On 23 June 2020, I happen to attend an Ericsson media briefing on the topic of “5G to Fuel APAC’s Road to Recovery Post Covid-19”.
Hosted by representatives from Ericsson including Magnus Ewerbring, chief technology officer of Asia Pacific, Nunzio Mirtillo, senior VP and head of South East Asia, Oceania & India, and Martin Wiktorin, head of Ericsson Singapore, Brunei and the Philippines, the briefing was meant to highlight how 5G will help in the region’s post-COVID-19 recovery even though as a region, we are still in varying stages of pandemic infection and containment, with few countries able to make claims that they have successfully contained the virus with 100% certainty.
Mirtillo opined that networks rose to the mobility challenges imposed by COVID-19, with traffic increased by 20-100% during the period, and 83% of surveyed consumers claiming information and communications technology (ICT) helping to cope with the lockdown.
Difference of opinion
On October 23, 2019, Gartner forecasted global IT spending to grow 3.7% in 2020. Six months later it adjusted this to -8.0% for the same year citing COVID-19 and a global recession as “causing CIOs to prioritize spending on technology and services that are deemed “mission-critical” over initiatives aimed at growth or transformation.”
IDC sees a similar downward trend in 2020 halving its European forecast for ICT spend from 2.8% to 1.4%.
While Gartner and IDC see a downward trend in ICT investments, Ericsson are painting a positive outlook.
Mirtillo pointed to the company’s Q1 report that answered that apart from a possible softening of demand in Q2, “we didn’t see big issues on the medium or long term when it comes to the demand for technology.”
He acknowledged that its own “targets” for 2020 have not changed. While he conceded that situations will be different by markets, he pointed to the Ericsson report on rising data traffic (from -10 to 20) as positive trend and the network resilience as proof of the importance of ICT as proof that everything is good.
For his part Ewerbring added that: “With the potential of 5G here with increased security and better ability to control real-time environments, there is an excellent basis to build your solutions on – to be more resilient for whatever crisis may come up in the future.”
The unanswered question – ROI for 4G CAPEX
Certainly, I agree on the whitepaper benefits of 5G to provide some semblance of network resilience, however, there remains an immediate question: how are operators going to recover their 5G investments considering that they have yet to fully see ROI from 4G investments?
Backdrop: According to the GSMA Mobile Economy 2018 report between 2012 and 2018 mobile operators globally spent over US$1 trillion in capital expenditures to upgrade their networks to 4G.
Case in point, the Morgan Stanley estimates “China’s 5G capex at around $421 billion over the next decade which could initially drag down return on invested capital and become a negative catalyst for telecom shares.”
Neither Ericsson executive must have heard my question since they continued to spout on the benefits of 5G and not mention ROI. So I guess we move on for now?
Spinning the 5G story
The EY report, Digital Transformation for 2020 and Beyond, noted that 5G rollout will spur an increase in global mobile capex, with capital intensity rising from 13.2% to 16.3% between 2018 and 2025.
“Nevertheless, ROI is a source of anxiety. IoT-centric 5G use cases are in their infancy and require a more localized approach to network planning, while the perception of broadband as a utility may undermine the premium pricing of fibre,” EY continued.
For Mirtillo 5G not only means faster speeds but dramatic improvement in latency.
“In theory, we can reach a maximum of 10 times cheaper gigabit production because the new technology will make it possible to squeeze the spectrum available in a more efficient way. So, you can see 5G as a technology that will help the operators to be much more efficient in answering to the increasing demand for mobile broadband.
He further suggested that operators who remain at the top of the innovation curve will more likely achieve better performance from a financial point of view.
“So, it’s kind of the other way around. The more you are on top of the technology and the more you kind of invest in your technology, the more you provide a better resilient network to your customers, the better you do as a company,” he concluded.
Sort-of 5G – an interim solution to a marketing opportunity
Ewerbring, not wanting to forget to pitch the Ericsson story, suggested that technology is around to enable operators to use existing bands to attain coverage advantage by way of aggregation.
“Devices will aggregate different radio spectrums. We did that in 3G. We did that in 4G. We’re doing a 5G. What Ericsson provides to operators now is a real option for them to launch 5G in a considerably larger area with a software upgrade,” he commented.
He implied this strategy would be “music to the ears of the financial part of the operators” and goes on to add that this software upgrade is a fantastic solution for consumers because they get 5G service.
“From a financial point of view for the operators, it’s a very good entry step for them. And it will be there for the time because it allows for smooth migration from an earlier ‘G’ to a higher ‘G’. That itself I think is really a good enabler for wider coverage of 5G at the start,” concluded Ewerbring.
It should be noted that this software upgrade referred to by Ewerbring is not exclusive to Ericcson. Nokia touted similar benefits following a lab test in the US using Sprint’s 2.5 GHz spectrum and leveraging Massive MIMO to achieve 16 layers of MU-MIMO to deliver up to four times the total downlink cell throughput.
This software upgrade maybe what is landing AT&T into hot water in the US with its 5GE service.
Closing thoughts
I guess what will drive the 5G story will be used cases. Currently, the ambivalence is around handsets and consumer desire for the best that money can buy. But 5G’s original storyline is about use cases in industrial and commercial applications, including manufacturing automation, autonomous vehicles, surveillance and smart cities, drones and remote healthcare services.
How fast these applications rollout will test the speed at which operators can achieve Morgan Stanley’s US$156 billion in incremental annual revenue. Just remember this revenue won’t come until 2030 – maybe.
