Communication 5G Myth #4: Established telcos control the supply chain of the new mobile phone
Status today: The large telecommunications providers are building mobile networks for a lot of money and then earning a lot of money from the services running on them. Will this also apply to 5G?
Since the introduction of mobile communications, the telecommunications companies (telcos) have always built the infrastructures - and also determined which products and services are ultimately available on their 2G, 3G, and 4G networks. As a result, there was no way around them in terms of monetization.
Part 4 of our series on 5G myths illustrates that there may well be shifts in the structure to which we are accustomed - and that traditional network operators may face competition from their existing customers.
Myth #4: Established providers will continue to control the 5G supply chain
The established providers are also at the forefront of the development of the first 5G networks. Following the auction of 5G frequencies, players such as Deutsche Telekom, Vodafone and Telefonica are adding 5G features to their existing offerings. Expanding is to be taken here, as up to now 5G has been based on a 4G/LTE substructure. Later implementations will have to be stand-alone networks that can provide the full functionality of the 5G standard.
So far, efforts have focused on typical consumer applications, such as more bandwidth and higher data speed for streaming applications. However, this will not be the end of the spectrum. The providers have already started to develop packages of services for vertical markets to address the needs of companies. In this way, they want to control the added value here as well.
5G standard co-developed by Telcos
They do this by working in the standardization committees, but also directly with potential customer companies. Deutsche Telekom, for example, published an 8-point program in fall 2018, emphasizing the importance of dialog with industry for 5G network roll-out. Following the end of the frequency auction in the first half of the year and the launch of the 5G network, the company intends to leverage 5G potential together with industry.
Tim Höttges, CEO of Deutsche Telekom, says: "We want to make Germany a 5G pioneer for industrial applications. The expansion of the 5G network and rapid industrial use are the prerequisites for consolidating our status as a leading economy". In his view, 5G secures the technological lead of the German industry in the long term. "And thus also the economic success in our country."
Companies can build their mobile networks
Nevertheless, 5G is different from its predecessors. Companies can, for the first time, develop their private campus networks, for example, for their manufacturing operations and use license-free frequency ranges - thus bypassing the established infrastructure providers and their monetization models. They can buy the necessary technology from international suppliers. As the responsible committee, the 3rd Generation Partnership Project (3GPP) is currently in the process of integrating and optimizing functions for vertical application scenarios in the 5G standard with Release 16. And thus also to define to some extent the role that telcos will (or can) play in the future.
According to market analyst ABI Research, B2B applications as a whole require enormous development effort. As a result, providers and operators cannot be participants in all activities. What the 5G industry needs are a platform economy in which network effects can create exponential value. So far, though, there has been neither significant effort nor sufficient capital investment to make 5G an overarching application platform. There is a danger that 5G will remain a new connectivity technology for the time being.
Trade restrictions slow down the spread of 5G
Also, geopolitical distortions currently limit the availability of major 5G technology providers. Specifically, countries such as the USA are de facto, excluding the Chinese company Huawei, the market leader in 5G technology, from their markets. ABI Research sees a risk that the 5G demands could develop more slowly in some regions - and thus, the value-added could be lower than would otherwise be possible.
ABI believes this is likely to fragment the application development ecosystem and limit the value for developers who want to offer their B2B applications globally. The consulting firm recommends opening up the supply chain and involving third-party B2B application developers. At the same time, telecom service providers should become platform enablers, not just connectivity providers.
This article was first published in German by Elektronikpraxis.