I had the opportunity to meet and interact with key stakeholders in the mobile infrastructure industry last week during the MWC show in Barcelona and came away with some thoughts:
- 2017 will be challenging but better than 2016
- Operators don’t want 5G to be another G, but for now it will be another G
- 5G is not only about small cells
- In-building puzzle is still not solved
2017 will be challenging but better than 2016
Preliminary estimates suggest the mobile infrastructure equipment market, including radio infrastructure and voice and packet core-related investments, declined at a high-single digit rate in 2016. This was driven largely by reduced demand for macro related cell site infrastructure and steep price erosions in U.S. Dollar (USD) terms due to the competitive environment, the strengthening USD, and soft demand for capacity upgrades.
While there is little doubt that 2017 will be another challenging year, there are signs that the pace of the decline in 2017 will moderate somewhat as densification and upgrade projects in China could be greater than originally envisioned – helping to offset some of the projected decline in macro deployments. Granted, there are short-term concerns about CAPEX pauses as a result of possible consolidation in both the U.S. and India. In general, I sensed some optimism supporting the thesis that the decline in 2017 will be softer than the decline in 2016.
Operators don’t want 5G just to be another G, but for now it will be another G
As Dr. Liu Guangyi with China Mobile said during Huawei’s 5G Summit, he knows what drives operator revenue today, but when asked ten years ago what the killer app would be with 4G, he didn’t know.
And we are in the same situation today.
While there was an enormous amount of innovation on display during the show, it is extremely challenging to identify the next game changer, not just for early adopters, but for the masses. For example Virtual Reality (VR) and Augmented Reality (AR) have been hot topics for some time now during the MWC show. However, based on data provided by Noitom, the VR industry shipped around 6 M units in 2016, marking another year of disappointing sales. Marketers are now hoping that the value proposition will be more compelling with the mobile use case.
The Internet of Things (IoT) is often viewed as another possible savior for the carriers. Per Verizon’s 4Q16 report, IoT accounted for less than one percent of its 2016 revenues, and the potential connectivity upside for both vendors and operators remain questionable in our view. This is not to say that more compelling VR/AR or IoT value propositions for the masses will not be realized in the future. It is merely an acknowledgement that operators and vendors don’t know the timing and magnitude of the potential impact of new services/applications/technologies ten years from now and as a result ROI for new technologies need to be analyzed carefully, particularly as it remains unclear how operators can add value beyond providing the connectivity.
Though it is worth pointing out that Nokia’s CEO predicts 2017 will be the year that IoT starts producing real value. Notwithstanding all the innovation at the show and the excitement around VR and IoT, we maintain our view that robotic systems and autonomous vehicles combined with 5G (or 6G) present the most disruptive and compelling value propositions in the long term. But in the near term, 5G will likely be another G. On the bright side however, operators can take comfort in the fact that 5G will not just be about Gbps performance – ITU’s draft report require 5G networks to deliver actual user throughputs of 100 Mbps and 50 Mbps in the downlink and uplink, respectively.
5G is not only about small cells
SK Telecom and Ericsson’s presentation at the show highlighting Ericson’s Pre5G millimeter wave (mmW) technology achieving peak speeds of 3.6 Gbps while travelling at 170 km/hour with an EIRP of 50 dBm per cell using 4 cells was a fresh reminder that 5G is not only about small cells. While it is probable that the RF output power will be lower for fixed wireless deployments operating in the mmW bands, operators reiterated their vision to leverage existing cell sites for their sub 6 GHz 5G deployments. This implies sub 6 GHz will rely on a combination of macros and small cells. The revenue mix will by default be more small-cell driven for mobile mmW deployments, but few operators are planning to deploy any larger mobile mmW networks over the next five years.
In-building puzzle is still not solved
With 80 percent of the data consumed indoors and 95 percent of the radio CAPEX allocated to the outdoors, new solutions that produce negligible interference with legacy macro and WiFi systems (and are inherently designed to support multiple operators) will likely play an essential role to normalize the location asymmetry between data consumption and mobile infrastructure investments. Neutral host and spectrum sharing were hot topics at the show and the interest in the CBRS band was particularly strong, which portends well for 2018 small cell deployments.
And more importantly, in-building cellular deployments should provide some emotional stress relief. According to a report published by Ericsson, a three second streaming delay is apparently as emotional as watching a horror movie. Given that it took in some cases ten seconds just to download an email message using the indoor WiFi network at the show, I am happy I did not try to stream any YouTube clips as it would likely have caused more emotional stress than watching multiple Stephen King movies…