by business reporter Stephen Letts
Updated 4 Dec 2018, 9:41am
It is said 5G, or the next generation in mobile communications, is a brilliant technology in search of a business plan.
- Telstra expects to have its first 5G phones on the market by mid-next year
- 5G delivers near real-time communication, but most phone users won’t notice a difference
- Analysts tip 5G to revolutionise business, rather than personal, mobile use
Even without a revolutionary 5G application to unleash a flood of new revenues, or cover the cost of building the new networks, the big telcos are ploughing on with the roll out.
Business plan or not, it’s the way mobile telecommunications have evolved.
Every decade or so a new generation, or G, is unveiled.
The jump from 4G to 5G may prove to be profound in the history of telecommunications, but for the average phone user the change will be neither immediate nor probably very obvious.
Telstra began trialling 5G in 2016. It started with test devices the size of a bar fridge. They’re now down to roughly the size of a standard smart phone.
While its development since has largely been under wraps, this week 5G will be the headline act at Telstra’s Investor Day presentation.
It’s always an important day on the company’s calendar. It gives those bankrolling the still dominant telco an idea of where the company is heading, and where future earnings growth might be found.
If it’s a fizzer, the share price tends to follow the same trajectory.
It’s fair to say, Telstra investors need a glimmer of hope, having seen the value of their investment more than halve since early 2015 and their cherished dividends slashed.
Telstra’s fixed-line revenue has declined by more than $1 billion over the past two years and is forecast to fall another $1.3 billion by 2022.
Revenues from mobile stopped growing three years ago, and there is squeeze on margins as the price of handsets and content, such as sports rights, rise.
So will the Investor Day presentation unveil the application to fill in the NBN-inspired revenue black hole?
The big fund managers and investment analysts this week’s 5G pitch is aimed at are not expecting to suddenly re-rate Telstra on what they will be told.
Citi’s telco analyst David Kaynes has a sell recommendation on Telstra. That may not change, but he says the 5G message will be important.
“Telstra has always prided itself on its network domination and will want to move ahead of the others [on 5G],” Mr Kaynes said.
He said the main thing consumers can expect from 5G is a fast, more reliable and more efficient wireless service.
But big advances — like mobile phone users received in previous generational change with faster internet browsing and video streaming — are less likely this time.
“A 5G smart phone is not going to seem much different. 4G phones already download faster than you can watch,” Mr Kaynes said.
“I haven’t seen a killer app anywhere globally yet.”
|Mobile phone generation||Introduced||Advance|
|1G||1981||First wireless telephony, basic analogue system|
|2G||1991||First digital platform, allowed for simple text (SMS) and picture messages|
|3G||1998||Faster speeds, internet browsing introduced|
|5G||2020||Vastly faster, virtually real-time communications, greater efficiency|
The new industrial revolution
But unveiling a “killer app” is perhaps not the point of this week’s exercise.
As Mr Kaynes says, the big carriers need to upgrade their networks and boost their efficiency all the time. They will all have to invest in 5G just to stay competitive.
Telstra’s head of networks Channa Seneviratne says it is hard to overestimate the importance of 5G.
“It’s the next phase of the industrial revolution … it will bring to life the enterprise case for artificial intelligence, machine learning and machine-to-machine communication,” Mr Seneviratne said
Its breakthrough will be supporting high levels of complex automation that need real-time communication able to deal with numerous streams of information at the same time.
“In four-to-five years it [5G] will be ubiquitous, like electricity,” Mr Seneviratne said.
In any case, Telstra’s fixed, NBN-based network will continue to do the heavy lifting, Mr Seneviratne argues.
“They are quite different markets and the technologies are complementary.”
In other words, 5G is unlikely to cannibalise fixed broadband.
5G no NBN killer
That is also the view of global telecommunications consultancy, Ovum.
Ovum’s consumer research shows that by international standards, Australians are not particularly enthusiastic about mobile-only approaches.
Only 15 per cent of Australian telecommunications customers adopt a wireless-only strategy. Only the UK has a lower figure.
“The impact of 5G on fixed broadband networks in Australia will be somewhat larger than the current impact of 4G, but it is not a game-changer and will not have a significant impact for several years,” a recent report from Ovum on Australia’s nascent 5G roll out predicted.
“Fixed technology is not standing still, either. The capacity and efficiency of fixed broadband networks are growing and will continue to do so after 2020.
“It is therefore far too early to write the obituary for fixed broadband.”
However, there are efficiencies to be gained and costs to be cut with 5G mobile.
Leading hardware supplier Ericsson, in a recent white paper, estimated the cost of operating a 5G cell site will be one tenth of the cost of a 4G site.
“However, this cost benefit will be eroded as data traffic grows,” Ovum noted.
In the early stages, the 5G roll out won’t have the eye-watering capital expenditure costs associated with the NBN or earlier generations of wireless mobile.
The current 5G spectrum being auctioned can easily be handled by bolting new cells onto existing 4G infrastructure. That means a tower every 1-to-5 kilometres.
While Telstra hasn’t broken out the 5G capex budget publicly, it is thought to be around $3 billion on top of the normal network spending.
Upgrading to ultra-high frequency “millimetre” waves is a vastly more costly exercise for a big network, requiring cells every 250 metres or so in built up areas.
“5G is no panacea; the high frequencies at which 5G operates mean that 5G cells will be small and will require more base stations and backhaul, pushing up both capital and operating costs,” the Ovum report cautioned.
Telstra’s Channa Seneviratne says Australia will be using millimetre wave technology in the future, but it won’t be in 2020.
“Commercial use won’t be before 2021. A that point we will have to design a network in terms of the laws of physics,” he said.
Given Australia’s vast area and low population density, a millimetre wave network is likely to remain a niche product, perhaps limited to factory floors, or “behind-the-window” use.
However, that spectrum is not even on the market yet and Telstra has only started bidding for the available frequencies in recent weeks.
Business case, what business case?
Next year’s commercial launch will be limited to the capital cities, as well as couple of regional centres, including Toowoomba and Launceston.
It will be deployed in high-usage areas such as central business districts, shopping malls and sporting venues where 4G networks are under strain.
“This use case will generate no significant new revenues, though it will help to manage 4G congestion,” Ovum’s Asia-Pacific research head David Kennedy said.
“New revenues will not appear until well into the 2020s, when new internet-of-things use cases emerge.
“In 2020, the 5G network will have a limited footprint and will look and feel very much like the existing 4G LTE network.”
On Ovum’s estimation, national-scale 5G networks will not emerge until the middle of the next decade.
“Investment on this scale depends on the development of more solid business cases for these new 5G use cases,” Mr Kennedy said.
“There could be significant revenue streams in future years as industries digitise … but there’s unlikely to be anything material in the next few years.
“As these [revenue streams] emerge, coverage expansion will require access to and support for numerous new cell sites, which will also take time and expense to organize.”
Will it cost more?
So will consumers be slugged with expensive new plans and handsets to underwrite something that in its early stages won’t appear to be different to what they already have?
“Probably not,” argues Citi’s David Kaynes.
“We’re not expecting consumers to pay more. There wasn’t a price rise from 3G-to-4G.
“It’s just going to be faster, but already [most people] have enough speed to do what they want on their mobiles.
“If all you’re doing is upgrading equipment, that is not exactly the exciting prospect for the marketing department.”
It will be instructive to see just much excitement this week’s marketing exercise generates among the big investors.