WinWin Issue 42
The 5G Dynamics: Massive Adoption Drives Massive Monetization Opportunities
-- 5G adoption is rapidly gaining momentum, presenting a tremendous opportunity for further growth over the next decade. Device availability and affordability are key for consumer adoption, with the latest GSMA Intelligence research report — 5G Device Evolution and Outlook — highlighting the 'spark' that will drive both uptake and operator revenues. FWA, for example, is one of the early 5G use case successes, helping operators create new revenues thanks in part to 5G CPEs becoming more abundant and cheaper. At the same time, with 83% of operator CEOs expecting B2B to be the greatest 5G revenue driver, we cannot ignore the role enterprise digital transformation will play.
The 5G journey that started sometime in 2018 with a few initial rollouts has today achieved unprecedented growth. In many high-income countries, 5G penetration has surpassed 50% of the population. Despite the adversity brought by the pandemic and the delays in spectrum auctions in some markets, 5G investments remained undeterred over the past two years. The availability of affordable 5G terminals has triggered an upward trend for 5G in both developed and developing markets alike. Shipments of smartphones and customer premises equipment (CPEs) are growing rapidly worldwide. With growing adoption of industrial 5G, the market for industrial devices will also witness a boom in the coming years.
5G to achieve 5.2 billion connections by 2030
According to GSMA Intelligence Q2 2022 tracker, 219 operators worldwide (excluding regional US and Canadian operators) in 83 markets have already conducted spectrum auctions. It is expected that 642 operators covering 225 markets will launch commercial 5G by the end of 2030. Consequently, 5G adoption is expected to grow from 738 million connections, covering just 9% of the population in Q2 2022, 2 billion by 2025, and 5.2 billion by 2030. Such a high pace of 5G network rollout is substantially higher that of 3G or 4G. Whereas 5G accounted for more than 5.5% of mobile connections 18 months after its launch, 3G and 4G could not exceed 2.2% penetration during the same interval, a GSMA study found.
Mobile operators across the world are ramping up 5G investments to meet the surging demand from the consumer and enterprise segments in 2022. The network lays the foundation, content and services inspire adoption, and devices facilitate the journey. Given this, there is an urgent need to massively scale 5G infrastructure to spur the adoption across consumer, home, and industrial customer segments. Indeed, network coverage expansion — and therefore service availability — is a contributing factor for driving devices adoption.
5G smartphone trends
Our recent research — 5G device evolution and outlook: the search for a spark — has identified some interesting trends across devices in consumer, home, and enterprise segments. The consumer segment is by far the largest part of the devices market, with smartphones accounting for the vast majority, followed by tablets, dongles, and virtual reality (VR) headsets. The market for smartphones has rebounded from a pandemic-induced fall of 10% in 2020 to a 5% increase in 2021 globally; however, there is significant regional variation and higher growth rates among early-adopter vanguard countries such as South Korea, the US, China, and the UK.
Smartphone pricing has been an important factor driving 5G adoption. Handset pricing in lower income markets has dropped significantly during the past year. While in the US and Europe the average selling price (ASP) dropped by around 5% in 2021, in emerging markets, it dropped by 15-20%, according to Counterpoint Research. Innovative Original Design Manufacturer (ODM )strategies have led to the availability of smartphones in the sub-US$200 range in markets like China and other East Asian economies. Rather than selling directly to consumers, ODMs here make phones on contract orders either for original equipment manufacturers (OEMs) or for operators as white-label products. The greater manufacturing scale and chipset supply capability in these countries favor such strategies, which pay off well considering that 35-40% of smartphone sales happen directly through operator stores.
Manufacturers of high-end phones are also pursuing innovative strategies to gain market traction. Apple and Samsung occupy the mid and upper ground (US$500+), while a number of Chinese OEMs have positioned their offerings below that, with prices falling further in 2022. The market also witnessed different types of trade-in schemes targeting the high-end phones in the $500+ range. In the UK, for example, trade-ins account for 15–20% of new handset sales, while this trend can be seen in other markets as well. Other strategies include interest-free financing schemes, which are offered for premium phones, especially from Apple and Samsung. Repayments are made in instalments over two to three years.
Technology traction in smartphones
The growing traction of smartphones is also attributed to their underlying technology and feature sets. The higher resolution camera has been a major feature update for almost every manufacturer over the last 10 years. Other smartphone features that today's customers look for include battery life; NSA and SA support; FR1 and FR2; Wi-Fi 6; NR in FDD/TDD; supplemental uplink; eSIM and NR carrier aggregation. Similarly, the processing and mapping capabilities for augmented reality (AR) and VR functionality will turn these devices into anchor points for separate form factors such as glasses and VR headsets. These handsets are also emerging as a conduit to other service and entertainment apps rather than purely staying as a standalone unit. As such, revenue premiums associated with hardware and airtime tariffs will depend on providing these features with a clear 'leap' over what is possible with the currently available options.
5G FWA dynamics and adoption trends
With 5G capable of delivering more than 10x the speed of 4G, 5G Fixed Wireless Access (FWA) is emerging as the most promising home broadband access technology. 5G FWA should see strong household penetration rise between 2021 and 2025. As of Q1 2022, 74 fixed broadband service providers had launched commercial 5G FWA services across 38 countries. Nine countries in developed markets will attain or surpass 10% penetration and form a benchmark for 5G rollout and adoption. Over the next four years, 5G FWA connections are expected to grow by around 90% per year on average across the 52 countries that have either launched or announced a 5G FWA service.
In countries where fiber broadband penetration is high, operators are keen to develop 5G FWA to increase their market share or supplement areas with poor cable/fiber coverage. However, in markets that have low penetration for fixed broadband (such as the Philippines), 5G FWA is perceived as an option to improve connectivity for the unconnected segment. Consequently, such countries will see faster-than-average growth. Also, countries where the fixed broadband technology mix is skewed towards xDSL (e.g., Austria, Bahrain, the Nordics, and Australia) can leverage 5G FWA to upgrade the legacy DSL. Given this, GSMA Intelligence predicts that FWA connection growth will be driven by a combination of new subscribers in greenfield areas (mainly in developing markets) and subscriber migration from xDSL, cable, and FTTH solutions (mainly in developed markets).
CPE innovations to drive 5G FWA economics
Innovations in 5G FWA CPEs will also drive the FWA subscription uptake. Major technical improvements that favor 5G FWA solutions are massive MIMO (mMIMO), sound reference signal beam selection, and 5G beamforming. The massive MIMO capability brings drastic improvements in throughput and efficiency while also reducing energy efficiency. SRS beam selection allows CPEs to switch between beams for optimized signal reception, whereas 5G beamforming and streamlined installation capability eliminate the need for aerial installation on roofs or outdoor fascia. Along with these, other advancements like Wi-Fi 6, NR carrier aggregation, and O&M for TR069 and TR143 standards will drive the adoption of CPEs.
Driven by these innovations, CPE units can provide 5G FWA with 2.0–3.5 times higher spectral efficiency than 5G mobile broadband (for smartphones) for the next few years in the event they meet criteria such as the immobility of the CPE (situated closer to windows), multi-user pairing and other enhanced technologies. This is important for the economics of the 5G FWA business case as it provides the underpinning for increased asset efficiency and revenues as operators monetize home data usage. GSMA Intelligence analysis suggests that 5G FWA can, under certain infrastructure conditions, bring potential cost savings of up to 80%, 70%, and 45% versus fiber to the premises/building (FTTP/B) in rural, suburban and urban geographies, respectively. These cost savings are valid under the three most common operator 5G FWA deployment scenarios and are based on total cost of ownership (TCO) modelling for Europe, Latin America, and the US.
5G FWA CPE shipment and pricing trends
5G CPE prices are falling fast, actively contributing to 5G FWA rollout. GSMA Intelligence predicts that, by 2023, the average cost of a 5G FWA CPE unit will be just over US$100 and that, by 2024, 5G CPEs will be priced almost on a par with 4G CPEs. Overall FWA CPE shipments are projected to grow at an annual rate of 25% through to 2026. Meanwhile, CPE vendors are rapidly making 5G FWA routers available, pushing down prices. In little over a year, the number of announced devices grew by over 31%, reaching 213 announcements by April 2022, with 120 5G FWA CPE devices commercially available from 72 vendors. Similar trends can be seen in the home FWA segment as well, with connectivity, device availability, and features making a strong impact on the service adoption. The availability of diverse CPE equipment with support for high-gain antennas, mMIMO, Wi-Fi 6, NR carrier aggregation, and O&M for TR069 and TR143 standards, the FWA is set to upscale in the coming days.
Industrial 5G: device adoption trends
Demand for industrial 5G is growing on the premises that 5G, with its ultra-high speed and low latency, will support innovative services such as e-health, connected vehicles, connected cities, real-time gaming, smart homes, and learning through VR and AR. Devices catered to enterprise applications can be categorized in to three: basic connection devices, general devices, specialist devices.
Basic connection devices provide the basic 5G network access. This group includes CPEs, gateways, routers, and dongles for data transfer. This is the most important device category as they are the enablers of 5G applications.
General devices are industrial devices such as cameras, drones, automated guided vehicles (AGVs), or on-board units that are fitted with 5G modules and can be used across many applications and industries. Among these, drones are the most demanding as they require continuous 5G coverage. AGVs and cameras, meanwhile, do not demand large-scale coverage, making them easier to deploy.
Specialized devices are those integrated with 5G modules or dongles. Examples include equipment for underground mining such as shearers and excavators fitted with 5G connectivity for remote control; special 5G cameras adapted for safety or explosion-proof requirements; 5G broadcast backpacks; and 5G medical trolleys. They will take longer to develop and integrate. While the number of such devices that are commercially available is lower than in the consumer segment, the number at the trial and live deployment phases is growing.
With the growing adoption of industrial 5G applications, the price of industrial 5G devices is expected to continue to fall in the coming months. Reduced capability, or RedCap, is expected to be commercialized in 2023, leading to reduced complexity and hence lower power consumption for 5G devices. This will also drive cost efficiency. With the increase in implementation expertise and know-how making 5G applications less onerous and more achievable for SMEs and large enterprises, 5G device-based solutions can effectively become the preferred rather than alternative option. As of May 2022, the number of 5G devices designed for enterprise applications announced totaled 1373 (though not all were commercially available).
Major verticals and use cases of 5G applications
5G applications are being trialed and implemented in several verticals, predominantly in manufacturing, retail & logistics, construction, mining, transport, warehousing, agriculture, and healthcare. The unmanned drones used in agriculture and retail delivery, along with the HD video applications for commercial security, are some of the initial industrial use cases of 5G. Solutions for the different industries can make use of one or multiple 5G applications, as well as one or more 5G device types, whether general or specialist.
Listed below are some of the major trials and deployments across major use cases.
The Huaheng Factory in China is using 5G and Mobile Edge Computing (MEC) to power AGVs for asset tracking and smart warehouse operations in an environment that requires smart vehicles for on-site logistics and operations.
Pangpangta Coal Mine in Lvliang, Shanxi, China, launched a 5G-supported, smart mining project in 2020, integrating 5G 10-gigabit-class industrial ring networks in two areas of the mine.
The Futian Medical Consortium in Shenzhen, in partnership with China Mobile and Huawei, embarked on a project to establish a private 5G healthcare network and 5G medical terminal R&D.
In 2020, Zhejiang Seaport Group, China Mobile Zhejiang, Shanghai Zhenhua Heavy Industries (ZPMC), and Huawei signed a strategic cooperation agreement on the Ningbo 5G Smart Port to implement 5G-based smart operations for ports.
Power grid and utilities
In April 2022, Florida Power & Light (FPL) partnered with Percepto to announce the deployment of hundreds of drone-in-a-box (DIB) systems.
Retail and logistics
Manna Drone Delivery in Ireland uses drones to deliver directly from restaurants and supermarkets to consumers' homes in Balbriggan, Dublin.
Environment and wildlife
The National Trust in the UK is leveraging unmanned drones using Beyond Visual Line of Sight (BVLoS)to count the number of seal pups in the Farne Islands, off the Northumberland coast.
What next: scale 5G users and revenue
As 5G adoption is expected to enter the next phase of development among early adopters, it is time to think of the strategies that help scale the adoption across consumer, home, and industrial settings. Ensuring reliable, faster, and secure connectivity is important to spur the adoption of consumer 5G services. Focus on content and service differentiation can lead to increase in network usage and average revenue per user (ARPU). Device affordability is another major factor driving consumer adoption of 5G, as evidenced in markets with competitive pricing strategies. Industrial 5G adoption will be largely driven by the vertical-specific capabilities offered by the service provider. And finally, device diversity is important in driving success across several implementation scenarios.