I can see clearly now

Posted on Tuesday, October 16, 2018

I was at the 5G Americas Analyst Forum in Dallas last week and Latin America got a lot of attention. This gives me an opportunity to update my view of when we will see the next generation in the region.

The annual 5G Americas Analyst Forum is considered to be one of the best events on the calendar. It is short – less than a full day – but the vendors’ and operators’ attendance is at C-level and there is less than the usual self-censorship. Some questions are not going to be answered and Sprint and T-Mobile had to pick their words carefully when the discussion strayed too close to something that might be interpreted as reflecting on their proposed merger, but the discussions were frank and open.

Latin America had a high profile with two operator representatives – from Telefonica and Cable and Wireless – participating in the key Day 1 operator panel and a double-length roundtable session on Day 2.

The American operators are preparing 5G for this year and next so for them launch is just around the corner.

Verizon did not attend unfortunately because they are saying that they have a commercial offer today. Their absence allowed their competitors to get some digs in about non-standard implementation but given that Vz’s initial offer is fixed wireless, frankly this is less of an issue. Standards matter for getting devices to scale and for interoperability. The latter is of no importance for a fixed-only service and, today at the beginning of a new generation, there are limited scale benefits even for standards-based systems.

At the other end of the range is AT&T, promising to launch a hotspot offer shortly. T-Mobile and Sprint were also talking about imminent mobile launches but with T-MO going with broad coverage based on 600Mhz and Sprint opting for a capacity play at 2.5Ghz.

The Latin American operators, by contrast, were more cautious about their 5G plans and expectations. Both pointed out that there was still a lot of work to be done in 4G, in terms of coverage and penetration. Telefonica’s Ana Valero said that 4G adoption was around 40% in the region but growing quickly.  That means a mass-market 5G play will likely wait a few years until the operators start to feel the capacity crunch.

The kick-off presentation by T-MO’s Neville Ray had a slide which captured the diversity of offers in the US very well and he explained it by saying that the different strategies reflect operators “leveraging different spectrum assets”.

Building on that, my opinion from hearing the operators (except obviously Verizon) talk about their plans, was that the 5G push is not so much a demand-driven thing – customers clamoring for 5G – as a supply-driven: they need spectrum for capacity and that which is available comes with 5G. Clearly, the capacity crunch they are feeling comes from the demand side but I do not believe that clients are so directly reflecting a desire for more speed – and a willingness to pay for it – as a desire to see current promises fulfilled and, in the US, 5G is the most cost-effective way to do it.

Or maybe the only way to do it.

Yet another reason why Latin American operators will not feel the same pressure to accelerate 5G plans in the mass market.

When and how much?

To me the ‘cannot miss’ round-table discussion is the one about devices. This year’s participants were Qualcomm, Samsung, and Sprint. It was Sprint, not the hardware suppliers, that assured there would be 5G smartphones in a standard package by 2Q19.

There was a fairly important proviso which was the explanation for the operator’s certainty about supply: he was only talking about sub-6Ghz spectrum and 4×4 MIMO. This, he said, was no more difficult to do than an LTE Advanced phone and those are already available in the market.

Obviously, 5G devices – like LTE-Advanced devices – are going to be more expensive initially. On the network side, there is a strong expectation if not certainty that the cost-per-bit of 5G will be cheaper. However, devices cannot help but be more expensive at least initially. The operators were confident that 5G adoption would come faster than 4G and that would help devices ride down the experience curve even faster than the previous generation.

I hate to be a spoilsport but there is a bit of chicken-and-egg here: I have yet to see any data saying customers are prepared to pay more for 5G. And if they do, I think it is one thing to say so in a survey and quite another to take the money out of your wallet. Thus 5G adoption will come faster than 4G if the device prices to the end customer are reasonably close. That is, either subsidized by the carrier to be nearly the same or already similar in price from the manufacturer.

5G will also be the first generational change without significant hand-set subsidization by carriers, with regulators having forced some separation between the device and the plan, with the non-operator channel having a significant market share, further complicating matters even if operators wanted to (and were legally permitted to) subsidize.

Fearless predictions

I continue to believe that so-called Industry 4.0 5G applications will come first to Latin America. Large companies’ digital transformation plans will, in many cases, require the low latency and high bandwidth that only 5G can deliver. Despite current efforts to return the global trading system to that of the 18th Century, competition will force Latin American firms to transform themselves and they will demand 5G to accomplish that.

However, this ‘5G’ is but one of many ‘flavors’ that together constitute what we commonly refer to as ‘5G’.

Some operator could roll out 5G Fixed Wireless Access earlier than we might have expected, especially if Verizon’s project is a success and so the CPE-experience curve gets kickstarted. The issue in Latin America as everywhere will be spectrum availability.

An Industry 4.0 application takes place in a defined and restricted geographic area. That allows unlicensed spectrum to be used or existing licensed spectrum to be repurposed without affecting broader network performance. An FWA application does not have this flexibility. It needs licensed spectrum and, probably, a regulatory framework, neither of which are present anywhere in the region.

Finally, there is mass-market, smartphone-based 5G.

In the past, I have pushed this out to 2027 based on a typical 7-year gap between technology adoption curves and a 2020 start date for mass-market 5G in developed markets.

This date now appears to be 2019 and 5G phones maybe sharing the 4G experience curve to a large extent, allowing prices to come down faster than they did in 3G or 4G.

There are still three issues that have a direct impact on 5G but are largely outside of the industry’s control:

  • The low supply-side pressure for 5G given still-low levels of 4G adoption – 4G will have to get well up over 50% penetration for operators to feel the need for 5G. Yes, I am assuming that customers will not be clamoring for 5G because LTE Advanced will give them almost what they could get from 5G.
  • Spectrum caps that will restrict how much additional spectrum operators can acquire for 5G and …
  • Spectrum clearing and spectrum auctions for 5G frequencies.

I think expecting these issues to be resolved in less than 5 years is way too optimistic.

To summarize I am now seeing Latin American 5G closer to mid-next-decade (rather than the second half) although there may be early Industry 4.0 implementations and FWA could roll out in some countries / operators earlier in the next decade, but only if spectrum issues are resolved.

(Title Reference: I can see clearly now was a 1972 Johnny Nash – not to be confused with Graham Nash – song that made it to number one in the US and Canada. A version by reggae superstar Jimmy Cliff for the movie Cool Runnings got airplay because the film was popular but only reached number 18 on the charts.)

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One response to “I can see clearly now”

  1. […] in emerging markets, I have to point out that this is the complete opposite of what I heard at 5G America’s Analyst Forum a few weeks ago. I know Ken but do not remember seeing him there, so he may have formed his own […]

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