5G is redefining telecoms fast. Are you up to speed?

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EY Global Telecommunications Leader

Fascinated by the positive impact of telecoms. Passionate musician. Enjoys educating himself on psychology, wine, sports, technology, arts and much more. Husband and father of three daughters.

Adrian Baschnonga

EY Global Telecommunications Lead Analyst

Lead Analyst with deep sector knowledge in technology, media and telecom, gained in professional services and business intelligence environments.

15 minute read 3 Jul 2019

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Operators find themselves at the heart of the digital economy as 5G drives transformation and productivity growth across industries.

In this new era of intelligent connectivity, 5G will play a critical role, offering the chance to recast customer value propositions, accelerate industrial transformation and reinvigorate the digital society. In Europe, mobile technologies and services accounted for 3.3% of regional GDP in 2017, and this contribution is expected to surpass 4% by 2022.¹

However, a positive outlook for the European mobile industry is by no means certain. Fragmented market structures, uncertain demand scenarios and ongoing regulatory complexities present substantial obstacles. Meanwhile, internet of things (IoT) services currently account for a low single-digit proportion of telco revenues.

More robust digital transformation roadmaps, improved dialogue with stakeholders and more meaningful customer interactions will all have a vital role to play.

5G: The European opportunity

Mobile at the heart of a digital continent

The European telco industry stands on the edge of an exciting change. The region boasts the world’s highest rate of mobile penetration and this is set to increase further, from 85% of the population in 2017 to 88% by 2025.²

European governments and policy makers recognize 5G’s ability to create positive externalities, which can help drive productivity growth across traditional industries. This is recognized in regional 5G targets. For instance, the European Union (EU), in its 5G action plan calls for major roads and railways to have uninterrupted 5G coverage by 2025.³

At a national level, 5G trials are well underway in a number of countries, many with a focus on leveraging its potential to create new economic centers. Policymakers also recognize the need for greater levels of regulatory certainty.

The EU’s 5G Action Plan, for example, emphasizes the importance of coordinated spectrum release, testing and trials alongside a pro-investment regulatory environment at large.

5G for operators: the reassertion of control

5G’s credentials as a transformational technology are strong. Beyond improved data rates, ultra-low latency will bring new levels of network responsiveness. 5G can support a hundredfold increase in connected devices per unit area, redefining what’s possible in IoT, while network slicing enables highly differentiated services at specific locations.

Other emerging technologies are set to complement 5G. Mobile edge computing can unlock more efficient data transfer and perimeter security, helping operators to relieve network congestion, and realize low latency. Network function virtualization (NFV) will support more dynamic management of network resources, aiding operating expense (OPEX) and capital expense (CAPEX) reductions in the process.

In this light, 5G paves the way for new paradigms of network operation and service creation. By leveraging analytics, artificial intelligence (AI) and machine learning in conjunction with 5G, operators can offer a range of location- and context-aware services across millions of end-points, backed by a significant change in network control, service quality and personalization.

As a result, operators can play a more assertive role in the industry value chain. No longer relegated to the role of dumb pipe provider, operators’ much more intimate relationship with their networks will help them pave the way for new forms of customer experience and service monetization.

A chance to reignite the sector growth story

Despite mobile’s role as a productivity driver, operators’ financial performance in Europe has underwhelmed in recent years. Regulatory burdens remain pronounced, competitive intensity is increasing and new growth stories in IoT have, thus far, been slow to emerge.

Looking ahead, market conditions are set to remain challenging, intensified by macroeconomic pressures as Eurozone GDP growth slows, from 2.6% in 2017 to 1.9% in 2018 and 1.8% in 2019.⁴

Other regions are already ahead of Europe in terms of 5G commercialization, reflecting the earlier development of 5G strategies predicated on technology leadership. Industry forecasts suggest that 5G adoption rates in Europe will lag other developed regions over the next five years.

Five key objectives for operators

1. Place 5G at the heart of your transformation agenda

While much is made of the global race to 5G launches, the rollout of new network capability is not an end in itself. 5G upgrades are not a ‘big bang’ moment; they will deliver new capabilities on an incremental basis. While 5G’s scope to transform service propositions is clear enough, its ability to transform the operator business from within is just as important.

Prepare for a new network paradigm, but don’t forget 4G

New 5G capabilities such as network slicing, in tandem with small cell-led network densification, will alter traditional notions of coverage expansion, service innovation and customer experience. Nevertheless, 5G radio access network (RAN) spend is only likely to overtake 4G RAN spend in the early 2020s, with phased 5G upgrades allowing telcos to absorb capital expense requirements.

Enhanced 4G infrastructure for wide area coverage will still be critical in the medium term, while ongoing deployments of low-power wide-area networks will fuel IoT service propositions before 5G-based IoT capabilities take center stage. The decommissioning of legacy standards will also figure prominently in network strategies over the next decade.

Align 5G migration with related digitization activities

5G represents a route to more efficient and agile service provision beyond gains in low latency and capacity per se. Complementary investment in NFV and software-defined networks (SDN) can bring long-term CAPEX and OPEX savings, while aiding greater network automation, and operators should consider how best to harness this as part of their migration to 5G.

A holistic perspective is paramount, since the shift towards virtualized platforms is expected to take place gradually and at varying rates across the mobile network estate.

The role AI and analytics can play at the network level will also gain further prominence as 5G takes hold. This requires a holistic approach to emerging technology deployments that prize their mutually reinforcing benefits.

Embrace a new era of organizational design and effectiveness

5G’s impact on the operating model also merits attention. The increasingly blurred relationship between hardware and software is prompting more demand for software skills alongside a closer alignment of network and IT departments.

The move to 5G has profound implications for workforce design. Deeper collaboration between network operations, IT and data center staff will enable better visibility of applications, services and networks across the business, while closer alignment of network and product development teams will help telcos fashion new 5G use cases.

Reskilling is also essential as operators migrate to 5G. Sales teams must interact with enterprise customers in new ways, focusing on the business outcomes enabled by 5G-based IoT. This is vital if telcos are to move beyond their legacy role as connectivity-only providers.

Ultimately, 5G network investment is about much more than differentiation through network quality. It will play a pivotal role in long-term transformation of the telecoms business. Service providers that recognize 5G’s potential to revitalize their organization will be best-placed to maximize their ROI over the next decade.

Ultimately, 5G network investment is about much more than differentiation through network quality.

2. Engage with policy makers and regulators early and often

Policy makers and regulators will have a crucial say in building a healthy investment environment for 5G. This is no easy task: the telecoms sector has historically been heavily regulated, while mobile technology is now coming into sharper focus as part of national industrial strategies.

A new landscape of mobile industry oversight is coming

5G is spurring a closer relationship between the mobile industry and governments who are keen to leverage the productivity benefits of new digital infrastructure. State funding for 5G test beds and support for 5G-centric public-private partnerships reflect this growing intimacy between the public sector and the mobile industry.

Yet, the supply-side landscape is not without its complexities. Spectrum release is an increasingly onerous exercise. The phased release of multiple bands to support various use cases will take many years. Disputes over spectrum auction design my stretch spectrum release timeframes still further.

Accepted notions of spectrum caps may give way to new concepts of spectrum pooling as network sharing regulations evolve in new ways.

Fixed and mobile infrastructures will become more interdependent

Policy makers recognize the convergence opportunities between fiber and 5G in terms of greater choice of connectivity options for consumers and fiber’s critical role in mobile backhaul. Looking ahead, this could pave the way for unified market reviews designed to stimulate complementary investments in both fixed and mobile infrastructure.

Yet, achieving more holistic regulatory frameworks is by no means straightforward. Both telcos and regulators will be keen that regulatory stability and clarity do not suffer as digital infrastructure policies become more holistic. More granular challenges, such as ensuring that dark fibre regulation supports 5G backhaul, also deserve focus.

Engage with a wider range of stakeholders

The range of public sector actors with an interest, and role, in 5G deployments will widen. Local governments will have a greater say in network planning and site access, while regulators across different industries are already engaging with each other in order to maximize the industrial transformation heralded by 5G.

Meanwhile, 5G’s impact on wireless radiation is attracting growing attention. This, in turn, poses new challenges to national and regional regulators to mitigate health and environmental concerns. Universities are playing an increasingly important role in trials of new 5G use cases across a range of industries.

With all this potential change, operators must take their destiny into their own hands. Engaging early and often with a wider range of public sector stakeholders can only aid the development of more workable policies and regulatory stipulations. As such, proactive communications and ongoing dialogue are essential.

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3. Adopt new positions in a fluid and fast-changing value chain

New business models and value chains are key to the 5G opportunity. As operators consider new industrial use cases for mobile, there is much more scope to go beyond the role of a mere connectivity provider.

Yet, the potential for disruption is also real. For instance, various industry actors such as technology specialists and industry vertical leaders, may look to act as 5G mobile virtual network operators (MVNOs), taking advantage of new capabilities in network slicing. The advent of private 5G networks could even see operators fully disintermediated from the connectivity layer.

Take advantage of new retail and wholesale opportunities

Various go-to-market strategies are available to telcos. Incumbents will sensitize their existing retail and wholesale businesses to 5G, with fiber alternative network providers or tower operators looking to broaden their addressable markets. Mobile-centric operators and cable companies will focus on enhancing their consumer retail propositions. New 5G offerings such as fixed wireless access, can be co-opted in various ways, as an extension of broadband capabilities in remote regions or as a tool to disrupt the fixed broadband market in urban areas. Critically, 5G can recast IoT offerings in multiple ways.

Adapt to changing market structures

Efforts to reduce network duplication will evolve further. 5G could signal a more localized approach to “neutral host” networks in order to support smart city services. Meanwhile, the rise of nationwide 5G wholesale networks cannot be discounted. 5G also provides scope for more nuanced infrastructure sharing arrangements depending on the network layer or geographic area.

With all this potential for change, telcos should take care to revisit legacy mobile network sharing arrangements to ensure that they are fit for purpose.

Pre-empt new disruptive scenarios

5G capabilities also drive new disruption risks. Network slicing, for example, allows service providers to provide localized network capability supported by differentiated service level agreements. New business models to support localized networks could prove fundamentally disruptive, especially if private 5G networks provide an alternative to operator-controlled network slicing.

Technology vendors and industry vertical leaders may potentially seek more control of 5G connectivity, undermining operators’ growth ambitions in the process.

Mitigating the disruptive potential of 5G market structures will be essential. Operators should consider how best they can protect and extend their value chain positions – vertical industry needs, the scope for horizontal partnerships and regulatory frameworks will all inform the decisions they make.

The prospect of rising capital expenditure will demand extra consideration of asset-light strategies, where infrastructure sharing and co-investment take on a new prominence as routes to greater CAPEX efficiency.

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4. Take a selective and phased approach to monetizing new use cases

5G’s ability to enable new use cases is not in question. Beyond the consumer connectivity market, 5G can catalyze various industry-specific use cases, from autonomous transport to smart buildings and remote surgery. Yet circumspection is important: while the field of innovation is wide, operators should take a phased and selective approach to service innovation and revenue diversification.

Sophisticated 5G use cases will take time to mature

Game-changing 5G use cases will not appear overnight. Fully autonomous vehicles will not become commercially available for many years; remote surgery delivered using robots is also in a very nascent phase. A number of factors, from data protection regulation to the burden of legacy IT within specific industries, will mean that the road map to game-changing innovation is necessarily incremental.

Enhanced mobile broadband offers initial upside

Operators should bring realistic expectations to bear on their timelines for proposition development. Enhanced mobile broadband will act as the first large-scale 5G use case - with improved capacity in densely-populated areas, and fixed-wireless access in suburban and rural areas coming to the fore – ahead of innovations in augmented reality content. While 5G-based IoT unlocks limitless potential for industrial transformation, direct-to-consumer services will still be vital in the near-term.

Build a balanced view of 5G-enabled IoT

As operators leverage 5G in the IoT, careful value chain positioning is essential. Devices, platforms and applications account for the majority of IoT revenues, well ahead of straightforward connectivity. Yet, the efforts of telcos to move beyond a basic bandwidth play should be cautious.

The demand for higher-value connectivity via network slicing, ecosystem complexity and willingness to partner will vary from industry to industry.

By focusing on use case clusters, operators may be able to unveil hidden adjacencies that cut across different industry domains. The ability to exploit these can strengthen the business case for both network investment and service customization, ultimately enabling them to scale their propositions more rapidly.

While considering 5G’s role as a catalyst for their IoT strategies, operators should not overlook its role in serving existing use cases. The successful introduction of 5G – with a focus on consumer connectivity and content – will hinge on effective refinements to existing 4G-based value propositions.

5. Reboot your relationships with enterprises and industry verticals

Previous mobile upgrade cycles have been consumer-driven. The arrival of 4G coincided with the advent of touchscreen smartphones. However, 5G’s promise is predicated on its ability to transform entire industries. For this to happen, telcos should overhaul their enterprise relationships.

Customized solutions for industry verticals provided in conjunction with partners will come to the fore, and sales teams must focus on more consultative dialogue if they are to unlock new forms of enterprise demand.

Demystify 5G use cases and benefits for businesses

5G is much more than a new wave of mobile infrastructure that enables faster connectivity delivered to more endpoints – it is fundamentally transformational and disruptive. Cloud computing and storage are now entering the very fabric of business processes, and 5G can build on this, helping organizations unlock new horizons in digital transformation.

Explaining the true business value of 5G, and the role that telcos and their partners can play will allow enterprises to invest with confidence and ensure that 5G becomes a core part of overarching business strategy in years to come.

Understand your customer – and your customer’s customer

Operator-led dialogues that focus on the legacy attributes of corporate mobility, such as total cost of ownership or workforce productivity, are likely to understate the potential of 5G – and limit its potential to deliver top- and bottom-line benefits. Providers that can develop more granular 5G propositions sensitized to vertical needs will be best placed to win the hearts and minds of their corporate customers in the future.

Come closer to the enterprise transformation agenda

Organizations investing in 5G are looking for better business outcomes for the next decade and beyond. This requires telcos to move beyond their historic role as mere connectivity suppliers. Engaging in consultative dialogue that positions 5G within the broader context of enterprise transformation is vital.

Telcos should articulate 5G’s relationship to other emerging technologies while alleviating concerns regarding cybersecurity and integration with existing technologies.

With 5G, operators can take on new roles as both technology distributors and information-centric service providers. Yet, this can only happen if they engage more productively with their enterprise customers. The technology push of the past should give way to the business outcome of the future.

Show references#Hide references
“5G to power economic growth in Europe, finds GSMA study”, GSMA, 18 September 2018, ©2019 GSM Association

“5G to power economic growth in Europe, finds GSMA study”, GSMA, 18 September 2018, ©2019 GSM Association

“5G For Europe: An Action Plan”, European Commission, 14 September 2016

“OECD sees global growth slowing, as Europe weakens and risks persist”, OECD, 6 March 2019, ©2019 OECD.

CapitalIQ; EY research “The Mobile Economy 2019” GSMA, February 2019, ©2019 GSM Association.

Telecoms capex: worldwide trends and forecasts 2017–2025, Analysys Mason, March 2019. Machina Research; EY analysis

“Energizing the enterprise journey to 5G and IoT”, EY UK LLP, February 2019 ©2019 EYGM Limited.

Machina Research; EY analysis

“Energizing the enterprise journey to 5G and IoT”, EY UK LLP, February 2019 ©2019 EYGM Limited.

Summary

5G will play a critical role in the digital economy for decades to come. This new era of intelligent connectivity offers the chance to recast customer value propositions, accelerate industrial transformation, and reinvigorate the digital society. However, a positive outlook for the European mobile industry is by no means certain.

Vision should translate into action, and new competencies must come to the fore, if telcos are to maximize their return on investment (ROI). (Download the PDF.)

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