by ABI Research Senior Analyst Leo Gergs
The telco industry needs to prepare now for the advanced services and features 5G will offer consumers and enterprises as 5G deployments ramp up rapidly in order to take advantage of monetization opportunities.
The status quo of 5G and market uptake
In 2021, 5G already experienced noticeable uptake and commercial deployments will accelerate even further in 2022: The number of 5G network deployments grew from 140 in 2020 to more than 200 networks in 2021 (representing an increase of 43%). The number of 5G subscribers more than tripled from 220 million to 700 million consumers in 2021. Similarly, the number of 5G-capable devices in the market jumped from 559 in 2020 to 1,276 in 2021. Overall, more than 200 operators had deployed 5G networks as of the end of 2021. Looking at all these performance indicators at this stage, 5G is already growing 3X faster than its predecessor 4G.
In addition, 5G Fixed Wireless Access (FWA) is proving to be a great success for operators. By the end of 2021, a total of 83 5G FWA networks were counted, serving more than 3 million consumers within the first year since its commercial launch.
In the enterprise domain, 5G continues to gain a foothold, as more than 30 network operators globally have provisioned more than 60,000 5G private lines. In 2021, China saw more than 3,000 commercial 5G contracts with enterprise verticals, generating more than US$3.3 billion in revenue.
Looking at 2022, it is time to highlight the underlying reasons and dynamics behind this noticeable uptake and draw implications for the telco industry to prepare it for what is to come in the years ahead.
5G in the consumer market
In the consumer market, operators are showing signs of success. China Mobile, for example, reports serving 1 billion people through more 700,000 base stations. By the end of 2022, the Chinese operator expects to have deployed more than 1 billion 5G base stations across the country. China Mobile reported 12.9% revenue growth Year-over-Year (YoY) in 2021, and more than 35% 5G penetration. Key to its success in the consumer domain is an appealing business model with relatively flat pricing: its 4G data plan costs US$25 for 20 Gigabytes (GB) of data, while the 5G data plan is priced at US$29 for 40 GB of data. For only US$4 more, a consumer can double their mobile data allowance. Expressed differently, consumers will pay 40% less per GB of data. For the operator, on the other hand, the Average Revenue per User (ARPU) increased by 20%, due to 5G spectrum efficiency being almost 10X higher than for 4G. All this is happening even before new 5G services, such Extended Reality (XR) or metaverse, for consumers start taking off.
In Germany, Telefónica achieved a cumulative revenue growth between 2020 and 2022 in excess of 5%, with continuously increasing profit margins from the consumer domain. In the Middle East & Africa, network operator Zain has more than 20% of its subscribers on 5G contracts already, with 5G contributing almost 40% of total cellular network traffic as of 4Q 2021. In addition, its FWA business has multiplied by 12X in 2 years since 2019. All of this points toward very healthy growth for 5G, particularly for FWA in the Middle East & Africa.
These examples illustrate that mobile operators can generate additional revenue from their 5G networks now, while preparing for more advanced services, such as network slicing and enterprise 5G.
Consumer trends like the metaverse will further nurture the transition toward 5G, as it raises the amount of data to be transmitted, requiring higher bandwidths, lower latencies, and more reliable network connections. Taking all of these aspects into account, technology consultancy ABI Research forecasts that, by 2026, there will be 2.6 billion subscribers on 5G contracts globally.
The immense opportunity for enterprise 5G applications
In addition, 5G adoption for enterprise verticals is beginning to take shape, albeit at different paces in different regions of the world, as enterprises now understand that for enterprise use cases, 5G is more than just “4G + another G.” This understanding is particularly strong in the Asia-Pacific region where uptake is steeper than in other regions in the world. In Germany, for example, almost 200 enterprises have shown interest in deploying their own private network to the national regulator Bundesnetzagentur as of February 2022. Speaking to these enterprises shows that the majority are indeed interested in deploying 5G connectivity on their site, instead of using 4G LTE as a bridging technology. With operators like China Mobile having recently tested more than 5,000 industry use cases, it seems that 5G Business-to-Business (B2B) applications are eventually becoming a commercial reality.
In the so-called uncarpeted verticals, for example, using Huawei infrastructure, China Mobile deployed a private 5G network at the Hunan steel factory in the Furong special district in Changsha to power remotely operated cranes, improving workers’ safety and comfort, while also increasing overall productivity and subsequently, efficiency. Furthermore, 5G and Artificial Intelligence (AI) capabilities were combined to automate steel forging processes, therefore decreasing dependency on manual labor. As a result, the steel manufacturer decreased worker turnover by 40%, while managing to increase annual yield by CNY100 million.
In addition to deployments in manufacturing establishments, hospitals and logistic hubs are emerging as two additionally interesting environments to deploy a private network.
At the Siriraj hospital in Thailand, for example, 5G is being deployed to enable Thailand’s overall transition to a smart healthcare system. While the hospital launched a joint innovation lab together with infrastructure vendor Huawei to test more than 50 use cases for 5G within healthcare, it also started to deploy 5G-powered Automated Guided Vehicles (AGVs) for contactless medication delivery to patients during the COVID-19 pandemic.
At the East-West Gate Intermodal Terminal in Hungary, a private 5G network is deployed to create digital twins for simulating logistics workflows and remotely operating loading cranes. Doing so allows for a denser deployment of cranes per track. While in a manual setting, only one crane per track is possible, but in a remotely operated setting, two cranes can be deployed on one track. Consequently, much longer freight trains will be able to be handled within the same time. Early results of the project show that remote operations and digitization have increased the efficiency in the terminal by 4X.
Key takeaways for operators & enterprises
In the consumer domain, examples like China Mobile, Telefónica, and Zain have shown that 5G benefits consumers and, therefore, monetizing potential for operators are materializing now. The remaining operators should use these examples as additional impetus to develop 5G data plans and start monetizing 5G services now, even before new applications like XR become mature and commercialized at scale.
While 5G has fully arrived in the consumer domain, a lot remains to be done for operators, vendors, and System Integrators (SIs) to turn enterprise 5G into commercial reality.
First, the ecosystem for enterprise-grade 5G needs to evolve, as chipsets and devices that are compatible with 3GPP’s Release 16 (which was frozen in the summer of 2020) are still nowhere to be seen. As this release brings important improvements in deterministic and Time-Sensitive Networking (TSN), as well as Ultra-Reliable Low-Latency Communications (URLLC), industrial enterprises with highly-critical use cases specifically are waiting for these features.
Second, the telco industry needs to come together to understand the exact enterprise pain points and resulting technology requirements. This is where the global industry can look toward China with its “Set Sail” program that lays out the specific means for how to bring telco industry and enterprise verticals together to develop a common understanding and framework that will then foster industry-wide adoption of 5G cellular connectivity.