What’s the difference between a use case and a business case? The answer might involve some subtle thinking, but it might also be a key to understanding what’s going on in the 5G space here in the US, and even in global markets. It’s a question that’s plagued our industry for three decades now, at least, and I’m not sure we have a good answer even today. The Street is reporting on emerging use cases, but research admits a critical problem: “The revenue models cannot develop until the infrastructure is in place.” Build it, and they will come?
Back in the early days of ISDN, CIMI Corporation signed the National Institute of Standards and Technology’s (NIST) Cooperative Research and Development Agreement (CRDA). As a result, I was involved in a lot of the early ISDN work, and I remember one meeting where a vendor technical rep came into the meeting all excited and said “I’ve discovered a new ISDN application! It’s called file transfer!” Well, gosh, we had that, and yes, ISDN could do it better than voice lines and modems, so it was a use case for ISDN. Would people deploy ISDN just to get it? Clearly not, so it wasn’t a good business case.
There are plenty of things you could do with ISDN, or frame relay, or ATM, or SDN or NFV or SD-WAN…or 5G. In point of fact, nearly any connectivity/communications technology can do most of what the others can do. It works, in short. The real question, the question that’s been validated by all the past technologies that didn’t meet expectations, should have been can this technology do enough to create a business case for deployment that meets ROI expectations?
One reason this question isn’t asked and answered is that vendors have long understood that new technologies generate sales calls because buyers want to hear about them. Even if you can’t sell the new widget, you can at least get a sit-down and put the full-court press on the prospect, who may be talked into getting something else that’s a “stepping stone” to that widget-that-will-never-be.
Cynical reasons should never be put aside in our current age, but there are also technical complications that are now coming to the fore in the 5G space. Many of them arise out of a comment that a New York banking-industry CIO made to me two decades ago. “We don’t spend much time assessing the value of something that we can’t buy yet.” Sure, they may answer survey questions or even vendor questions about how much 5G they’d consume, but the fact is that they have no real idea in nearly all cases. It’s not an issue till it’s sold.
Some say the big factor driving 5G is the lower cost per bit, which some studies say would be three percent of today’s mainstream LTE. But if lower costs lead to lower service pricing, then operator revenues would decline not grow. If this is a competitive market today, why would 5G not usher in a period of greater competition, erasing the benefits of the deployment?
5G can’t be sold without a big obvious business case for the operators who deploy it, because in the end it won’t be offered. We have lots of use cases for 5G, almost all of which are waiting for somebody to put the critical touch on them—a financial projection of cost and revenue. The “realists” on 5G deployment tend to fall into three camps with respect to the business case side. All three camps deliver 5G; they differ in the “when?” and “how much?” dimensions.
Camp One is the Modernization camp. 5G will come about because operators will inevitably be investing in their wireless infrastructure and it makes zero sense to invest in something that’s being obsoleted by new/better specifications, even if you can’t prove they’re needed now. I ran a model on this, and it says that the radio network in first-world economies would be 5G-ready in about four years based on modernization alone. However, little would happen until late in 2019.
The second camp is the Competition camp. 5G will come about because “5” is greater than “4” and consumers like nice easy numerical processions. An operator who says they have 5G is on top of the marketing world, and so every operator will want to have it. One player launching an arms race pretty much guarantees more players will follow. My model says this strategy will get action in a few key markets, by a few key operators, this year, and it would get 5G deployed in a limited form in those markets by about 2021. It would have little impact on less-developed areas until 2022.
The final camp is the Live TV camp. 5G will come about because viewing habits and content industry dynamics will rapidly promote delivery of live TV over wireless, which will create both exhaustion pressure on older wireless technology and new revenue opportunities for new services. My model says this could create significant 5G deployments in key markets by 2020, and advance 5G the most broadly across even third-world economies.
Most operators actually sit in multiple camps. In the US, for example, AT&T and Verizon are wireless rivals and their position in wireless competition in general and 5G in particular are set by the way their own opportunities are perceived. That depends on the nature of their goals and the demographic characteristics of their own home geographic region.
AT&T has a fairly low “demand density” in its own wireline area, a lot of which is made up of rural low-density zones. They see live TV and content largely as a way of boosting the popularity of their wireless services. They’ve gone to the live-TV position (with DirecTV Now) because it leverages their wireless service through no-data-charges delivery, and because it can attack Verizon for home TV in Verizon’s home region without requiring AT&T deploy wireline infrastructure there. They also have satellite TV (DirecTV) to deliver linear video in and out of region. Wireless focus is smart for them.
Verizon has a much higher demand density; concentrated urban and suburban zones make up much of the population, and Verizon has sold off areas where they can’t secure high-density demand for video. They do not have content properties, satellite video delivery. For Verizon, their high-density, high-value, wireline base is too attractive to leave undefended. Their early focus for 5G is thus delivery of broadband at better-than-DSL speeds. They’ll also add selective 5G mobile support, but it’s not clear how fast or far that part of their plans will progress. The first two locations they’ve announced for 5G mobile are both in AT&T’s back yard. Competition, meaning staying even with AT&T’s mobile-centric plans?
In a very real sense, these are both dip-the-toe-in-the-pool strategies, but with very different reasons for risk management. AT&T can’t be sure how much of a competitive advantage 5G would bring, and they also face the risk of having a change of government create a change in the FCC and a return of stringent neutrality rules, even rules that would forbid off-data-plan video services as being non-neutral. Verizon has to realize that 5G/FTTN will end up creating a nice way to deliver DirecTV Now unless they launch their own streaming service.
Despite the looming streaming TV issue, Verizon probably has a lower risk overall in pushing 5G. Their demand density means more customers per unit area, which means 4G would run out of capacity faster, which means the modernization driver would impact them faster. They don’t have a committed streaming live TV strategy, which means they could tune up an approach based on the current market dynamic. AT&T may have cobbled their DirecTV Now approach together for more tactical reasons. Finally, Verizon’s higher density means more competition, so competitive-driven 5G strategies make more sense. AT&T may be the PR leader in 5G, but Verizon may end up doing more, and quicker.
The big competitive question may not be the incumbent operators at all. If 5G can deploy more efficient cells, and if it can support home broadband by combining with FTTN, then why couldn’t rival operators or even other players (like Amazon?) decide to deploy some of it in key market areas? Cell towers on top of Whole Foods sites? Google Fiber becoming Google 5G? There are plenty of places where there’s little competition for broadband and video delivery, and plenty of players might see the focus on MVNO cellular that’s intrinsic to network slicing as an opportunity to wholesale capacity to bigger MVNO players. This may end up being the thing that drives 5G forward fastest, forcing other players to step up too. But Google and others have postured on entering the space and done little or nothing, so don’t hold your breath.