still years from being ready.

India’s experience so far

Over the last 18-24 months, 4G has led to a steep increase in the amount of data we consume. According to Nokia’s annual “Mobile Broadband Index,” released late last year, 82% of the growth in mobile traffic in India in 2017 came from 4G. The traffic grew 135% year over year, driven by video, which contributed 65-75% of total mobile data traffic. Average consumption of data by an Indian subscriber has grown to more than 11 gigabytes (GB) of data per user per month, on a par with other developed markets. Clearly, the rapid growth of 4G in India has strained networks.

A recent report from speed-testing platform Ookla ranks India’s 4G Internet connectivity abysmally low — at 109th position in a list of 124 countries, lower than Pakistan, Myanmar and Sri Lanka. When there are more people on the mobile Internet, telecom networks get congested, and that leads to poor speed.

Meanwhile, the 5G ecosystem in India is gaining momentum. The Centre expects to auction 5G spectrum in 2019. In fact, the latest-generation network equipment is largely 5G-ready.

Arguments in favour

On a 5G network, wireless data can travel at real-world peak speeds that are more than 10 times faster than most 4G networks and fast enough to compete with fibre-to-the-home wireline broadband.

The key argument in favour of 5G is congestion relief. Network operators can use 5G to alleviate the mobile and video congestion that often occurs when large numbers of users are concentrated in one place, such as transit hubs, sporting events or shopping areas. For users, this means being able to seamlessly stream videos wherever they are, regardless of how many other people are doing the same thing.

In India, the benefits of the next-generation 5G technology are exciting not only for data users, but for industries as well. Once IoT gains momentum, the largest opportunity will be in manufacturing, energy and utilities, followed by public safety and health sectors. “This will be over and above the revenue generated from traditional services which is expected to grow up to $63 billion by 2026,” a BGR report states.

Skepticism remains

Yet, when it comes to next-generation 5G, some scepticism remains, in India and globally. A survey of recent public statements by executives of the 19 largest mobile network operators (MNOs) worldwide conducted by Bain & Company shows that while they share a belief in the long-term potential of 5G, more than half see no immediate business potential.

We see three common fallacies: there is no compelling, near-term business case for 5G; implementing 5G will require enormous and unjustifiable capital investments; the main reason to invest in 5G is to reduce costs or, at least, improve unit economics, but not to increase revenues.

The business cases for 3G and 4G were centred on data speeds and hence, a superior customer experience. The near-term business case for 5G in India will be driven by congestion relief, which is a very real constraint for every operator today. Further, the capex required may not be as high as expected. 5G-capable devices can seamlessly connect to the existing 4G cells, thus precluding huge investments.

Operators that make full use of existing assets will develop multi-year roll-out plans that will evolve as 5G technology improves. And all this will be done with prudent capital investments. These operators will be able to create a virtuous cycle of 5G reinvestment; first, by building or upgrading to an all-digital 5G network, and then, by using the cash flow generated by those efficiencies to invest in high RoIuse cases.

(Dinkar Ayilavarapu and Herbert Blum are partners with Bain & Company and lead the telecom practice in India and the Americas, respectively. Vikram Chandrashekhar is a principal at Bain’s New Delhi office.)

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Printable version | Oct 15, 2021 12:00:35 PM |

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