5G – Who’s On the Bus? Where’s it Headed?

We tell investors not to obsess about who is first across the start line on 5G, and then spend too much time focused on exactly that.  In this weekly summary we indulge that error but also look at the longer-term outcomes that can be obscured by exciting news flow.

The 5G bus is pulling away from the kerb.  China, Korea and Japan are nicely seated, as expected, although the Chinese operators have yet to be told the price of their undoubtedly first-class tickets.  The European operators are in the cheap seats, but are pleased to have boarded at all (thanks to 3.5GHz m-MIMO just about fitting on their traditional – non-dense – cell site grids).  In contrast, the US operators look a bit flustered – Sprint is definitely on the bus (thanks to its national monopoly on mid-band TDD spectrum) but doesn’t seem to have enough money for the whole journey.  TMUS is also onboard, but has an odd promotional ticket (marked ‘600MHz’), and is anxiously looking to combine its luggage with Sprint.  Verizon and AT&T haven’t yet boarded, with a nagging worry that they might have bought completely the wrong tickets (marked ‘mmWave’), but they are both keeping a brave face and repeating ‘it will probably be fine’.   Everyone has been told that their 5G journey has existential importance for the future of humanity.

The 5G situation in the US is remarkable.  Quirks of history mean that all of the ‘hot’ sub-6GHz spectrum for 5G is in the hands of Sprint (the weakest player), Intelsat (arms folded, expectant expression) or the US Navy & Coastguard.  That leaves none at all for the three strongest operators – at least none with any certain roadmap.  This won’t matter one bit if mmWave 5G is able to keep up with sub-6GHz 5G.  All the US operators either have plenty of mmWave spectrum or can buy plenty in forthcoming auctions.  As things stand, mmWave looks good. Qualcomm – the keystone of the global wireless ecosystem – was reassuring about the performance of mobile mmWave at our sell-out 5G seminar this week (LINK).  mmWave 5G smartphones are only a little behind their sub-6GHz stablemates.  Verizon and AT&T are committed to deploying mmWave cell sites as widely as they can for 5G service launch – as they have no alternative.  As noted above, ‘it will probably be fine’.  The vendor-momentum behind mmWave will probably be sufficient.  The small coverage areas and propagation challenges can probably be bulldozed aside.  However, as we noted in our MWC write-ups (telecoms - LINK and tech - LINK) there is some anxiety that mmWave might, possibly, start to slip relative to the runaway pace of global sub-6GHz 5G.  Performance or coverage shortfalls, handset cost deltas or just shifts in vendors’ priorities could each trigger such slippage.  The virtuous circle of 5G progress to date might then turn into a vicious circle for mmWave at a crucial time.  (We will be watching this issue like hawks).

Where does the bus take us?

Although our conference panels were unanimous that the primary initial role for 5G is to allow operators to continue to add capacity at ever lower unit costs, it’s also clear that in the longer term 5G networks can be about much more than that.  Chinese state enthusiasm for 5G (LINK) is rooted in the longer term potential for smart cities, factories, utilities, health and surveillance.  Major architectural changes – notably virtualisation, in all its forms – go hand in hand with the spread of 5G, in wired as well as wireless networks.   By 2030 or so, the shape and scope of telecoms networks will be very different to today.  No one will be fretting about specific spectrum bands or technical details by that point (as smart networks will be blending a real-time mix of connectivity – from 600MHz up to WiGig and all points in between – invisible to the end user and probably invisible to the investor too).  The 5G end-game will be unrecognisable from today’s fragmented patchworks.

Our inability, as analysts, to see how telecoms investors will necessarily benefit from this transformation doesn’t diminish the scale of changes that the longer term will bring.  (Note there are some exceptions to this broadly neutral/negative view on the prospects for telecoms value creation from 5G – the transformation will be readily monetised in markets such as India, where the initial conditions are so modest).

So would a potentially stumbling start for 5G in the US actually matter?  If mmWave 5G mobility works out well then the US won’t stumble at all.  It will start the journey with good mmWave and then sub-6GHz will be added to the toolkit as the C-band is repurposed and CBRS matures.

However, if mmWave disappoints, for whatever reason, then yes, the US journey could be very different.  Cable operators would have a second chance to transform their role in wireless (having hesitated to date), leveraging their existing assets for dense wireless deployment (with CBRS, or C-Band, or various other solutions).   Sprint’s TDD spectrum becomes an even more important piece in the national jigsaw – either merged with TMUS or back in play after a blocked deal.  Given the extreme political and industrial policy pressures on 5G, all sorts of left-field outcomes become plausible for the sector.

A growing subset of our global telecoms recommendations are tied to the journey ahead on 5G.  In many cases (such as the US) the uncertainties are still great, but some key technology aspects of 5G are clarifying, as we found in Barcelona, increasing our confidence in predicting the road conditions ahead.

For the full weekly review and updated comp sheets, see HERE.