Sadiq Malik, an expert in technical and financial solutions for the Indian telco industry host, explains it all below. With co-host Guy Redmill, Managing Director of Redmill Marketing Associates, an international strategic marketing consultancy based in the UK, he is a presenter at Hansecom’s 5G Briefing events. The next one will be online on 18 June, Thursday, before the in-person conference in Frankfurt, Germany, 4-5 November.
“Unlike all previous generations of mobile network technology, 5G is, as you know, explicitly designed to support multiple and differentiated services in parallel. The problem is that to deliver the desired performance, it will be very expensive, because it needs a massively increased footprint of cell sites,” Redmill, an expert on market implications of technology innovation, said. “This conference seeks to bring together different stakeholders to explore 5G and its implications. This was discussed at length in Paris [5G Briefing’s last meeting, EN]. We heard from trials from both operators and vendors.”
A key theme at 5G Briefing events has been spectrum allocation and the need to meet the needs of the telco industry. “That’s because 5G unlocks new wireless capabilities that can deliver significant benefits across a wide range of sectors – wireless automation and enhanced capacity and coverage, among other things. A key point for operators is to differentiate from 4G – if it doesn’t give something new to consumers, it’s not going to be particularly interesting. However, this is not where the financial value is. An ecosystem is required to ensure full market development.”
In Paris, what was particularly striking was the discussion regarding private networks using 5G for very specialized applications – one speaker suggested that there may be as many as 10,000 private networks within a couple of years. “The German regulator has created a means for companies to buy spectrum for clearly defined locations, and it is anticipated that many will make applications. 5G not only empowers new capabilities, it drives fragmentation of the ecosystem beyond the traditional operator / customer relationship.”
Other important points were discussed in Paris: public health concerns, which need to be addressed by stakeholders; the carbon consumption impact, considering that ICT averages already 8% of European carbon emissions; and privacy regulations, which must be extended given the potential to capture new forms of data.
The economic and socioeconomic advantages of 5G, however, will not be captured if spectrum eats up the operators’ investment capabilities. This aspect is one of Malik Sadiq’s pieces of cake as expert in creating business strategies to operate profitable digital telco networks.
Mr. Malik, help us understand: operators in 52 markets (over a third of the world’s markets) are said to be spending around $244 billion a year for new rollouts in 3G, 4G and 5G, network optimization and capabilities, and that’s beyond core infrastructure (GSMA data). This is big money, but part of it is going to spectrum, which we know to be, together with data, the new oil. Some countries made it available for free or for low prices. Italy paid a whopping €6.5 billion. Will this handicap deployment of 5G?
The cost of spectrum is always an item in the balance sheet of operators. An operator looks at the total cost of building a network, which includes infrastructure, like towers, masts, fiber, new radio units, and software, etc. In the balance sheet they also put the cost of spectrum. Bottom-line, if the spectrum is too expensive, they don’t make a profit quickly. In any case the higher cost of spectrum is passed to the consumer.
When operators do their pricing, they include the cost of spectrum. It’s like buying property for a hotel: you need to recover the price of property, so the room price will reflect the property price, like subscriptions will reflect the price of spectrum and the cost of networks. If the spectrum cost is too high, that price will go up. From a financial point of view, what is important is to understand how long it is going to be before 5G networks become profitable. My take is that operators will not be profitable with 5G before at least for 8-10 years, because it’s too complex.
Some countries had it easy: China and South Korea, whose carriers paid €2.27 billion, a third of Italy’s spectrum auction revenue. I happened to ask South Korean operator KT at the last MWC about issues with spectrum availability and regulation… causing him to laugh: “We are okay, we got the spectrum, that’s it, we are fine!”
There you are. Both governments have been helping operators by making spectrum not be one of their challenges. Only few countries seem to have been very enlightened on spectrum, South Korea, the Nordics, Switzerland, which optioned the spectrum at a very low price. This is really very important for the operators.
I apologize, but it’s consensus that spectrum is an asset of states, like water, hence governments cannot grant its use for free…
Yes, but there is a way to get that value back, to monetize a national asset like spectrum. This is what regulators are not understanding fully, even if their commitment is to ensure connectivity and an improvement of connectivity and of the economic conditions of the country.
On 5G spectrum, the idea is that granting it to the operators, they will have more resources to build the networks faster and can pay it back from their revenues over time. As operators get a revenue on 5G, on the spectrum the government loaned to them—it’s called ‘spectrum loaning’—they pay a 5-10% tax to the government. The government gets back the value of the spectrum it loaned over 10, 15, 20 years. That is a more reasonable way to guarantee your nation the economic benefits of 5G—like improving GDP and creating jobs, or providing connectivity to underserved and rural areas. So the value goes back to the people. That is what regulators are there for.
Spectrum should not be a source of financing. By granting it to the operators, this is my view, and getting it back slowly with a small tax, you will have a state asset that you get a rent on, while improving the GDP and creating jobs. More jobs imply higher tax revenues, so the government wins in any case.
In countries like Italy operators were already indebted, and that debt grew with the cost of spectrum…
Remember, this debt issue started with 3G. 3G spectrum was given at extremely unreasonable prices. In Germany the regulator raised about $15 billion, this was not good. With 4G it came to 6 billion. The same problem in Italy. Italian operators—and not just them—have been a running on debt most of the time. And because of the competition, other pressures and to save business, they have been forced to reduce prices. So that a) they have debt to pay, b) they are reducing prices so that their average revenue per unit decreases, and c) on top of that, the government asked them to pay more for the 5G spectrum. It is unreasonable.
Europe carriers are forecasted to spend 60-120 billion a year, but most are quite small and cross-border consolidation in Europe cannot happen. How do you see research coming ahead?
These countries are all members of the European Union, and the EU has the 3GPP EU Project, in which it invested $2 billion. These resources are being used for trials, testing and research. The EU is doing a lot from its own coffers, so that even small operators do not need to do their own research. They are getting funds from the 3GPP EU Project research group to conduct trials. Even small companies, I am told, like software developers, are going to this fund with their applications, like an artificial intelligence application, for funding.
What will be the impact of the uneven deployment of 5G in the different regions of the world? It’s said to be a ‘race,’ but can this be good?
I’ll give you first the positive: for young people in countries like Italy, France, Germany, etc., 5G offers a brand-new opportunity for a fresh breed of software entrepreneurs. Nobody knows fully yet which applications and content will run on 5G networks. Operators know how to set up the pipe but they don’t know much about the applications that it will be running. This simply means that with coding being now easy, developers, students and other young entrepreneurs will be able to go on the Microsoft Azure Cloud, download their kit, and create applications for 5G networks. Application development is now almost like putting pictures together for a PowerPoint. That’s the positive side, the job creation opportunity: a lot of new jobs can be created for young people.
The negative side of 5G is what I call the speed divide. What we used to call the digital divide is now a speed divide, a broadband divide between the developing world and the advanced countries. It means that even within a country, if some are downloading in a city center at 300 MB/s and some friends of them in a rural area are downloading at 5 MB/s, you are creating two kinds of humans. This because the human brain mimics what it uses. If you got a computer server that works like lighting with absolute total responsiveness—that’s the case of 5G—your brain adapts and thinks faster. By using a more sophisticated tool you become a more sophisticated human. In other words, in about 10-15 years, between a child who grew up with 5G and one who grew up with 3G, the former will have an advantage, a faster brain. That’s the danger, because in one continent you could have people who become poorer and get less opportunities than the other group in other continent who had their brain adapt to processing information at extremely high speeds. That’s the danger.
Alan Hadden Mobilecomms Consultant Hadden Telecoms, Christian Regnier Enterprise Technical Architect – Critical Wireless (LTE / 5G / IOT) and Secretary AGURRE – Air France KLM, Grzegorz Ombach, PhD Independent Consultant Ex-Global Vice President and GM, Guy Redmill Managing Director Redmill Marketing Associates, Hamid-Reza Nazeman Country Manager for Germany and Central Europe Qualcomm, Hassan Claussen Managing Director HanseCom Media, Johannes Springer Program Lead 5G Automotive Program Group Technology & Innovation Deutsche Telekom AG / T-Systems International GmbH, Josef Stoll Associated Partner MHP – A Porsche Company, Kaneshwaran Govindasamy CMO Edotco Group, Markus Seipel PMO Group Innovation Deutsche Telekom, Sylvain Aubin Infrastructure Network Design Director Siradel.