SK Telecom’s journey in commercialising 5G

SK Telecom (SKT), Verizon and Telstra were among the first in the world to commence the commercialisation of 5G networks. SK Telecom and Verizon launched broadband-based propositions in 2018, but it was only in 2019, when 5G smartphones became available, that consumer, business and enterprise customers were really able to experience the networks.

Part 1 of our 3-part series looks at SKT’s journey and how its propositions have developed from when 5G was launched to the current time. It includes an analysis of both consumer and business offerings promoted on SKT’s website to identify the revenues streams that 5G is supporting now – as opposed to revenues that new 5G use cases might deliver in future.

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At launch, SKT introduced 5G-specific tariffs, that coupled large data allowances with unique apps and services designed to ensure data consumption and demonstrate the advantages of 5G access. 5G plans were more expensive than 4G plans, but the price of 5G data per MB was less than that for 4G to tempt customers to make the switch.

SKT’s well-documented approach to 5G has been regarded as inspirational by other telcos, though many consider a similar approach out-of-reach (e.g. for other telcos, coverage issues may limit their ability to charge a premium, or 5G-value-adding services may be lacking).

This report examines the market factors that have enabled and constrained SKT’s 5G actions, as it moves to deliver propositions for audiences beyond the early adopters and heavy data users. It identifies lessons in the commercialisation of 5G for those operators that are on their own 5G journeys and those that have yet to start.

5G performance to date

This analysis is based on the latest data available as we went to press in March 2021.

There were 10.9 million 5G subscribers in South Korea at end-November 2020 (15.5% of the total 70.5 million mobile subscriptions in the market, according to the Ministry of Science and ICT) and network coverage is reported to be more than 90% of the population (a figure that was already quoted in March 2020). Subscriber numbers grew by nearly one million in November 2020, boosted by the introduction of the iPhone 12, which sold 600K units that month.

SKT’s share of 5G subscribers was 46% (5.05 million) in November, to which SKT added a further 400K+ in December, reaching 5.48 million by the end of 2020.

The telco took just four and a half months to reach one million 5G subscribers following launch, significantly less than it had taken with 4G, which had attained the same milestone in eight months following 4G’s commercial launch in 2011.

SKT quarterly 5G subscriber numbers (millions)

SK Telecom 5G subscribers

Source: STL Partners, SK Telecom

SKT credits 5G subscriber growth for its 2.8% MNO revenue increase in the year to December 2020, however the impact on ARPU is less clear. An initial increase in overall ARPU followed the introduction of higher priced 5G plans at launch, but ARPU has fallen back slightly since then, possibly due to COVID-19 economic factors.

SKT total ARPU trend following 5G launch

SK Telecom 5G ARPU

Source: STL Partners

In its 2020 year-end earnings call, SKT reported that it was top of the leader board in South Korea’s three customer satisfaction surveys and in the 5G quality assessment by the Ministry of Science and ICT.

As a cautionary note, Hong Jung-min of the ruling Democratic Party reported that 500K 5G users had switched to 4G LTE during August 2020 due to network issues, including limited coverage, slower than expected speeds. It is unclear how SKT was affected by this.

 

Table of Contents

  • Executive Summary
    • Recommendations
    • Next steps
  • Introduction
  • 5G performance to date
  • Details of launch
  • Consumer propositions
    • At launch
    • …And now
  • Business and enterprise propositions
    • At launch
    • …And now
  • Analysis of 5G market development
    • What next?
    • mmWave
  • Conclusion
  • Appendix 1

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SK Telecom: Lessons in 5G, AI, and adjacent market growth

SK Telecom’s strategy

SK Telecom is the largest mobile operator in South Korea with a 42% share of the mobile market and is also a major fixed broadband operator. It’s growth strategy is focused on 5G, AI and a small number of related business areas where it sees the potential for revenue to replace that lost from its core mobile business.

By developing applications based on 5G and AI it hopes to create additional revenue streams both for its mobile business and for new areas, as it has done in smart home and is starting to do for a variety of smart business applications. In 5G it is placing an emphasis on indoor coverage and edge computing as basis for vertical industry applications. Its AI business is centred around NUGU, a smart speaker and a platform for business applications.

Its other main areas of business focus are media, security, ecommerce and mobility, but it is also active in other fields including healthcare and gaming.

The company takes an active role internationally in standards organisations and commercially, both in its own right and through many partnerships with other industry players.

It is a subsidiary of SK Group, one of the largest chaebols in Korea, which has interests in energy and oil. Chaebols are large family-controlled conglomerates which display a high level and concentration of management power and control. The ownership structures of chaebols are often complex owing to the many crossholdings between companies owned by chaebols and by family members. SK Telecom uses its connections within SK Group to set up ‘friendly user’ trials of new services, such as edge and AI

While the largest part of the business remains in mobile telecoms, SK Telecom also owns a number of subsidiaries, mostly active in its main business areas, for example:

  • SK Broadband which provides fixed broadband (ADSL and wireless), IPTV and mobile OTT services
  • ADT Caps, a securitybusiness
  • IDQ, which specialises in quantum cryptography (security)
  • 11st, an open market platform for ecommerce
  • SK Hynixwhich manufactures memory semiconductors

Few of the subsidiaries are owned outright by SKT; it believes the presence of other shareholders can provide a useful source of further investment and, in some cases, expertise.

SKT was originally the mobile arm of KT, the national operator. It was privatised soon after establishing a cellular mobile network and subsequently acquired by SK Group, a major chaebol with interests in energy and oil, which now has a 27% shareholding. The government pension service owns a 11% share in SKT, Citibank 10%, and 9% is held by SKT itself. The chairman of SK Group has a personal holding in SK Telecom.

Following this introduction, the report comprises three main sections:

  • SK Telecom’s business strategy: range of activities, services, promotions, alliances, joint ventures, investments, which covers:
    • Mobile 5G, Edge and vertical industry applications, 6G
    • AIand applications, including NUGU and Smart Homes
    • New strategic business areas, comprising Media, Security, eCommerce, and other areas such as mobility
  • Business performance
  • Industrial and national context.

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Overview of SKT’s activities

Network coverage

SK Telecom has been one of the earliest and most active telcos to deploy a 5G network. It initially created 70 5G clusters in key commercial districts and densely populated areas to ensure a level of coverage suitable for augmented reality (AR) and virtual reality (VR) and plans to increase the number to 240 in 2020. It has paid particular attention to mobile (or multi-access) edge computing (MEC) applications for different vertical industry sectors and plans to build 5G MEC centres in 12 different locations across Korea. For its nationwide 5G Edge cloud service it is working with AWS and Microsoft.

In recognition of the constraints imposed by the spectrum used by 5G, it is also working on ensuring good indoor 5G coverage in some 2,000 buildings, including airports, department stores and large shopping malls as well as small-to-medium-sized buildings using distributed antenna systems (DAS) or its in-house developed indoor 5G repeaters. It also is working with Deutsche Telekom on trials of the repeaters in Germany. In addition, it has already initiated activities in 6G, an indication of the seriousness with which it is addressing the mobile market.

NUGU, the AI platform

It launched its own AI driven smart speaker, NUGU in 2016/7, which SKT is using to support consumer applications such as Smart Home and IPTV. There are now eight versions of NUGU for consumers and it also serves as a platform for other applications. More recently it has developed several NUGU/AI applications for businesses and civil authorities in conjunction with 5G deployments. It also has an AI based network management system named Tango.

Although NUGU initially performed well in the market, it seems likely that the subsequent launch of smart speakers by major global players such as Amazon and Google has had a strong negative impact on the product’s recent growth. The absence of published data supports this view, since the company often only reports good news, unless required by law. SK Telecom has responded by developing variants of NUGU for children and other specialist markets and making use of the NUGU AI platform for a variety of smart applications. In the absence of published information, it is not possible to form a view on the success of the NUGU variants, although the intent appears to be to attract young users and build on their brand loyalty.

It has offered smart home products and services since 2015/6. Its smart home portfolio has continually developed in conjunction with an increasing range of partners and is widely recognised as one of the two most comprehensive offerings globally. The other being Deutsche Telekom’s Qivicon. The service appears to be most successful in penetrating the new build market through the property developers.

NUGU is also an AI platform, which is used to support business applications. SK Telecom has also supported the SK Group by providing new AI/5G solutions and opening APIs to other subsidiaries including SK Hynix. Within the SK Group, SK Planet, a subsidiary of SK Telecom, is active in internet platform development and offers development of applications based on NUGU as a service.

Smart solutions for enterprises

SKT continues to experiment with and trial new applications which build on its 5G and AI applications for individuals (B2C), businesses and the public sector. During 2019 it established B2B applications, making use of 5G, on-prem edge computing, and AI, including:

  • Smart factory(real time process control and quality control)
  • Smart distribution and robot control
  • Smart office (security/access control, virtual docking, AR/VRconferencing)
  • Smart hospital (NUGUfor voice command for patients, AR-based indoor navigation, facial recognition technology for medical workers to improve security, and investigating possible use of quantum cryptography in hospital network)
  • Smart cities; e.g. an intelligent transportation system in Seoul, with links to vehicles via 5Gor SK Telecom’s T-Map navigation service for non-5G users.

It is too early to judge whether these B2B smart applications are a success, and we will continue to monitor progress.

Acquisition strategy

SK Telecom has been growing these new business areas over the past few years, both organically and by acquisition. Its entry into the security business has been entirely by acquisition, where it has bought new revenue to compensate for that lost in the core mobile business. It is too early to assess what the ongoing impact and success of these businesses will be as part of SK Telecom.

Acquisitions in general have a mixed record of success. SK Telecom’s usual approach of acquiring a controlling interest and investing in its acquisitions, but keeping them as separate businesses, is one which often, together with the right management approach from the parent, causes the least disruption to the acquired business and therefore increases the likelihood of longer-term success. It also allows for investment from other sources, reducing the cost and risk to SK Telecom as the acquiring company. Yet as a counterpoint to this, M&A in this style doesn’t help change practices in the rest of the business.

However, it has also shown willingness to change its position as and when appropriate, either by sale, or by a change in investment strategy. For example, through its subsidiary SK Planet, it acquired Shopkick, a shopping loyalty rewards business in 2014, but sold it in 2019, for the price it paid for it. It took a different approach to its activity in quantum technologies, originally set up in-house in 2011, which it rolled into IDQ following its acquisition in 2018.

SKT has also recently entered into partnerships and agreements concerning the following areas of business:

 

Table of Contents

  • Executive Summary
  • Introduction and overview
    • Overview of SKT’s activities
  • Business strategy and structure
    • Strategy and lessons
    • 5G deployment
    • Vertical industry applications
    • AI
    • SK Telecom ‘New Business’ and other areas
  • Business performance
    • Financial results
    • Competitive environment
  • Industry and national context
    • International context

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Fixed wireless access growth: To 20% homes by 2025

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Fixed wireless access growth forecast

Fixed Wireless Access (FWA) networks use a wireless “last mile” link for the final connection of a broadband service to homes and businesses, rather than a copper, fibre or coaxial cable into the building. Provided mostly by WISPs (Wireless Internet Service Providers) or mobile network operators (MNOs), these services come in a wide range of speeds, prices and technology architectures.

Some FWA services are just a short “drop” from a nearby pole or fibre-fed hub, while others can work over distances of several kilometres or more in rural and remote areas, sometimes with base station sites backhauled by additional wireless links. WISPs can either be independent specialists, or traditional fixed/cable operators extending reach into areas they cannot economically cover with wired broadband.

There is a fair amount of definitional vagueness about FWA. The most expansive definitions include cheap mobile hotspots (“Mi-Fi” devices) used in homes, or various types of enterprise IoT gateway, both of which could easily be classified in other market segments. Most service providers don’t give separate breakouts of deployments, while regulators and other industry bodies report patchy and largely inconsistent data.

Our view is that FWA is firstly about providing permanent broadband access to a specific location or premises. Primarily, this is for residential wireless access to the Internet and sometimes typical telco-provided services such as IPTV and voice telephony. In a business context, there may be a mix of wireless Internet access and connectivity to corporate networks such as VPNs, again provided to a specific location or building.

A subset of FWA relates to M2M usage, for instance private networks run by utility companies for controlling grid assets in the field. These are typically not Internet-connected at all, and so don’t fit most observers’ general definition of “broadband access”.

Usually, FWA will be marketed as a specific service and package by some sort of network provider, usually including the terminal equipment (“CPE” – customer premise equipment), rather than allowing the user to “bring their own” device. That said, lower-end (especially 4G) offers may be SIM-only deals intended to be used with generic (and unmanaged) portable hotspots.
There are some examples of private network FWA, such as a large caravan or trailer park with wireless access provided from a central point, and perhaps in future municipal or enterprise cellular networks giving fixed access to particular tenant structures on-site – for instance to hangars at an airport.

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FWA today

Today, fixed-wireless access (FWA) is used for perhaps 8-9% of broadband connections globally, although this varies significantly by definition, country and region. There are various use cases (see below), but generally FWA is deployed in areas without good fixed broadband options, or by mobile-only operators trying to add an additional fixed revenue stream, where they have spare capacity.

Fixed wireless internet access fits specific sectors and uses, rather than the overall market

FWA Use Cases

Source: STL Partners

FWA has traditionally been used in sparsely populated rural areas, where the economics of fixed broadband are untenable, especially in developing markets without existing fibre transport to towns and villages, or even copper in residential areas. Such networks have typically used unlicensed frequency bands, as there is limited interference – and little financial justification for expensive spectrum purchases. In most cases, such deployments use proprietary variants of Wi-Fi, or its ill-fated 2010-era sibling WiMAX.

Increasingly however, FWA is being used in more urban settings, and in more developed market scenarios – for example during the phase-out of older xDSL broadband, or in places with limited or no competition between fixed-network providers. Some cellular networks primarily intended for mobile broadband (MBB) have been used for fixed usage as well, especially if spare capacity has been available. 4G has already catalysed rapid growth of FWA in numerous markets, such as South Africa, Japan, Sri Lanka, Italy and the Philippines – and 5G is likely to make a further big difference in coming years. These mostly rely on licensed spectrum, typically the national bands owned by major MNOs. In some cases, specific bands are used for FWA use, rather than sharing with normal mobile broadband. This allows appropriate “dimensioning” of network elements, and clearer cost-accounting for management.

Historically, most FWA has required an external antenna and professional installation on each individual house, although it also gets deployed for multi-dwelling units (MDUs, i.e. apartment blocks) as well as some non-residential premises like shops and schools. More recently, self-installed indoor CPE with varying levels of price and sophistication has helped broaden the market, enabling customers to get terminals at retail stores or delivered direct to their home for immediate use.

Looking forward, the arrival of 5G mass-market equipment and larger swathes of mmWave and new mid-band spectrum – both licensed and unlicensed – is changing the landscape again, with the potential for fibre-rivalling speeds, sometimes at gigabit-grade.

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Table of contents

  • Executive Summary
  • Introduction
    • FWA today
    • Universal broadband as a goal
    • What’s changed in recent years?
    • What’s changed because of the pandemic?
  • The FWA market and use cases
    • Niche or mainstream? National or local?
    • Targeting key applications / user groups
  • FWA technology evolution
    • A broad array of options
    • Wi-Fi, WiMAX and close relatives
    • Using a mobile-primary network for FWA
    • 4G and 5G for WISPs
    • Other FWA options
    • Customer premise equipment: indoor or outdoor?
    • Spectrum implications and options
  • The new FWA value chain
    • Can MNOs use FWA to enter the fixed broadband market?
    • Reinventing the WISPs
    • Other value chain participants
    • Is satellite a rival waiting in the wings?
  • Commercial models and packages
    • Typical pricing and packages
    • Example FWA operators and plans
  • STL’s FWA market forecasts
    • Quantitative market sizing and forecast
    • High level market forecast
  • Conclusions
    • What will 5G deliver – and when and where?
  • Index

5G: Bridging hype, reality and future promises

The 5G situation seems paradoxical

People in China and South Korea are buying 5G phones by the million, far more than initially expected, yet many western telcos are moving cautiously. Will your company also find demand? What’s the smart strategy while uncertainty remains? What actions are needed to lead in the 5G era? What questions must be answered?

New data requires new thinking. STL Partners 5G strategies: Lessons from the early movers presented the situation in late 2019, and in What will make or break 5G growth? we outlined the key drivers and inhibitors for 5G growth. This follow on report addresses what needs to happen next.

The report is informed by talks with executives of over three dozen companies and email contacts with many more, including 21 of the first 24 telcos who have deployed. This report covers considerations for the next three years (2020–2023) based on what we know today.

“Seize the 5G opportunity” says Ke Ruiwen, Chairman, China Telecom, and Chinese reports claimed 14 million sales by the end of 2019. Korea announced two million subscribers in July 2019 and by December 2019 approached five million. By early 2020, The Korean carriers were confident 30% of the market will be using 5G by the end of 2020. In the US, Verizon is selling 5G phones even in areas without 5G services,  With nine phone makers looking for market share, the price in China is US$285–$500 and falling, so the handset price barrier seems to be coming down fast.

Yet in many other markets, operators progress is significantly more tentative. So what is going on, and what should you do about it?

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5G technology works OK

22 of the first 24 operators to deploy are using mid-band radio frequencies.

Vodafone UK claims “5G will work at average speeds of 150–200 Mbps.” Speeds are typically 100 to 500 Mbps, rarely a gigabit. Latency is about 30 milliseconds, only about a third better than decent 4G. Mid-band reach is excellent. Sprint has demonstrated that simply upgrading existing base stations can provide substantial coverage.

5G has a draft business case now: people want to buy 5G phones. New use cases are mostly years away but the prospect of better mobile broadband is winning customers. The costs of radios, backhaul, and core are falling as five system vendors – Ericsson, Huawei, Nokia, Samsung, and ZTE – fight for market share. They’ve shipped over 600,000 radios. Many newcomers are gaining traction, for example Altiostar won a large contract from Rakuten and Mavenir is in trials with DT.

The high cost of 5G networks is an outdated myth. DT, Orange, Verizon, and AT&T are building 5G while cutting or keeping capex flat. Sprint’s results suggest a smart build can quickly reach half the country without a large increase in capital spending. Instead, the issue for operators is that it requires new spending with uncertain returns.

The technology works, mostly. Mid-band is performing as expected, with typical speeds of 100–500Mbps outdoors, though indoor performance is less clear yet. mmWave indoor is badly degraded. Some SDN, NFV, and other tools for automation have reached the field. However, 5G upstream is in limited use. Many carriers are combining 5G downstream with 4G upstream for now. However, each base station currently requires much more power than 4G bases, which leads to high opex. Dynamic spectrum sharing, which allows 5G to share unneeded 4G spectrum, is still in test. Many features of SDN and NFV are not yet ready.

So what should companies do? The next sections review go-to-market lessons, status on forward-looking applications, and technical considerations.

Early go-to-market lessons

Don’t oversell 5G

The continuing publicity for 5G is proving powerful, but variable. Because some customers are already convinced they want 5G, marketing and advertising do not always need to emphasise the value of 5G. For those customers, make clear why your company’s offering is the best compared to rivals’. However, the draw of 5G is not universal. Many remain sceptical, especially if their past experience with 4G has been lacklustre. They – and also a minority swayed by alarmist anti-5G rhetoric – will need far more nuanced and persuasive marketing.

Operators should be wary of overclaiming. 5G speed, although impressive, currently has few practical applications that don’t already work well over decent 4G. Fixed home broadband is a possible exception here. As the objective advantages of 5G in the near future are likely to be limited, operators should not hype features that are unrealistic today, no matter how glamorous. If you don’t have concrete selling propositions, do image advertising or use happy customer testimonials.

Table of Contents

  • Executive Summary
  • Introduction
    • 5G technology works OK
  • Early go-to-market lessons
    • Don’t oversell 5G
    • Price to match the experience
    • Deliver a valuable product
    • Concerns about new competition
    • Prepare for possible demand increases
    • The interdependencies of edge and 5G
  • Potential new applications
    • Large now and likely to grow in the 5G era
    • Near-term applications with possible major impact for 5G
    • Mid- and long-term 5G demand drivers
  • Technology choices, in summary
    • Backhaul and transport networks
    • When will 5G SA cores be needed (or available)?
    • 5G security? Nothing is perfect
    • Telco cloud: NFV, SDN, cloud native cores, and beyond
    • AI and automation in 5G
    • Power and heat

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5G strategies: Lessons from the early movers

What’s the best 5G strategy?

When we published the report 5G: The First Three Years in December 2018, we identified that most of the hype – from autonomous cars to surgeons operating from the beach – is at best several years from significant volume. There are no “killer apps” in sight. Telco growth from 5G deployments will be based on greater capacity, lower cost and customer willingness to buy.

If carrier revenue doesn’t rise, the pressure to cut costs will grow

For the last five years, carrier revenue has been almost flat in most countries and we believe this trend is likely to continue.

STL Partners forecasts less than 1% CAGR in telecoms revenues

Mobile and fixed revenue forecast to 2022Source: STL Partners

In our 5G Strategies report series, STL Partners set out to established what 5G actually offers that will enable carriers to make more money in the next few years.

It builds on STL Partners’ previous insights into 5G, including:

The report explores the most recent activities in 5G by operators, vendors, phone makers and chipmakers.

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High-level takeaways from initial 5G deployments

This section provides a high-level overview of the current efforts and activities of select telcos around the world. Broadly, it shows that almost all are pushing ahead on 5G, some much faster than others.

  • Korea is the world’s most advanced 5G market, with two million Koreans having bought 5G phones by July.
    • Korea’s 3.5 GHz networks typically deliver download speeds of 100 – 500 Mbps. SK Telecom and KT are using Samsung equipment. LG Uplus is mostly Huawei. There is little evidence that either vendor has demonstrated superior performance. Korea’s government, supported by the operators, made a decision that speeding ahead on 5G would be valuable prestige and improve the Korean economy. Korea expects to have 200,000 radios in place by the end of 2019, compared with BT which anticipates fewer than 2,500.
  • China Mobile has confirmed Huawei’s estimate that the price of 5G phones will fall to under US$300 in 2020, which will stimulate a sharp increase in demand.
    • The Chinese and the Koreans are investing heavily in augmented and virtual reality and games for 5G. This will take time to mature.
  • Verizon has taken a radical approach to simplifying its core and transport network, partly in preparation for 5G but more generally to improve its cost of delivery. This simplification has allowed it to maintain and even cut some CAPEX investments while delivering performance improvements.
    • 5G mmWave in 28GHz works and often delivers a gigabit. The equipment is of modest size and cost. However, the apparent range of around 200 metres is disappointing (Verizon has not confirmed the range but there is evidence it is short). Verizon expects better range.
  • Sprint’s 160MHz of spectrum at 2.5GHz gives it remarkably wide coverage at 100 – 500 Mbps download speeds. Massive MIMO (multiple-input, multiple-output with 64 or more antennas) at 2.5 GHz works so well that Sprint is achieving great coverage without adding many small cells.
  • Etisalat (UAE) shows that any country that can afford it can deliver 5G today. Around the Gulf, Ooredoo (Kuwait, Qatar), Vodaphone (Qatar), du Telecom (UAE) and STC (Saudi Arabia) are speeding construction to avoid falling behind.
  • BT claims it will “move quickly” and turn on 100 cells per month (which is relatively few in comparison to Korea). BT’s website also claims that 5G has a latency speed of <1 ms, but the first measured latency is 31 ms. At Verizon, latency tests are often a little better than the announced 30 ms. Edge Networks, if deployed, can cut the latency by about half. A faster air interface, Ultra-Reliable Low-Latency Communication (URLLC), expected around 2023, could shave off another 5-7 ms. The business case for URLLC is unproven and it remains to be seen how widely it is deployed. In the rest of the section we look at these and other operators in a little more detail.

Live commercial 5G deployments globally, August 2019

Live 5G commercial deployments as of August 2019

This is the best available information on 5G deployments globally as of August 2019, gathered from both public and private sources. We have excluded operators that have announced 5G launches, but where services are not yet available for consumers to buy, such as AT&T in the US and Deutsche Telekom in Germany.

Table of contents

  • Executive Summary
  • Introduction
    • If carrier revenue doesn’t rise, the pressure to cut costs will grow
  • Operators
    • High-level takeaways
    • European operators
    • Asia Pacific and Middle Eastern operators
    • North America
  • Phone makers
  • 5G system vendors
    • Datang
    • Samsung
    • Ericsson
    • Huawei
    • Nokia
  • Chip makers
    • Qualcomm
    • Samsung
    • Intel
    • MediaTek
    • Huawei-HiSilicon
  • Conclusions: (Almost) all systems go

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5G: The first three years

The near future of 5G

Who, among telecoms operators, are 5G leaders? Verizon Wireless is certainly among the most enthusiastic proponents.

On October 1, 2018, Verizon turned on the world’s first major 5G network. It is spending US$20 billion to offer 30 million homes millimetre wave 5G, often at speeds around a gigabit. One of the first homes in Houston “clocked speeds of 1.3 gigabits per second at 2,000 feet.”  CEO Vestberg expects to cover the whole country by 2028, some with 3.5 GHz. 5G: The first three years cuts through the hype and confusion to provide the industry a clear picture of the likely future. A companion report, 5G smart strategies, explores how 5G helps carriers make more money and defeat the competition.

This report was written by Dave Burstein with substantial help from Andrew Collinson and Dean Bubley.

What is 5G?

In one sense, 5G is just a name for all the new technologies now being widely deployed. It’s just better mobile broadband. It will not change the world anytime soon.

There are two very different flavours of 5G:

  • Millimetre wave: offers about 3X the capacity of mid-band or the best 4G. Spectrum used is from 20 GHz to over 60 GHz. Verizon’s mmWave system is designed to deliver 1 gigabit downloads to most customers and 5 gigabits shared. 26 GHz in Europe & 28 GHz in the U.S. are by far the most common.
  • Low and mid-band: uses 4G hardware and “New Radio” software. It is 60-80% less capable on average than millimetre wave and very similar in performance to 4G TD-LTE. 3.3 GHz – 4.2 GHz is by far the most important band.

To begin, a few examples.

5G leaders are deploying millimetre wave

Verizon’s is arguably currently the most advanced 5G network in the world. Perhaps most surprisingly, the “smart build” is keeping costs so low capital spending is coming down. Verizon’s trials found millimetre wave performance much better than expected. In some cases, 5G capacity allowed reducing the number of cells.

Verizon will sell fixed wireless outside its incumbent territory. It has ~80 million customers out of district. Goldman Sachs estimates it will add 8 million fixed wireless by 2023 and more than pay for the buildout.

Verizon CEO Hans Vestberg says he believes mmWave capacity will allow very attractive offerings that will win customers away from the competition.

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What are the other 5G leaders doing?

Telefónica Deutschland has similar plans, hoping to blow open the German market with mmWave to a quarter of the country. Deutsche Telekom and Vodafone are sticking with the much slower mid-band 5G and could be clobbered.

Most 5G will be slower low and mid-band formerly called 4G

80% or more of 5G worldwide the next three years will not be high-speed mmWave. Industry group 3GPP decided early in 2018 to call anything running New Radio software “5G.” In practice, almost any currently shipping 4G radio can add on the software and be called “5G.” The software was initially said to raise capacity between 10% and 52%. That’s 60% to 80% slower than mmWave. However, improved 4G technology has probably cut the difference by more than half. That’s 60% to 80% slower than mmWave. It’s been called “faux 5G” and “5G minus,” but few make the distinction. T-Mobile USA promises 5G to the entire country by 2020 without a large investment. Neville Ray is blanketing the country with 4G in 20 MHz of the new 600 MHz band. That doesn’t require many more towers due to the long reach of low frequencies. T-Mobile will add NR software for a marketing push.

In an FCC presentation, Ray said standalone T-Mobile will have a very wide 5G coverage but at relatively low speeds. Over 85% of users will connect at less than 100 megabits. The median “5G” connection will be 40-70 megabits. Some users will only get 10-20 megabits, compared to a T-Mobile average today of over 30 megabits. Aggregating 600 MHz NR with other T-Mobile bands now running LTE would be much faster but has not been demonstrated.

While attesting to the benefits of the T-Mobile-Sprint deal, Neville claimed that using Sprint spectrum at 2500 MHz and 11,000 Sprint towers will make a far more robust offering by 2024. 10% of this would be mmWave.

In the final section of this report, I discuss 5G smart strategy: “5G” is a magic marketing term. It will probably sell well even if 4G speeds are similar. The improved sales can justify a higher budget.

T-Mobile Germany promises nationwide 5G by 2025. That will be 3.5 GHz mid-band, probably using 100 MHz of spectrum. Germany has just set aside 400 MHz of spectrum at 3.5 GHz. DT, using 100 MHz of 3.5 GHz, will deliver 100–400 megabit downloads to most.

100–400 megabits is faster than much of T-Mobile’s DSL. It soon will add fixed mobile in some rural areas. In addition, T-Mobile is selling a combined wireless and DSL router. The router uses the DSL line preferably but can also draw on the wireless when the user requires more speed.

China has virtually defined itself as a 5G leader by way of its government’s clear intent for the operators. China Mobile plans two million base stations running 2.5 GHz, which has much better reach than radio in the 3.5 GHz spectrum. In addition, the Chinese telcos have been told to build a remarkable edge network. Minister Miao Wei wants “90% of China within 25 ms of a server.” That’s extremely ambitious but the Chinese have delivered miracles before. 344 million Chinese have fibre to the home, most built in four years.

Telus, Canada’s second incumbent, in 2016 carefully studied the coming 5G choices. The decision was to focus capital spending on more fibre in the interim. 2016 was too early to make 5G plans, but a strong fibre network would be crucial. Verizon also invested heavily in fibre in 2016 and 2017, which now is speeding 5G to market. Like Verizon, Telus sees the fibre paying off in many ways. It is doing fibre to the home, wireless backhaul, and service to major corporations. CEO Darren Entwistle in November 2018 spoke at length about its future 5G, including the importance of its large fibre build, although he hasn’t announced anything yet.

There is a general principle that if it’s too early to invest in 5G, it’s a good idea to build as much fibre as you can in the interim.

Benefits of 5G technology

  • More broadband capacity and speed. Most of the improvement in capacity comes from accessing more bandwidth through carrier aggregation, and many antenna MIMO. Massive MIMO has shipped as part of 4G since 2016 and carrier aggregation goes back to 2013. All 5G phones work on 4G as well, connecting as 4G where there is no 5G signal.
  • Millimetre wave roughly triples capacity. Low and mid-band 5G runs on the same hardware as 4G. The only difference to 4G is NR software, which adds only modestly to capacity.
  • Drastically lower cost per bit. Verizon CEO Lowell McAdam said, “5G will deliver a megabit of service for about 1/10th of what 4G does.”
  • Reduced latency. 1 ms systems will mostly only be in the labs for several more years, but Verizon’s and other systems deliver speed from the receiver to the cell of about 10 milliseconds. For practical purposes, latency should be considered 15 ms to 50 ms and more, unless and until large “edge Servers” are installed. Only China is likely to do that in the first three years.

The following will have a modest effect, at most, in the next three years: Autonomous cars, remote surgery, AR/VR, drones, IoT, and just about all the great things promised beyond faster and cheaper broadband. Some are bogus, others not likely to develop in our period. 5G leaders will need to capitalise on near-term benefits.

Contents:

  • Executive Summary
  • Some basic timelines
  • What will 5G deliver?
  • What will 5G be used for?
  • Current plans reviewed in the report
  • Introduction
  • What is 5G?
  • The leaders are deploying millimetre wave
  • Key dates
  • What 5G and advanced 4G deliver
  • Six things to know
  • Six myths
  • 5G “Smart Build” brings cost down to little more than 4G
  • 5G, Edge, Cable and IoT
  • Edge networks in 5G
  • “Cable is going to be humongous” – at least in the U.S.
  • IoT and 5G
  • IoT and 5G: Does anyone need millions of connections?
  • Current plans of selected carriers (5G leaders)
  • Who’s who
  • Phone makers
  • The system vendors
  • Chip makers
  • Spectrum bands in the 5G era
  • Millimetre wave
  • A preview of 5G smart strategies
  • How can carriers use 5G to make more money?
  • The cold equations of growth

Figures:

  • Figure 1: 20 years of NTT DOCOMO capex
  • Figure 2: Verizon 5G network plans
  • Figure 3: Qualcomm’s baseband chip and radio frequency module
  • Figure 4: Intel 5G chip – Very limited 5G production capability until late 2019
  • Figure 5: Overview of 5G spectrum bands
  • Figure 6: 5G experience overview
  • Figure 7: Cisco VNI forecast of wireless traffic growth between 2021–2022

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5G: Why Verizon thinks differently – and what to do about it

Introduction

Verizon’s path

Verizon is deploying 5G as quickly as it practically can, already planning to have over 1,000 base stations by the end of 2018. CEO Lowell McAdam told investors he wants to quickly reach 30 million homes, while Goldman Sachs estimated Verizon planned to spend US$20 billion for this initial phase to 2021/22 – although there is no publicised schedule. Verizon’s investments include the acquisition of XO Communications for US$1.8 billion, which has fibre in 45 of the 50 largest cities, which Verizon sees as vital infrastructure for its 5G build.

The base stations will support mobile 5G as soon as the handsets are ready. Leading mobile chip vendor Qualcomm expects a limited number of mobile phone chips to be available by the end of 2018. Sufficient chips for phones in volume are expected by mid-year 2019.[1] Taiwan’s MediaTek, the number two 4G chipmaker, says it will “hit the 5G chip market with a bang in 2019”.[2]

Verizon is building a state-of-the-art network in 800MHz of spectrum at 28GHz using existing towers and new small cells, delivering a peak speed of 10 gigabits per second or lower. A consumer in a good location should get a true gigabit in both directions, with mobile network latency of between 5 ms and 20 ms.[3]

This will probably be the largest fast 5G network built before the next decade. The Chinese operators will mostly be using frequencies below 6GHz, which will be 65% to 85% slower.

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Verizon’s large fixed opportunity

In two-thirds of the US, Verizon sells wireless but is not the incumbent wireline carrier. With limited unbundling at present, it cannot offer a landline (or equivalent) service to over 70 million of its wireless customers. It therefore cannot offer quadruple play for higher revenue, lower churn and better margins.

Yet in half the US, there is only one choice for decent broadband: the cable company. Over half of US cable has been upgraded to gigabit download speeds, and over three-quarters of the country will be offered gigabit cable by the end of 2019.[4] Faster speeds contributed to the 2.7 million broadband subscriptions cable added in 2017.

Figure 1: Cable is dominating US broadband

Cable dominates US broadband

Source: Leichtman Research based on company filings

In many places, the telephone companies have not upgraded decade-old DSL lines and are not competitive with their cable counterparts.  In 2017, US telephone companies lost 625,000 broadband subscriptions.

McAdam expects to quickly win 10– 20% of the new market Verizon can address. Dean Bubley notes it is very difficult to persuade reasonably happy customers to switch, but cable service in the US is notoriously bad. Verizon’s long-term goal is 40– 50%, consistent with its results where it has FIOS fibre to the home. CFO Matt Ellis believes, “When you look at other cities outside of the ILEC footprint, offering consumer services using 5G is, we think, going to have a lot of upside for the company.”[5]

Contents:

  • Executive summary
  • The contentions of Verizon and other proponents
  • Doubts about proponents’ claims
  • Crucial questions to resolve
  • Introduction
  • Verizon’s path
  • Verizon’s large fixed opportunity
  • Verizon’s cost estimates
  • What carriers should consider based on Verizon’s choice
  • Two crucial questions for predicting when you will need mmWave
  • Will there be a large first-mover advantage?
  • AT&T is divided on 5G
  • Two carriers’ planning for uncertainty
  • Preparing for 5G: contingency scenarios
  • 5G: Vendor insight
  • Risks to this analysis
  • Technology appendix
  • Advances in 4G LTE and mid-band 5G also deliver enormous capacity

Figures:

  • Figure 1: Cable is dominating US broadband
  • Figure 2: NTT DOCOMO capex by generation and traffic demand
  • Figure 3: Verizon finds 5G requires fewer cells than 4G in some locations
  • Figure 4: Samsung test data comparing LTE 1.8GHz versus 5G GHz
  • Figure 5: Wireless traffic growth to 2021
  • Figure 6: Samsung indoor and outdoor mmWave CPE

[1] http://bit.ly/2JR2bVK

[2] http://bit.ly/2la0q8c

[3] End-to-end latency for a user will depend on how far their data request needs to go into the network and the Internet. If the signal has to go from one side of the US to the other it will take longer than a locally or edge hosted service.

[4]  https://www.fastnet.news/index.php/cable/641-gigabit-broadband-downstream-available-to-50m-u-s-homes

[5] https://www.verizon.com/about/investors/jp-morgan-global-technology-media-and-communications-conference-2018

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