Building on solid foundations
After a hiatus as we kicked off the new year, we are back with the latest edition of the 5G-aliser. We first launched our tracker of the 20 key factors that could make or break 5G growth nearly a year ago, in March 2020. So how has the outlook for 5G evolved over the last year, and what are the key factors to look out for throughout 2021?
Source: STL Partners, Total Telecom
The top layer of the 5G-aliser shows the high level change in supply and demand between March 2020, in grey, and March 2021, in dark blue. Supply only increased from 13% to 16%, as roll-out plans suffered throughout 2020 from delayed spectrum auctions, shifting priorities to meet remote working needs, and wildcard factors such as 5G conspiracy theories and geopolitical tensions between China and the US. 5G demand, however, has jumped more significantly from 5% to 13% over the same period, thanks in large part to growing availability of devices – in particular the iPhone 12 which has catalysed demand among high-end consumers. More on that later.
Looking at the big picture, 2020 was perhaps a slower year than anticipated for 5G growth, but taking some time to get the foundations in place is not a bad thing, and all signs are pointing to a big 5G rebound. The results from a recent STL Partners survey on telcos’ investment priorities for 2021, a re-run of a post-COVID survey from June 2020, show that 5G has had the biggest increase in priority over the last six months.
Source: STL Partners Telco Priorities survey, January 2021, 144 respondents
To hear more on the full results of the survey join STL’s upcoming webinar series on the State of the Industry (sign up to all three webinars on March 9-11 below, or sign up to each session individually here).
Which levers will dominate in 2021?
Private networks will shift from push to pull: Private network deployments are expected to remain a strong source of 5G growth as winners of CBRS and other local spectrum auctions start rolling out new networks. The breadth and depth of ecosystem will grow, as more players come to market, and more proof points, use cases and business models emerge. In 2021, the market will extend from early adopters in ports and manufacturing to a wider range of businesses. Ultimately, this increased awareness and understanding of the potential value of the private networks means the market will rely less on push from regulators (in the UK, US and Germany), shifting to a pull from enterprises seeking to transform operations.
Open RAN a slow and steady burn: While Open RAN will continue to be an important area of exploration, in 2021 it will still just be creeping in at the edges of mobile networks in rural areas. Because it hasn’t been proven at scale, the most exciting area for Open RAN will be in private networks, especially as they begin to gather interest from more enterprises. The big variable here is greenfield operators – if they can demonstrate that Open RAN and cloud-native network functions can deliver carrier-grade performance and enhanced agility, as well as cost savings, that will be the tipping point for wider adoption. Achieving this will require further progress on interoperability, as well as supportive policies from government.
More spectrum opening up: The US had a record breaking spectrum auction, raking in a total of $81bn and signalling that operators are willing to pay almost any price to secure their 5G future. After many countries deferred spectrum auctions, these are finally getting underway, with France, Sweden and Australia completing auctions in late 2020 / early 2021, and Croatia, Bulgaria, UK, India and Brazil imminent. If auctions are as competitive in other countries as in the US, operators around the world will be under huge pressure to recoup their investments. This will catalyse innovation and investment around 5G-enabled services, and could also accelerate the disaggregation of the telecoms value chain as operators seek to lower debts by selling off towers and other infrastructure.
5G infrastructure costs and skills: A potentially underappreciated development in 5G infrastructure developments is equipment vendors’ efforts to reduce the size of 5G network equipment. Ericsson has nearly halved the weight of its midband 5G radio from 36kg to 20kg, delivering improved energy consumption and making it significantly easier on a practical level to install the equipment. At the same time, other vendors are re-hyping mmWave, with new repeaters helping to make the high band 5G tech more viable indoors and in built-up areas. The hot new player in the market here is Verizon partner Pivotal Commware. This is good progress, but unlikely to scale in 2021.
A richer 5G smartphone market – at the high-end and the low-end: Apple had its best ever quarter in the three months to December 2020 with iPhone sales of $65.6bn, driven partially by very strong sales in China. While it’s not clear what proportion of sales are attributed to the iPhone 12, the record sales clearly points to pent-up demand for high-end 5G devices. For many consumers, 5G is now “real”. There is also a growing range of more affordable 5G smartphones between $200-$300 on the market, and Jio has announced plans to launch a $70 5G smartphone which will no doubt be key to driving fast adoption once Indian spectrum auctions are completed.
While more spectrum access and a wider range of 5G devices will be key drivers of 5G supply and demand growth in the consumer market, this is unlikely to translate into higher revenues for operators. Many telcos are struggling to offer truly innovative consumer services and it’s not easy to move up the value chain.
So what should telcos do?
In many cases, 5G is only part of a much broader toolbox to address customers’ needs for improved productivity and efficiency. Based on STL Partners’ survey results, the industry gets that – operators top rated priorities are not network technologies, but transformation and new services. The challenge will be to sustain momentum for transformation and innovation once we start to return to some kind of post-COVID normalcy.
Source: STL Partners Telco Priorities survey, January 2021, 144 respondents.
The limits of 5G
The final point to mention is that 5G has its limits. If we think about the trajectory of new technologies going from research, to full on R&D, then to realisation as companies begin deploying, testing and learning the real-world limitations, and finally maturity, 5G is in the realisation phase. As 5G makes it out into the real world, its shortcomings are becoming more obvious – such as high power consumption, limited baked in security, and not particularly wholesale or sharing-friendly. These are all driving the conversation around 6G design goals, which are beginning to gather steam. Stay tuned for this new factor top appear on next quarter’s 5G-aliser.
See our in-depth research on telcos’ investment priorities: