Global telecom leaders expect 5G rollout to take until 2022

13 March 2019 Consulting.us

Telco CTOs expect 5G rollout to take until 2022, and believe that the new cutting edge cell networks will increase their capital-expense-to-sales ratio, according to a new report from McKinsey & Company.

New 5G networks promise to deliver much higher data rates than previous generations, reaching up to a blistering 10Gbits/s – which is roughly 100 times faster than 4G LTE – while also providing network latency (faster response time) up to 70 times better than its predecessor. Some analysts believe this can make 5G an option for home and office internet provision, while unlocking applications in virtual and augmented reality, as well as the Internet of Things. Meanwhile, the rollout of 5G technology is projected to drive strong economic benefits, including the creation of 3 million jobs.

With all the hype around new 5G networks, it can be important to survey the opinions of the central parties – in this case, telecom companies – to get a clearer picture of the present and future market. Strategy firm McKinsey did just that in a recent report, querying 46 chief technology officer across the globe who are directly engaged in 5G development.

Top reasons for 5G rollout

Though the facilitation of IoT is common talking point on 5G rollout, McKinsey’s survey found that the main reason for advancing this latest technology is to cement, gain, or regain network leadership. 48% of CTOs picked network leadership as their top reason for 5G rollout, while 13% chose customer experience, capacity expansion, IoT, and fixed wireless access as their number one choices. As such, most operators don’t see IoT as a core objective of 5G, suggesting that existing IoT capabilities are sufficient for most uses so far.

And though some have touted 5G as a replacement for fixed wireless, only 22% of telco CTOs surveyed tagged it as a top one or top two reason for advancing the technology.

Right now, the unsteady business case is a key factor slowing down 5G rollout. According to McKinsey, the situation right now is similar to that of 3G in the early 2000s, where adoption was initially slow. However, when BlackBerrys and iPhones launched a few years afterwards, the full network capability was able to be used.

The 5G business case challenge

Telcos are still waiting for the equivalent of that smartphone revolution to make 5G super viable. Currently, about two-thirds of respondents said they have questions about the financing of 5G, while a full 60% said they struggle with the business case.

When splitting up the responses to regions, it can be seen that North American respondents are least worried about the business case, reflecting a “push” to launch now and a stronger market structure. Regionally, North America is in the lead – with two top operators having already launched 5G commercially – while Asia is keeping pace. For the US and China, the key battleground of AI is compelling large operators to make advanced bets.

Europe, however, has a lot of doubts about 5G, as reflected by 100% of its respondents identifying the business case as a challenge. According to McKinsey, Europe’s slow start has been driven by slower economic growth than the US and China since 2008, as well as the presence of smaller and more fragmented markets. Low fixed wireless access prices are also lowering opportunities for expansion in Europe.

One major factor making the business case more difficult is the belief that 5G will bring higher costs to operators. Indeed, more than two-thirds of respondents said that the capital-expense-to-sales ratio would go up. With densification and spectrum-related costs projected to be significant, only 11% believe 5G will reduce industry capital expense.

Large-scale deployment of 5G timeline

McKinsey’s report also coaxed out a clearer 5G timeline from telco CTOs. About 61% of operators said they project peak rollout between 2020 and 2022; and while just 30% overall plan to roll out 5G on a large scale in 2020, about half are engaged in or have completed 5G pilots.

North American operators are the most bullish, with 56% expecting a large-scale 5G deployment before 2020, trailed by 40% of operators in Asia. Europe was unsurprisingly more cautious, with only 11% expecting a large-scale deployment before 2020.

The report also revealed that nearly all surveyed respondents expect increased network sharing in the 5G era. As 5G is projected to increase operator costs, network sharing can be an attractive option to save money, especially in regions with high rollout costs or little opportunity for differentiation.

Overall, 5G needs more real and lucrative use cases to spur on faster adoption. Given the high cost of adoption, as well as the belief among some that 5G is not as revolutionary as 4G, operators are treading more cautiously. “But this does not mean that telcos are willing to buy into the most pessimistic view that 5G will be a major, costly bust,” the McKinsey report explains. “Instead, the industry will keep patiently waiting for the innovators that leverage all 5G can bring into exciting applications for both consumers and businesses.”

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