With the arrival of 5G, operators are looking at potentially massive investments in areas such as new network infrastructure, base stations, backhaul capacity and spectrum — around which there is much uncertainty.
Also uncertain at this point – how these moves will provide a return on investment.
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To give an example of the scale of the issue, McKinsey estimates that in one European country, network-related capital expenditures will have to increase 60 per cent from 2020 through 2025 — roughly doubling total cost of ownership (TCO) during that period.
Europe provides another lesson. When transitions are mismanaged – as happened in Europe in the 1990’s with the disastrous European 3G spectrum auctions of the late 1990s, the financial consequences are potentially dramatic.
Stephen Temple, in his History of GSM described that as a “cataclysmic event that drove Europe’s mobile system suppliers into recession, set Europe’s 3G networks back five years and made European governments a great deal of money”.
Add to the to the predictable cost of 5G the uncertainty of revenue forecasts scepticism, then there is a strong argument for mobile operators do to everything they can to mitigate their risk – and an obvious place to start is by sharing. Happily, technologies like network slicing will make this easier. But the other technologies required to build 5G infrastructure will drive costs higher.
Take small cells as an example. There are many fundamental differences between 5G and its predecessors, but one in particular that stands out from the perspective of network infrastructure is that many more base stations will be needed, along with high-capacity fibre links to backhaul them.
McKinsey’s & Co conducted an analysis of a European city and found that today, sites with traffic density above 0.5 petabytes per square kilometre per year have a cell radius of less than 200 metres, necessitating small cells.
According to the management consultants, many major cities will be at one or two petabytes per square kilometre by 2025, meaning many more small cells will be required
Likewise, the cost of running the optical fibre needed to carry the increased volumes of data that each 5G cell will be able to support — especially those using mmWave frequencies — will be add significantly to the cost of network rollouts.
Indeed, it is likely that the cost of running fibre cables with multiple pairs that could serve multiple operators would be only marginally higher than for a cable dedicated to one operator.
A new focus
In Australia, with just a few highly concentrated urban population centres, on one operator is likely to achieve network dominance as all the major participants focus their network rollouts in these areas.
Instead, in the battle for market leadership, mobile operators will need to increasingly focus on higher-level differentiators that rely on their unique abilities to be creative and customer centric.
The network and its basic capabilities will increasingly become the commodity platform for those services: the essential underpinning but not the key differentiator. Sharing network resources will enable all operators to achieve optimum performance at lower cost, freeing resources to focus on those high level differentiators.
About the author
Andrew Birmingham is the director of the Which-50 Digital Intelligence Unit of which Axicom is a corporate member. Our members provide their insights and expertise for the benefit of the Which-50 community. Membership fees apply.