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China is poised to win the 5G race

Key steps extending global leadership

China is on the right track to become the winner of 5G

China has strong determination to become a global innovation leader

EY - China is poised to win the 5G race - Key steps extending global leadership

The remarkable growth of China’s technology and innovation in the international stage has demonstrated the country’s determination to become a global leader in the digital space. Mobile technology, as an innovation enabler, has become a focused area China hopes to command, particularly after its diversion from the global norms in the 3G and 4G era. Committing early in the standardization process will give China an edge to influence internationally and generate notable economic impact domestically.

5G has been put on high priority on the national agenda. The government has drawn up supporting policies under its national strategy including Made in China 2025 and the Five-Year Plan. Its 5G technology development is amongst the world’s largest 5G effort planned by a government.

Timetable for China’s 5G development

EY - China is poised to win the 5G race - Key steps extending global leadership

China is one of the pioneers in 5G R&D, which sees the world’s first 5G test being guided and planned by the Government. It has already started the third phase of 5G technology R&D tests, ahead of schedule, where domestic and international companies have joined the field trials, aiming to get pre-commercial 5G products ready. China is aiming to launch commercial 5G service in 2019, bringing one year ahead its original schedule. It will put her among one of the first markets to launch 5G services, along with the US, Korea, Australia, and the UK.

ITU and the 3GPP just completed the standardization of the initial standalone mode for 5GNR in June 2018. This represents the first step toward the road to 5G. While the initial focus was to provide enhanced mobile broadband (eMBB) and introductory ultra-reliable low latency (URLLC) support, more use cases are expected to arise and to be addressed in the future Releases which is expected to be ready by end 2019.

5G connections and capital expenditure forecast in China

EY - China is poised to win the 5G race - Key steps extending global leadership

All Chinese operators have announced plans to invest in 5G network deployment from 2019 onwards, and are building out 5G innovation centers and conducting external field tests in major cities with equipment suppliers in preparation for 5G. EY expects China’s 5G capex will amount to RMB1.5 trillion (US$223 billion) between 2019 and 2025.

Nevertheless, demand will build up progressively in the domestic market as it will be limited by the near-term supply of devices, equipment and compelling applications. Operators also will take a gradual approach in network deployment, thus implying a slower 5G take-up path than 4G. Adoption will take off as economies of scale builds up in the market. We expect 5G connections in China will reach 576 million by 2025, representing over 40% of that globally.

The lessons of 3G and 4G

The pitfalls of 3G and 4G

EY - China is poised to win the 5G race - Key steps extending global leadership

Transitioning from 4G to 5G is a technology shift, similar to the evolution from the voice-dominated 2G to data-driven 3G. In their preparation for 5G launch, operators should not forget about the learnings from 3G and 4G, and avoid repeat the same mistakes as below:

  • The lack of compelling 3G-enabled devices largely inhibited the user experience.
  • 3G failed to deliver multimedia services such as video streaming as it had promised to.
  • The poor and limited coverage in many cities, especially during the early launch stage, added to the poor user experience.
  • Overpriced 3G data tariffs kept subscribers away.
  • The early launch of 3G and 4G was complicated by the non-uniformity of spectrum.

Spurring the innovation of new 5G use cases

5G use case scenarios

EY - China is poised to win the 5G race - Key steps extending global leadership

5G opens up new possibilities for a multitude of life-transforming applications – from 3D video to immersive media, autonomous vehicles and the enablement of smart cities, thanks to the ultra-high data rates, enhanced capacity and reduced latency. Significantly, the Chinese government is supportive to the VR industry development on high level, with VR being identified as one of the potential emerging technologies and new strategic growth points in China’s 13th FYP. 5G will also play a big role in the autonomous car revolution, along with AI, IoT and other driverless technologies. China has sought to position itself to spearhead the future of autonomous driving as seen from its high level of interest and investment.

5G is the key to unlock other technologies such as artificial intelligence (AI), robotics and the Internet of Things (IoT), therefore providing tremendous potential in China that could not be underestimated. The Chinese government has incorporated the IoT in its 13th Five-Year Plan. On the massive IoT opportunities, 5G will see growing importance in the IoT field in the years to come, as there will be more data-intensive and complex IoT deployments where ubiquitous fast mobile connectivity becomes apparent. However, only when 5G coverage reaches scale will the IoT use case make sense in the market.

Spectrum plays a critical role to 5G’s success

Spectrum expands width from 1G to 5G

EY - China is poised to win the 5G race - Key steps extending global leadership

Spectrum is always a determining factor for the success of mobile services. This is even more so for 5G due to the requirements of large bandwidth to meet its data rate promise. More than 4G and previous generations, 5G will be deployed on a much wider spectrum bands, extending from 3GHz to the C-band and even the higher millimeter wave (above 30GHz).

Selecting an appropriate spectrum is instrumental to the success of 5G operation. While the frequency will have impact on coverage, data rate and density of radio cells on a local context, operators must also consider the capability to roam 5G service across borders. From a regulatory perspective, a transparent spectrum policy and framework will help operators develop a plan. Chinese Government commitment of spectrum gives it a clear advantage to lead rollout.

Key steps to capitalize on the 5G opportunity

A changing architecture for 5G network

EY - China is poised to win the 5G race - Key steps extending global leadership

The promise of 5G will give telecom operators a competitive edge over the growing challenges from over- the- top (OTT) players. To capitalize on the new technology, they need to take essential steps from both business and technical perspectives. The ability to offer customized connectivity to support differentiated services over the more agile and flexible virtualized network, buoyed by network slicing and mobile edge computing, will be transformational. However, that requires the support of substantial fiberre, sophisticated cloud and analytics capabilities, and transformed support systems.

A rethink of the business model innovation is required for all TMT companies

EY - China is poised to win the 5G race - Key steps extending global leadership

After all, 5G is a convergence play, and poised to change the industry landscape. Monetizing 5G requires new business model innovation and cross-sector partnership in the more machine-centric environment. Imitating an OTT model has proven to be unsustainable as operators have different DNA against technology companies. They should instead leverage their strengths to engage in deep service innovation. To a further extent, the need for acquiring non-core assets, technologies or capabilities to offer new and differentiated services such as the IoT will become an important driving force to industry consolidation.

Contact us

EY - Steve Lo

Steve Lo

Managing Partner, Technology, Media & Telecommunications, Greater China
+86 10 5815 2837
EY - Kevin Lee

Kevin Lee

Telecommunications Senior Analyst
+852 2846 9888