More euphoria than reality in the short-term
While excitement among equipment and handset makers is high, telecom operators globally have taken a measured approach to 5G as the hopes for 4G did not meet expectations with elevated capex and limited monetisation. In a survey by the Telecommunications Industry Association (TIA), telecom operators questioned whether 5G can be transformative. In the survey, operators showed most optimism about autonomous vehicles as a new business opportunity and network slicing as a key technology differentiator. Not surprisingly, most telcos globally (except Korea) have so far laid out modest 5G rollout plans. Even Chinese telcos (which led in the 4G era) have announced plans for a joint network build to manage capex pressure.
Technology "evolution", but a business model "revolution"
We expect 5G to evolve more gradually than 4G with subscriber penetration at 18% in five years (4G reached 30% penetration in five years). Availability of new spectrum and compatibility of 5G radio with 4G core are factors that will allow 5G to co-exist with 4G. Still, the transformational changes (20x speed, 10x lower latency, virtualized core networks, network slicing and edge computing) will blur lines between "access" and "service" and drive meaningful shifts in business models across the value chain. Telcos will have to move beyond pure and undifferentiated internet access; telecom equipment companies have to evolve from simply selling basebands; automakers need to evolve from selling cars to life-time customer management; while hospitals have to start providing comprehensive health management, anytime and anywhere.
Some balance of power for telcos, but advantage for downstream sectors
While rapid 4G take-up hampered monetisation as telcos focused more on driving subscriber migration, a gradual 5G evolution should allow service differentiation and price premium, especially for operators that can invest in 5G. Beyond telcos, upstream sectors (telco equipment, towers) have limited time to prepare for upcoming disruption, whereas downstream companies (software, Internet) have an advantage as they can re-position strategies and products as technology evolves.