5G is really a virtualized FMC play
Most people who are following 5G developments will be familiar with the three use cases that are often used as the commercial justification for 5G: enhanced mobile broadband, massive connections (that is, IoT) and ultra-reliable networks.
However, the fixed-wireless case shows that there are really four use cases. Fixed-wireless is likely to be the first to appear, and could be of greater commercial value than the other three combined for several years to come.
Whether or not this actually happens - and there are sound reasons to be cautious - 5G promises to be about significantly more than mobility. It promises to cut across fixed and mobile services, supplanting the last 200 meters of fixed access, possibly swallowing Wi-Fi and even perhaps competing against LPWA etc., thereby becoming a sort of universal access network.
This also means that we’re seeing the emergence of competing (albeit similar) visions of multi-functional fixed-mobile converged (FMC) networks, with software-defined networking (SDN) and network function virtualization (NFV) the common denominator between them.
5G vs NG-PON2
5G has a corollary in, and is, in some but not all respects, compatible with the NG-PON2 vision of the future of fiber access (see Figure 1).
The NG-PON2 vision is that fixed access networks are about more than consumer and small business broadband. Orthogonal requirements are met on a single optical infrastructure by separating functions and service providers onto discrete optical wavelengths.
The 5G vision is conceptually similar: it allows sliceable networks that fulfill orthogonal requirements. 5G will have a single universal air interface, but 5G systems will allow different waveforms and frame structures to meet differing service requirements. In both visions, SDN, NFV and network orchestration allow for the creation of logical sliced networks.
It may be that none of the use cases individually justifies the investment hump (or does so quickly enough to satisfy investors), but together they do. However, Verizon reckons that fixed-wireless alone justifies investment in 5G.
Both visions show that fixed technology and 5G are critically interdependent. NG-PON2 depends on the value of 5G mobile (plus other small cells, C-RAN); 5G depends on fiber, and may also depend critically on non-mobile use cases.
The inherent logic of fixed-mobile convergence is network sharing across fixed and mobile. New fiber and mobile networks will each be sliceable for end-to-end delivery of an orthogonal range of services, but to unlock the full potential of 5G and of dense fiber networks more coordinated thinking has to happen. Work on coordinating standards across what have been siloed standards bodies has barely begun - hence a timely plea for more collaboration from Deutsche Telekom’s 5G program manager in July 2016.
In fact, it is possible to draw a similar schematic diagram for the physical infrastructure layer. Investment in renewal, or build-out, of utility infrastructure (ducts, poles etc.) works better if it is treated as a multi-purpose investment. For example, ESB’s investment in renewing power transmission infrastructure in Ireland has an improved ROI because it also enables lower-cost FTTP deployment in otherwise economically challenging areas for entrant fixed operators.
Holistic investment strategy required
The high costs and mixed revenue potential of 5G will require operators to take a holistic approach to investment. 5G is going to cost a lot, and the mainstream use case, that of enhanced mobile broadband, looks rather weak. 5G requires overcoming an infrastructure capex hump that is of a different order of magnitude from that of LTE, which essentially optimized the legacy macrocell architecture.
Most of the overall cost will not be for radio equipment: it will be for infrastructure, planning, gaining access to sites and labor. This spread of costs is very familiar to fixed telecoms operators. The investment required (or reuse of existing sunk-cost assets), and the timescales involved in rollout, are closer to that of FTTx than what is typical for mobile deployments.
5G will also incur the cost of a virtualized core centralizing some processing functions and enabling faster software-defined configuration of networks for specific use cases. Virtualization is likely to intensify the need for fiber behind the radio heads, because unprocessed or semi-processed radio signal requires fatter pipes than traditional backhaul. In addition, future 5G services, especially those that fall into the ultra-reliable use-case category, will require investment in mobile edge computing (MEC), which pushes in exactly the opposite direction from the centripetal pull of the virtualized C-RAN.
The revenue outlook, while not bleak, makes it difficult to justify investment in 5G unless a more holistic approach is taken:
- 5G fixed-wireless promises some revenue uplift as a potential entrant strategy to fixed broadband and video. For others, it will be a lower-cost means of delivering fiber-like services. Fixed broadband services have some revenue growth potential - revenue is currently growing at mid-single-digit percentage rates worldwide.
- 5G-enhanced mobile broadband may be useful as a marketing tool for operators that are keen to maintain their reputation as service leaders. However, gigabit speeds on smartphones and tablets are probably of little real value to end-users. The gradual introduction of 4.5G speeds and capacity into the mobile market does little to boost revenue and even its impact on traffic volumes seems short-lived. The European mobile market appears to have bottomed out, but the revenue outlook is negative in most other regions.
- 5G IoT faces challenges from LPWA, and caution is required about the potential revenue for operators. IoT revenue is about 1% of mobile revenue, and will grow at about 20% per annum worldwide during the next five years.
- The ultra-reliable high-performance use case looks furthest out and is hardest to predict, but this is perhaps the only use case that exploits the unique capabilities in the 5G performance targets.
In a commercial environment where overall revenue shows at best modest growth, and where the promise of new revenue streams still looks somewhat remote, fixed and mobile network businesses - and even utilities - need to share resources more effectively and pro-actively. Fiber will be the key enabler of 5G, and 5G might even become the last mile (or in reality, the last couple of hundred meters) technology of choice for fixed operators. Unless operators find a commercially successful way to share resources, 5G will become an impossible capex burden on most, and will be controlled by too small a number of players for dynamism to flourish.
Rupert Wood is lead analyst for Fixed Networks and Wireless Networks at Analysys Mason
This article was first appeared on Telecom Asia SDN Insights October 2016 Edition
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