Much has been made about the ‘Race to 5G’, and while much of it is little more than posturing, there are certainly economic and political rewards for accelerated deployments.
COVID-19 is a reality we will have to get used to for at least the immediate future. The outbreak is showing signs of slowing down, but that is only the first stage of recovery. It will be months until some semblance of normality returns to many parts of the world.
That said, China is reopening for business, and according to many reports, the 5G rollout is back on-track. This global pandemic, which is causing chaos in every facet of society, offers China an opportunity to make a challenge for 5G leadership, and it could result in a very difficult, divergent and discordant telecommunications industry.
Before we get into the guesswork and assumptions about the future, lets set the scene in Europe, North America and China.
Starting in Europe, the coronavirus outbreak has devastated the continent. The majority of countries are under some form of self-isolation regime, while telecoms operators are directing their attention towards improving resilience of broadband and 4G networks. These projects are seemingly forcing operators to refocus capital and resource away from 5G deployments, while the postponement of spectrum auctions will leave some operators short of the valuable airwaves critical to a 5G proposition.
In North America, the impact of coronavirus is perhaps several weeks behind Europe and other Asian regions, though it is now aggressively wrecking chaos. In the US, many citizens are under self-isolation measures, and the FCC delayed a spectrum auction for the mid-band spectrum which could make a considerable difference to 5G performance.
Both of these regions are staring at a recession in the mid-term, meaning customer demand for 5G, both consumer and enterprise, will be lessened, and while the high street is closed, device sales will take a material hit. With dampened consumer demand for 5G and telco attention being drawn elsewhere, the deployment of 5G networks will likely suffer.
Now over to China. Across the country, many regions are returning to normality as the lockdown lifts. Some presumed there would be a second wave of COVID-19 as the hustle and bustle returned to the streets, but so far there is little evidence of this. China appears to be returning to normal, which is of course an encouraging sign for the rest of the world.
That said, this is an opportunity for the Chinese telcos to ramp up 5G deployments as others slow down. And perhaps more encouraging for the Chinese telcos, there appears to be consumer demand as China Mobile boasted of 15 million 5G subscriptions during its last earnings call. The pieces seem to be falling into place.
The longer Europe and North America are in lockdown, the more of an opportunity the Chinese telcos have to close the gap on 5G network deployment, overtake and potentially create a leadership position as the new era of connectivity heads into the mainstream.
But realistically, having the biggest 5G network or the most 5G subscribers means very little on the surface. Politicians might like such soundbites, but it doesn’t translate into influence on the global stage unless China can capitalise on this transition to build a 5G enabled economy behind the posturing numbers. This is the very reason the US dominated the 4G era.
Although the first 4G networks were introduced in 2009, the democratised mobile internet did not really hit the mainstream until 2012/13.
|4G subscription numbers (2010-14) during development years|
Data curtesy of Omdia’s World Information Series (WIS)
As you can see from the table above, the US very aggressively pushed into the 4G era, while Japan followed quickly. Europe was slow to gain traction, while China arrived very late, but quickly scaled. Again, on the surface these are nothing but numbers, but you have to consider what they inspire.
4G brought about a new type of business model through the democratization of mobile internet services. What we take for granted today would never have seemed possible in 2012 as the concept of digital became a significant driver for economies. Today, the biggest digital fortunes are being captured by the early adopters, and many of them are located in the US or China.
By aggressively investing in scaling 4G networks, innovators had an opportunity to test out new ideas, products, services and business models on the domestic market. They collected revenues, fine tuned the idea and built a war chest for expansion into international markets. The entrepreneurs in markets where 4G was slow to scale did not have the same opportunities, and while these digital economies did eventually scale, the international pecking order had been established.
This is why scaling 5G networks faster than other nations is so important. 5G will bring about a new generation of products, services and business models, but in which country with the internationally dominant players be located? And where will the ecosystems to support these new ideas be concentrated?
Silicon Valley and Seattle are two regions which have hoovered-up the cash thanks to the likes of Facebook, Uber, Microsoft, Google and Amazon dominating the 4G era. And down another level, the ecosystems supporting all of these internet giants are prospering, and more likely to be in areas close to Silicon Valley and Seattle.
Let’s say a 5G ecosystem was to develop in Cambridge thanks to three random companies being the dominant forces in the 5G era, tomorrows Facebook, Amazon and Google. The faster these companies grow at the expense of others around the world, the more likely neighbouring innovation hubs are likely to appear as the supporting ecosystem/suppliers to these companies, bringing more jobs. Other companies will create their own R&D facilities in the surrounding areas as well, bringing more employment and prosperity.
Alongside these technology hubs, supporting industries such as legal and finance will blossom, as will construction to build homes, restaurants to feed people and high streets for shopping. It might sound simple but cultivating a growth industry offers a surge to the overarching economy.
In terms of numbers, if Silicon Valley was a country, it would be considered the second-most profitable country worldwide with $128,308 per capita in annual gross domestic product (GDP). Only Qatar is higher, while the Federal Bureau of Economic Analysis estimates this tech hub accounted for $275 billion in GDP, which is more than Finland.
The benefits of the 4G era has spread throughout the world now, but there are still regions were the greatest prosperity is evident.
|Annual revenues of internet giants (2012-18)|
Total revenues in millions (US$)
5G will offer the same, and it looks like China has a chance to steal a bigger slice of the profit pie thanks to events today slowing down 5G network deployments in Europe and North America.
But what could this mean outside of an uplift to the economy?
Firstly, perhaps this is a lucky break for Huawei. It will of course collect profits through the sale of 5G base stations and 5G smartphones, but it will also create an opportunity to bed its Harmony operating system into the hearts and minds of a scaled 5G capable userbase, which would in turn encourage more developers to create services and products for this OS as well as Android and iOS. Without Android’s 5G users scaling at the same pace, Harmony OS might look like an attractive proposition to developers.
This is a very dire consequence for Google and can be traced directly back to the decision to place Huawei on the US Entity List, banning it from working with US partners and suppliers. China is a significant userbase, as are some of the nations who are closed allied with the Chinese Government or reliant on the country for trade, where Harmony OS could also blossom.
In the future, we could see three dominant mobile operating systems. Android and iOS in the West and Harmony OS in the East.
The second potential consequence of China taking the lead in the 5G stakes is further fragmentation in the global 5G ecosystem.
Should China push forward and accelerate the development of a 5G ecosystem based around its own companies and userbase, the political climate could threaten a wedge being driven in between the East and the West. You do not have to stretch the imagination too far to believe President Trump would take aggressive action to halt a Chinese leadership position in the technology world, therefore it is not out of the question to imagine two separate ecosystems, one based around the US technology industry and a second based around China.
This would be a disastrous outcome for the technology world, which has seen the consequences of fragmentation before. The globalised economy is benefiting many, though politics has for many years, and will continue for many years to come, threatened to splinter industries as isolationist policies in pursuit of patriotism become ever more popular.
And what would this mean for Europe? Forever caught between a rock and a hard place, this scenario would make for some very difficult international relations.
What is worth noting is that the final section of this article is very much theoretical. It is the worst-case scenario, but a realistic outcome. It shows what the power of 5G is to an economy and a nation’s influence on the global political stage.
China is going to scale 5G very quickly, but whether the 5G ecosystem benefits it more than other nations in the future is partly dependent on how much of a crippling effect COVID-19 has on 5G deployments and the ability of innovators to scale ideas.