5G regulation: Ensuring successful industrial transformation

How should governments regulate 5G?

The old regulatory models are less relevant for 5G

Regulators in different markets around the world have a tried and tested formula for making spectrum available for new networks and for regulating the operators that run those networks. They have successfully used this formula for 2G, 3G, and 4G.

However, 5G is different and may require a different approach for both licensing spectrum and for regulating mobile network operators’ services. As we outline in the section 5G benefits industry and society, unlike its predecessors, 5G is not simply a faster pipe which therefore benefits individual end-users. Instead, it has been designed with new capabilities that can have a profound effect on enterprises and entire industries.

These capabilities and how they compare to LTE and to other wireless technologies are outlined in the Appendix. Because 5G can create so much value to all constituents of society, STL Partners contends that the focus of governments and regulators should be in ensuring that:

  1. It is rolled out as quickly as possible;
  2. Regulation is sufficiently flexible and focussed to reflect the needs of different industries and of consumers;
  3. Mobile network operators are encouraged to deliver more value to their existing customers and potentially new ones by contributing to cross-industry activity that benefit governments, enterprises, and consumers.

Put simply, our analysis suggests that the upside from rapid 5G deployment far outweighs the short-term benefits of high spectrum licensing fees. From a pure economic perspective, 5G should contribute an additional $1.4 trillion of Gross Domestic Product globally in 20301. The higher rates of employment, corporate profits, and consumer spending associated with this increased GDP will translate into significant increases in receipts of corporation and income taxes, national insurance contributions, and sales tax for governments as well as enhanced national competitiveness.

These annual inflows to the public purse will be far bigger than the one-off payment from licensing spectrum. But these benefits only accrue if 5G is deployed quickly and effectively so that its full potential is realised by industry in each market. A slow 5G rollout risks enterprises investing in workaround solutions that do not require 5G and do not generate the same value.

Spectrum licensing: Auctions vs beauty contests

A focus on short-term auction fees could be counter-productive as it may inhibit operators’ ability to invest aggressively in rolling out 5G. But as we show in graphic below, it is easy to administer, shows the regulator is ‘doing a good job’, and results in higher short-term economic benefits. We believe that governments need to look at the longer-term sustainable benefits of 5G deployment and, potentially, opt for spectrum licensing ‘beauty contests’ – in which spectrum is allocated on a detailed raft of requirements such as rollout speed and network performance – rather than auctions. Such an approach may require input beyond the telecommunications regulator. For example, the treasury, health and social welfare, business, transport and energy ministries might also be needed to evaluate whether a spectrum beauty contest offers a better social and economic return than a spectrum auction.

And it’s not all about money, globally 5G could result in 1 billion patients with improved access to healthcare globally in 20302. Governments, therefore, need to evaluate the social benefits of 5G as well as the economic ones. But managing a regulatory approach for 5G via input from different government departments is complex and may require management at the highest level.

The 5G spectrum licensing conundrum

5G spectrum licensing conundrum

Recognising that not all markets are the same

While we have outlined above a bias towards spectrum beauty contests over auctions for 5G, it is important to note that the right approach will vary by country. Based on what we have already seen from the 5G deployments and announcements in 2018 and 2019, there is a clear delineation between countries in their 5G rollout speed. We have segmented markets into three types in Figure 2:

  1. Leaders: countries where all operators are pushing ahead aggressively with 5G deployment (in part owing to the role of the regulator in the way they have managed spectrum licensing);
  2. Followers: countries where 5G rollout is patchier and many operators are reluctant to deploy 5G and are essentially doing it under duress, in other words, they worry that they will suffer if they don’t deploy and their competitors do so they do enough to be seen to be ‘keeping up’;
  3. Laggards: (developing) countries where the current network deployment focus of operators is LTE rather than 5G.

The table below outlines reasons why segments are operating at different 5G rollout speeds and offers suggestions for how governments might wish to stimulate operator 5G investment in each segment.

5G spectrum licensing country segmentation5G spectrum licensing segmentation

Table of contents

  • Preface
  • Executive Summary
  • How should governments regulate 5G?
  • The old regulatory models are less relevant for 5G
    • Spectrum licensing: auctions vs beauty contests
    • Recognising that not all markets are the same
    • Local vs national regulatory issues
    • Principles and options for 5G regulation relating to industrial IoT
  • 5G benefits industry and society
    • Introduction: 5G is estimated to add c.$1.4 trillion to global GDP in 2030
    • Healthcare benefits
    • Manufacturing benefits
    • Telecoms industry energy efficiency benefits
  • Telcos (may) need encouragement to invest in 5G
    • Lower revenues, lower profits
    • 5G per se won’t change the game for operators
    • Fast 5G network deployment needs to be encouraged
  • Appendix
    • Comparing apples with apples: how to compare nascent 5G with established 4G
    • It’s not all about LTE: 5G must be compared to all available technology
    • 5G deployment: 5G will mature over the next ten years

Table of Figures

  • Figure 1: The 5G spectrum licensing conundrum
  • Figure 2: 5G spectrum licensing country segmentation
  • Figure 3: Managing national and local mobile networks and services
  • Figure 4: 5G will contribute around USD1.4 trillion to global GDP by 2030
  • Figure 5: Global impact of 5G on healthcare (annual cost savings USD Billions)
  • Figure 6: Benefits from 5G to global manufacturing (USD Billions) by use case
  • Figure 7: Annual global emissions from mobile networks under 4 scenarios (metric tonnes of CO2)
  • Figure 8: Global mobile services revenues 2009-2022 (USD Trillions)
  • Figure 9: Global mobile operators EBITDA margins 2007-2017
  • Figure 10: 4G rollout did not produce sustainable revenue increase
  • Figure 11: Mature 5G benchmarked against the capabilities of mature 4G
  • Figure 12: 5G can address some key shortcomings with existing technologies
  • Figure 13: Forecast of 5G deployment in major regions

The Industrial IoT: What’s the telco opportunity?

The Industrial IoT is a confusing world

This report is the final report in a mini-series about the Internet for Things (I4T), which we see as the next stage of evolution from today’s IoT.

The first report, The IoT is dead: Long live the Internet for Things, outlines why today’s IoT infrastructure is insufficient for meeting businesses’ needs. The main problem with today’s IoT is that every company’s data is locked in its own silo, and one company’s solutions are likely deployed on a different platform than their partners’. So companies can optimise their internal operations, but have limited scope to use IoT to optimise operations involving multiple organisations.

The second report, Digital twins: A catalyst of disruption in the Coordination Age, provides an overview of what a digital twin is, and how they can play a role in overcoming the limitations of today’s IoT industry.

This report looks more closely at the state of development of enterprise and industrial IoT and the leading players in today’s IoT industry, which we believe is a crucial driver of the Coordination Age. In the Coordination Age, we believe the crucial socio-economic need in the world – and therefore the biggest business opportunity – is to make better use of our resources, whether that is time, money, or raw materials. Given the number of people employed in and resources going through industrial processes, figuring out what’s needed to make the industrial IoT reach its full potential is a big part of making this possible.

Three types of IoT

There are three ways of dividing up the types of IoT applications. As described by IoT expert Stacey Higginbotham, each group has distinct needs and priorities based on their main purpose:

  1. Consumer IoT: A connected device, with an interactive app, that provides an additional service to the end user compared with an unconnected version of the device. The additional service is enabled by the insights and data gathered from the device. The key priority for consumer devices is low price point and ease of installation, given most users’ lack of technical expertise.
  2. Enterprise IoT: This includes all the devices and sensors that enterprises are connecting to the internet, e.g. enterprise mobility and fleet tracking. Since every device connected to an enterprise network is a potential point of vulnerability, the primary concern of enterprise IoT is security and device management. This is achieved through documentation of devices on enterprise networks, prioritisation of devices and traffic across multiple types of networks, e.g. depending on speed and security requirements, and access rights controls, to track who is sharing data with whom and when.
  3. Industrial IoT: This field is born out of industrial protocols such as SCADA, which do not currently connect to the internet but rather to an internal control and monitoring system for manufacturing equipment. More recently, enterprises have enhanced these systems with a host of devices connected to IP networks through Wi-Fi or other technologies, and linked legacy monitoring systems to gateways that feed operational data into more user-friendly, cloud-based monitoring and analytics solutions. At this point, the lines between Industrial IoT and Enterprise IoT blur. When the cloud-based systems have the ability to control connected equipment, for instance through firmware updates, security to prevent malicious or unintended risks is paramount. The primary goals in IIoT remain to control and monitor, in order to improve operational efficiency and safety, although with rising security needs.

The Internet for Things (I4T) is in large part about bridging the divide between Enterprise and Industrial IoT. The idea is to be able to share highly sensitive industrial information, such as a change in operational status that will affect a supply chain, or a fault in public infrastructure like roads, rail or electricity grid, that will affect surroundings and require repairs. This requires new solutions that can coordinate and track the movement of Industrial IoT data into Enterprise IoT insights and actions.

Understandably, enterprises are way of opening any vulnerabilities into their operations through deeper or broader connections, so finding a secure way to bring about the I4T is the primary concern.

The proliferation of IoT platforms

Almost every major player in the ICT world is pitching for a role in both Enterprise and Industrial IoT. Most largescale manufacturers and telecoms operators are also trying to carve out a role in the IoT industry.

By and large, these players have developed specific IoT solutions linked to their core businesses, and then expanded by developing some kind of “IoT platform” that brings together a broader range of capabilities across the IT stack necessary to provide end-to-end IoT solutions.
The result is a hugely complex industry with many overlapping and competing “platforms”. Because they all do something different, the term “platform” is often unhelpful in understanding what a company provides.

A company’s “IoT platform” might comprise of any combination of these four layers of the IoT stack, all of which are key components of an end-to-end solution:

  1. Hardware: This is the IoT device or sensor that is used to collect and transmit data. Larger devices may also have inbuilt compute power enabling them to run local analysis on the data collected, in order to curate which data need to be sent to a central repository or other devices.
  2. Connectivity: This is the means by which data is transmitted, including location-based connectivity (Bluetooth, Wi-Fi), to low power wide area over unlicensed spectrum (Sigfox, LoRa), and cellular (NB-IoT, LTE-M, LTE).
  3. IoT service enablement: This is the most nebulous category, because it includes anything that sits as middleware in between connectivity and the end application. The main types of enabling functions are:
    • Cloud compute capacity for storing and analysing data
    • Data management: aggregating, structuring and standardising data from multiple different sources. There are sub-categories within this geared towards specific end applications, such as product or service lifecycle management tools.
    • Device management: device onboarding, monitoring, software updates, and security. Software and security management are often broken out as separate enablement solutions.
    • Connectivity management: orchestrating IoT devices over a variety of networks
    • Data / device visualisation: This includes graphical interfaces for presenting complex data sets and insights, and 3D modelling tools for industrial equipment.
  4. Applications: These leverage tools in the IoT enablement layer to deliver specific insights or trigger actions that deliver a specific outcome to end users, such as predictive maintenance or fleet management. Applications are usually tailored to the specific needs of end users and rarely scale well across multiple industries.

Most “IoT platforms” combine at least two layers across this IoT stack

graphic of 4 layers on the IoT stack

Source: STL Partners

There are two key reasons why platforms offering end-to-end services have dominated the early development of the IoT industry:

  • Enterprises’ most immediate needs have been to have greater visibility into their own operations and make them more efficient. This means IoT initiatives have been driven primarily by business owners, rather than technology teams, who often don’t have the skills to piece together multiple different components by themselves.
  • Although the IoT as a whole is a big business, each individual component to bringing a solution together is relatively small. So companies providing IoT solutions – including telcos – have attempted to capture a larger share of the value chain in order to make it a better business.

Making sense of the confusion

It is a daunting task to work out how to bring IoT into play in any organisation. It requires a thorough re-think of how a business operates, for a start, then tinkering with (or transforming) its core systems and processes, depending on how you approach it.

That’s tricky enough even without the burgeoning market of self-proclaimed “leaders of industrial IoT” and technology players’ “IoT platforms”.

This report does not attempt to answer “what is the best way / platform” for different IoT implementations. There are many other resources available that attempt to offer comparisons to help guide users through the task of picking the right tools for the job.

The objective here is to gain a sense of what is real today, and where the opportunities and gaps are, in order to help telecoms operators and their partners understand how they can help enterprises move beyond the IoT, into the I4T.

 

Table of contents

  • Executive Summary
  • Introduction
    • Three types of IoT
    • The proliferation of IoT platforms
    • Making sense of the confusion
  • The state of the IoT industry
    • In the beginning, there was SCADA
    • Then there were specialised industrial automation systems
    • IoT providers are learning about evolving customer needs
  • Overview of IoT solution providers
    • Generalist scaled IT players
    • The Internet players (Amazon, Google and Microsoft)
    • Large-scale manufacturers
    • Transformation / IoT specialists
    • Big telco vendors
    • Telecoms operators
    • Other connectivity-led players
  • Conclusions and recommendations
    • A buyers’ eye view: Too much choice, not enough agility
    • How telcos can help – and succeed over the long term in IoT