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5G build-out costs have not fallen as promised; co-investment is vital

For the past few years, operators have been talking at length about how the cost of building out 5G must be radically lower than previous generations of networks, otherwise it would be impossible to achieve a viable business case. So far, nothing has changed very much from the first days of 3G and 4G. Operators may get more capacity for their money, but their absolute capex levels – not to mention opex – are looking very similar. And as at the start of 4G, there is no clear increase in ARPU, or expansion of services, on the horizon.

So far, early movers are rolling out conventional macrocells to support conventional mobile broadband services. The developments that are promising to reset the norms as far as network costs are concerned have not yet happened. Fully virtualized networks, commoditized white box hardware, low cost open base stations with common interfaces – all these are starting to evolve, but are well away from the commercial big time; as are the promised new revenue streams that 5G will drive in the enterprise and IoT. Vendors may be under pressure to reduce prices, but that will not be helped by the efforts to exclude Huawei and ZTE from the race, and reduce the macro network supply chain to three.

Even Rakuten, the cheerleader for open, cloud-based networks and a new TCO model, is having to invest in cloud infrastructure and extensive levels of network customization and tuning before it will achieve its software-centric vision. It is likely – just like its more established peers – to be saving more as a result of vendors’ willingness to finance or donate equipment, in order to score deals with early movers, than from new architectures.

This will change. The cloud-based, fully automated networks will start to become real, and TCO levels will fall, but only after operators have spent another big chunk of capex on cloud servers, Massive MIMO antennas, hyperdense hotzones and low latency optimization, all of which will add to the capital bill. In the meantime, then, operators will be looking for alternative ways to save money, and rather than being driven by new software platforms, these will revolve around sharing the costs.

Operators will offload towers and other assets to unlock cash and then increase their levels of sharing of active as well as passive infrastructure. They will become more open to co-investing in networks with competitors or industry partners. They will rely on third party cloud infrastructure and fiber rather than feeling the need to own all their own physical assets. And they will seek mergers in order to increase their economies of scale and reduce their competition.

These trends are being seen in many markets. Some of these are 5G leaders such as USA and China – where operators are under pressure to accelerate their roll-out, and are eagerly looking for others to help shoulder the burden. Others are earlier in the 5G journey, but from Italy to India to the UK, and in many other markets too, there are increasingly creative ideas emerging for reducing 5G build-out cost in the first phase, while staying on the right side of regulators.

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