Rolling Out 5G – Part 2: Financial Challenges

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In our first article, we examined some of the practical challenges around rolling out 5G, outlining why the 5G roll-out is perhaps not progressing as quickly as it could. Yet the challenges around 5G are not just practical.

There are difficulties around financing 5G investments, deciding where to invest first, and indeed in making the case to consumers who are in the broad well served by a good 4G network. In this second part, we look at the financial challenges behind the 5G roll-out.

Convincing consumers of 5G benefits

Where 4G networks perform towards the top end of the 4G specification the reality is that consumers likely receive enough bandwidth for typical consumer use cases such as browsing, and live streaming. Future use cases including augmented reality may emerge, but for now, performance only really suffers when multiple devices share a single mobile broadband connection or where 4G networks are saturated.

MNOs will need to work carefully to sell 5G to consumers – at least one survey has highlighted the lack of excitement for 5G amongst consumers. In part, operators may have to rely on freeing up 4G spectrum to deliver a broadly improved mobile data experience for everyone – and thereby driving mobile customer engagement. In turn, enhanced engagement can help support cutting-edge 5G investment.

Uncertainty around new use cases

5G’s unique low-latency capabilities and multi-gigabit speeds present opportunities, but the use cases are not as immediately obvious as some of the 5G press material makes it out to be. The enterprise environment, for example, presents opportunities for new use cases beyond the standard subscriber model.

However, where exactly MNOs stand to benefit from enterprise use cases is still somewhat unclear. While large, distributed IoT networks may benefit from 5G’s low latency, delivering effective network access over large geographic areas is a different question. Likewise, while network slicing can deliver unique enterprise benefits operators still have to find models that are attractive to large companies – and sensible for network operators.

Prioritising 5G investment expenditure

Between acquiring spectrum and rolling out new RAN infrastructure to support 5G, operators are looking at significant costs. It is tough to marry these costs to a relatively low level of interest shown by consumers. The fact that some aspects of 5G are built on 4G architecture will help at first, but in the long run, cutting-edge 5G performance features will require significant investment.

MNOs will inevitably find it challenging to decide where to roll out high-density 5G networks, but close monitoring of network metrics and user behaviour will help. MNOs can also keep a close eye on emerging consumer applications that will demand the gigabit speeds and low latency that 5G can deliver.

Managing increased infrastructure costs

Operators have an ongoing cost headache too. Yes, there is the initial roll-out of infrastructure to support 5G capabilities and traffic growth, but the higher complexity of 5G networks also causes an upshift in the cost of infrastructure in the long run. That is over and above the manner in which higher network usage drives higher costs. For example, according to a McKinsey study, a scenario of 25% p.a. data usage growth will lead to a 60% increase in the total cost of infrastructure ownership.

MNOs will need to keep the complexity of networks as low as possible while simultaneously meeting new use case requirements – and building out network capacity. It will require keeping a finger on the pulse of demand and intelligent strategies that optimise the use of existing and new network infrastructure. Of course, the operators that better understand how their networks perform on an ongoing basis will be positioned to invest optimally – and to minimise ongoing cost of ownership.

Participate to the 5G discussion by adding your comments or email us jari.salminen@netradar.com

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