Factory automation: Early 5G implementations may not be suitable for vertical markets.
Factory automation: Early 5G implementations may not be suitable for vertical markets.
( Bild: Clipdealer)

Communication 5G Myth #2: The end customer business is enough to finance 5G rollouts

Editor: Jochen Schwab

Setting up stand-alone 5G networks is expensive. Is it sufficient for a provider to address the end customer market with LTE-supported 5G networks first?

The second article on the subject of 5G myths shows that there is no single 5G network that can do everything right from the start. Instead, Mobile Service Providers (MSPs) have to walk a tightrope: In order to address lucrative vertical markets, they need end-to-end stand-alone (SA) 5G infrastructures. The money for this will come from the end customer business with the first generation of 5G networks based on LTE. Can this work?

Myth #2: End-customer revenue is enough to finance 5G rollouts

The early 5G implementations focus mainly on the consumer market. From the point of view of MSPs, this step is understandable. After all, the mass use of 5G by consumers initially promises higher revenues than an initially manageable number of industrial applications. Later implementations could change this. According to ABI Research, the providers want to gradually expand the capabilities of their 5G networks with the revenues they generate. Equipped in this way, they want to open up new business opportunities, primarily in the lucrative enterprise market. According to ABI, MSPs hope that 5G will help them reduce costs per GB of bandwidth and improve average revenue per user (ARPU) compared to existing access technologies.

At first, they are confronted with higher investments. Compared to its predecessors, the construction of integrated 5G networks is becoming more expensive. The increased radio cell density and a multitude of new functions on both the core and the access side are taking their toll here. Integrated 5G networks should be highly scalable and capable of addressing many different problems in different industries. Providers should thus be able to provide new services within a few days - instead of having to spend many months as before. This would enable them to respond quickly to changing market demand. ABI expects that the operation of the networks will also require higher expenditures (OPEX) than with its predecessors. This raises the question of whether the revenues generated by the retail business will be sufficient to ensure an overall return on investment (ROI) for the 5G network. estment (ROI) für das 5G-Netz sicherzustellen.

ROI may take 15 years to achieve

Initial estimates from ABI Research suggest that the ROI could last up to 15 years. This is the case when MSPs rely solely on end-user revenues to refinance their investments in the 5G rollout. According to ABI, one way to achieve a faster payback is through the industrial use of the new mobile technology. In fact, 5G is one of the key technologies for the digital transformation of many companies. ABI Research believes that the reliable wireless communications platform could help them create billions of dollars in economic value.

But there is a problem: commercial 5G implementations for industrial applications are far from optimized. They are not designed to accelerate the digital transformation of businesses and create new business opportunities. Because it's not just bandwidth that counts in this environment. Network architecture flexibility, interoperability with existing operating processes, cost efficiency, deterministic network behavior, IT security, data protection, and extremely high reliability is at least as important for many applications, and usually even more important. Without these features, 5G remains unattractive for vertical industrial applications.
The bottom line is that ABI Research recommends that telecommunications companies realistically define their 5G goals. It is unrealistic to build a "Swiss Army Knife" 5G network that immediately meets the needs of several markets and industries. This means the opposite: Whoever wants to offer 5G services suitable for companies has to provide the appropriate substructure.

This article was first published in German by Elektronikpraxis.