What should governments and regulators do to ensure that 5G services are rolled out as widely and quickly as possible?A debate taking place in Germany between regulators, operators, MVNOs and enterprise users sheds some light on just how difficult it is for any country to settle on the best approach for bringing 5G services to market. Last week Germany’s Federal Network Agency published its plans for the a 5G spectrum auction in 2019. The plans were immediately criticised by 20 German CEOs across many business and industrial sectors. In statements to business daily Handelsblatt, the companies criticised the plans which, they said, would not bring 5G services to the country as quickly as they needed.
The interest and involvement of big business in the 5G licensing process is remarkable. It is the first time, in our knowledge, that industry has intervened in a debate about the speed and scale of mobile network deployments. It gives credence to what the telecoms industry has been arguing for some time, namely that 5G will deliver digital infrastructures that will have a transformational impact on many industries and sectors.
But it is less clear precisely what German business leaders think the regulator should be doing differently.
Some believe that Germany needs a more competitive mobile market. The president of Germany’s Federal Cartel Office earlier this month called for the establishment of a fourth mobile network as part of the 5G frequency auction.
But would the existence of a fourth mobile operator force other operators to build their 5G networks more quickly and more extensively? There is no evidence from anywhere in the world that the more operators there are, the more aggressive they are in their network build. Indeed, licensing a fourth mobile (5G) operator would represent a continuation of the now well-trodden regulator path of taking a consumer-centric and price-centric approach to regulation. European consumers now enjoy cheap mobile and broadband services. But high-speed (LTE and fiber) networks are less extensive than in many other countries and regions. While there are suggestions in Germany that the country should transition from a three-operator market to a four-operator market (it was a four-operator market until Telefonica acquired E-Plus in 2014), in China there are discussions about a merger of the country’s second and third operators.
Many regulators are experimenting with new approaches with 5G. The FNA is proposing to award regional licenses to enterprises for their own private 5G networks. For example, the utilities companies and automotive manufacturers own assets (land, real estate, fiber) which they could leverage to build regional networks. But whether they have the expertise – or come to that, the motivation – to build and operate their own networks is a different matter altogether. Telecoms is just not a core competence for them. Furthermore, many of the proposed 5G use cases – for example self-driving cars – need nationwide networks.
So, what else should regulators be considering if they want to stimulate 5G network roll-out?
One obstacle that would be easy to remove is the license / auction fee. The more an operator pays for a license the less it has available to spend on building out a network. A beauty contest would see operators competing based on their coverage commitments rather than meeting (relatively modest) minimum coverage requirements.
There again, coverage obligations themselves are looking outdated. If 5G is to be more than just connectivity to mobile phones, this needs to be reflected in coverage requirements. In Germany, 5G operators will be required to reach 98% of households with 100Mbits/s speed by the end of 2022 and 300Mbits/s by the end of 2025. How about introducing license conditions relating to the number of businesses that are served, how many roads or railways or how many villages in rural areas?
Aside from specific issues around the 5G spectrum auctions, the comments and contributions from German industry raise broader issues around the shape of the mobile sector and the roles of operators, service providers and enterprises.
One of the other interested sets of parties in the 5G license debate is the country’s MVNOs. Jacques Bonifay, CEO of MVNO group Transatel, reckons that MVNOs are better positioned than operators to execute on new business cases for 5G. Operators should focus on network deployment, says Bonifay.
Regardless of whether you believe that MVNOs have the expertise to transition away from their consumer market focus and develop services and capabilities for enterprise users – or whether new ones will emerge and embrace platform business concepts - it is becoming increasingly apparent that the shape of the mobile industry, and the roles of the key players, does not necessarily lend itself to the realisation of the 5G vision.
There is little to choose between the strategies of mobile operators in any given country.
Some may try to position themselves at the higher, or lower ends of the market and some (incumbent operators) are more exposed to the B2B market than other. But they all, essentially, see the market from an end user perspective and are consumer-market focussed. As such, their approaches to 5G roll-out are likely to be similar. 5G will be deployed incrementally as an overlay to the existing 2G/3G/4G infrastructure.
It is possible to imagine a different approach to network deployment and service provision. This would involve the emergence of a wholesale or infrastructure operator. In urban areas they would secure (and connect) new sites for small cells. In rural areas they would deploy a single network that could be used by all the different operators. Network sharing exists in most countries today but the focus is more on passive infrastructures. Shared networks have emerged despite, not because of, licensing approaches.
How much would an automotive manufacturer pay for 5G coverage?When German businesses refer to their requirements for 5G do they do have any understanding of the cost of network deployment? Or a firm idea of how much they would be prepared to pay for nationwide coverage?
Automotive manufacturers were among those companies expressing concerns about the speed of 5G rollout in comments to Handelsblatt. They believe that by 2022 only motorways and some other roads will be equipped with 5G coverage. They compare Germany with China which, by 2020 will already have built 10,000 5G base stations. Germany, by comparison, will only have 500 base stations by 2022.
Speaking to Handelsblatt, Volkswagen CEO Herbert Diess noted that “cars are increasingly becoming networked devices. But that cannot work without a fast, comprehensive 5G network.”
So, the question is how much a company like Volkswagen would be prepared to pay to connect its cars on all roads – and not just motorways – throughout Germany? If German operators cannot justify building out 5G to some of the more remote parts of Germany, would the automotive industry be prepared to help subsidize the roll out? Would the additional cost be $50 per month per connected car? Or $100? Or maybe $200? Would they be prepared to place an advanced order for 5G connected car modules to give operators some security that they will get a return on their network investments?
There is also the question of whether many of the use cases that German industry is contemplating for 5G actually need 5G. What is the main requirement here? Is it about the speed and latency of the connection, or the coverage of the network and a guaranteed minimum level of connectivity?
Maybe German industry should be focussing more on the capacity and coverage of LTE in Germany rather than worrying about the terms of the 5G auction. In its May 2018 report on Germany, mobile measurement firm Opensignal said that “Germany remains amongst the lowest scoring countries in Western Europe in both our 4G download speed and LTE availability metrics.”
There is nothing wrong with a vibrant debate about how to approach the 5G opportunity. But 5G should not be viewed as a panacea for the challenges that the mobile operators and mobile users face today. 5G will not, in itself address these challenges. Indeed, if they are not addressed ahead of 5G, they will inevitably hamper the successful deployment of next generation mobile networks.
