And it makes me wonder

Posted on Friday, May 10, 2019

This past Tuesday two events of considerably different importance to the industry took place and they got me wondering – yet again – about the consumer appeal of 5G in Latin America.

The first event was a speech on industrial 5G that I gave at a vendor-sponsored event here in Bogotá. The purpose was not to talk about consumer 5G but when chatting with some of the participants afterward, there was the usual skepticism about consumer 5G’s prospects at least in Latin America.

The second event was Ericsson’s launch of new ConsumerLab research which said, basically, that consumers could not wait for 5G to become available. Regional results were not displayed in any of the public documents.

The concerns about consumer 5G in LA come from both the supply and demand side.

With respect to demand, there is a question about whether there would be enough interest in upgrading to a 5G-enabled smartphone and paying extra for 5G services. The later is a question every operator in the world asks themselves but it is particularly an issue in Latin American with the ususal concerns about low average incomes and skewed income distributions.

The supply question is whether operators will get permission to invest heavily in 5G, given the uncertainties about the business plan I just discussed obviously, but also because of the ‘But-we-haven’t-paid-for-4G’ complaint. That comment normally comes from suspicious board members who fail to be moved by the wonders of URLLC, by hundreds of thousands of sensors in a city block or by the prospects of faster cat video downloads.

To set the record straight, I am a big believer in 5G in the enterprise market, especially in private or at least dedicated 5G applications like ports, mines and smart factories. Nokia has estimates that put the enterprise opportunity at twice the mass market one (as measured by radio sites or access points or whatever you want to call them). If correct, that means 5G is a winner even if it is never used for faster cat video downloads.

My talk last Tuesday was an unabashed sales pitch for enterprise 5G as a key enabler of digital transformation, especially the so-called ‘Fourth Industrial Revolution’.

I’m a believer[i]. At least when it comes to 5G in the enterprise market.

But the enterprise 5G opportunity is mostly a series of islands or hotspots and so will not justify a broad network deployment, analogous to what we have today. (My thoughts on autonomous vehicles, the other non-consumer-handheld-or-wearable-device justification for 5G with broad geographic coverage, have been published in other blogs, like this one and this one.)

And a new day will dawn

The Ericsson study contradicts me. The data[ii], it says, debunk four major “myths” about consumer 5G:

  1. 5G offers consumers no short-term benefits.
  2. There are no real use cases for 5G, nor is there a price premium on 5G.
  3. Smartphones will be the “silver bullet” for 5G: the magical single solution to delivering fifth-generation services.
  4. Current usage patterns can be used to predict future 5G demand.

On the first, the study found that consumers expect 5G to relieve current 4G congestion (faster cat videos!) especially in the dense cores of megacities. This implies 5G replacing 4G without additional revenues because new spectrum will be made available for it, the technology is more spectrally efficient and the gear is newer and so cheaper per bit. This scenario is not impossible – it is essentially what happened when 4G replaced 3G – so consumers’ expectations are not unreasonable.

The study found that 50% of smartphone users were prepared to pay 20% more to get 5G and 50% of early adopters would pay 30% more. The data ‘is what it is’ but my comment would be that answering a survey question is easy. Taking 20% more out of your jeans to pay for something that is hard to measure (a better data experience) is a lot harder to make happen. The early adopters and fanboys will obviously pay more but there are not enough of them to build a mass-market 5G business case.

The third myth is about the persistence of the smartphone as the primary device for consumer consumption. The survey found that 50% of respondents think we will be using AR glasses by 2025. However, a solid 1/3 of those surveyed do not think AR glasses will be mainstream by mid-next decade. These results are not entirely surprising. The smartphone format has clearly run out of steam (replacement cycles are getting longer as consumers find less to get excited about in new models) and, as the industry experts Ericsson consulted pointed out, it is hard to do the kind of stuff that justifies 5G (holographic cat videos!) with a smartphone format. The latter comment is somewhat ‘back-to-front’ however: we need to believe AR glasses and holographic phones are the NEXT BIG THING! because otherwise we do not need all that bandwidth that 5G promises consumers. (Again, big fan of AR in industrial settings; more of a skeptic in the consumer market, at least in the near-term.)

The last statement – 4G usage patterns are not relevant for 5G – is something like a law of nature. Orders-of-magnitude improvements in performance give birth to new applications and new consumption patterns. It would be surprising if we gave users all the power of 5G and they did nothing new with it (tactile Internet cat videos!).

The survey respondents themselves seemed to find it hard to wrap their minds around the dawn of a “new day”. When asked about the features of a 5G subscription they replied with the same things they ask for in 4G plans today: bigger buckets, sharing, no contracts etc. When asked about features of a 5G smartphone, they asked for things they had already read about or were already available in other devices: foldable screens, 8K video, AI, better cameras.

But while that means that milquetoast business plans based on average 4G data consumption are inappropriate, we really do not know where this is going. It will be different, but how different? Different enough to adopt a ‘build-it-and-they-will-come’ strategy? Or just a bit different?

Yes, there are two paths you can go by / But in the long run

And will it be different regardless of whether or not 5G is deployed? Or do we need 5G to unleash the new applications? Will we watch holograms when 5G makes it possible or will we want holograms and then demand that our operators to give us 5G so that it works properly.

So far, there has been growth in data usage organically. More people have wanted more smartphones and when they get them they send more pictures, have more video chats, read more maps and watch more video (cat, streaming, live TV etc.).

The ‘more smartphones’ trend is apparently coming to an end. The ‘more data consumption per user’ seems to be slowing slightly but has not finished yet. The complaints that Ericsson heard about congestion in major urban centers shows that operators need a more spectrally efficient solution for current consumption. Today that is 5G.

That means CSPs may have to build 5G anyway and then keep building as higher performance unleashes new applications. A cynic’s view of the US operators’ rush to launch 5G is that they desperately needed to get 5G-linked spectrum and greater efficiency simply to deal with data consumption growth. They may have marketed holographic cat videos but the reality was that 5G was the best way to solve today’s problems.

Latin American operators may not be in that situation today but it will happen eventually.

And then there is the almost-guaranteed enterprise opportunity.

5G in the consumer market is inevitable. The two paths – demand driven / cost driven – get to the same point, deploying a 5G network. The timing, however, is the uncertainty.

How everything still turns to gold

What matters for timing, obviously, is the money.

Ericsson thinks their study should make operators more comfortable about deploying consumer 5G because (survey says) they will pay more! (The often-irreverent newsletter headlined their article on the study “Shock” and the tag line was “5G kit vendor Ericsson has released a report implying it’s a really good idea to buy loads of the stuff it sells.”)

I am a more cautious because, as above, I am skeptical about how accurate the responses are to “Would you pay more?” survey questions.

Instead I think operator business cases should be based on the enterprise sector (which has the advantage that revenue and capex can be synchronized) and using 5G to deal with congestion.

In the mass market” there is money to be made but only if consumers organically increase their consumption – aided perhaps by new devices and new device features – and 5G allows operators to monetize this growth more efficiently.

Everything still turns to gold.

Title Reference: Frankly there are a number of songs from which I could take this phrase but what I was thinking of was Led Zepplin’s classic, Stairway to Heaven. Never released as a single, its importance is not measured by where it ranked in the year it first appeared (1971) but its placement on ‘Greatest Songs of All Time’ lists or, more importantly, how people react when it is played. I have noticed that conversation usually stops until the song finishes, eight minutes later. This is one of the few times I have not played the song I was writing about, knowing that the two activities are incompatible. I would have to stop and listen before writing another word.

If you want to know what other songs I had in mind with the phrase, the best would be the Rolling Stones’ Fool to Cry which has a similar line “And it makes me wonder why”. Except here I am not wondering ‘why’ so Stairway to Heaven is more appropriate.

Stairway to Heaven lyrics Jimmy Page / Robert Plant © Warner/Chappell Music, Inc

[i] No. I am not going to develop this song reference further, at least in this blog. Only one song per blog and I would have to admit my childhood fascination with The Monkees.

[ii] According to the press release, “This latest Ericsson ConsumerLab study is based on 35,000 interviews with smartphone users aged 15 to 69, carried out in 22 different countries. The views of the participants are representative of almost 1 billion people.”

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