The shift from connecting people (pre-5G era) to connecting everything (5G era) will require an architectural overhaul of telecom networks. A true 5G network will not only leverage new radios but also be inherently cloud-native, virtualized, programmable and automated and provide near-limitless capacity at ultra-low latency. This will require transformation across the entire network, not just at the access layer.
Network transformation moves from industry buzz phrase to reality
The telecom industry has discussed network transformation for years, though its amorphous meaning is beginning to take shape and materialize. TBR is seeing communication service providers (CSPs) transform into digital service providers (DSPs) propelled by ICT convergence, NFV/SDN, cloud, 5G, big data and analytics, and artificial intelligence (AI) and machine learning. These trends and technologies are helping operators evolve their networks from being rigid, slow, static, reactive and closed to being flexible, fast, dynamic and open.
Some of the trends contributing to this shift include moving from on-premises/physical networks leveraging black boxes to cloudified/virtualized networks leveraging white boxes. Hardware-defined networks were capex-driven, whereas the future of the network is software-defined and opex-driven. This evolution allows operators to more quickly and easily launch offerings for new revenue streams and reduce network costs over time.
Though NFV and SDN adoption has been slow, some Tier 1 operators are progressing with their plans and reaping benefits. Integrating NFV and SDN capabilities will enable operators to more effectively support network technologies that will become prevalent in the 5G era, such as network slicing and edge computing, which will play a pivotal role in supporting 5G use cases such as advanced Internet of Things (IoT). Operators are under pressure to invest in NFV and SDN to reduce total capex and opex spend as well as introduce new services and stay competitive in the data-driven digital economy, which is increasingly dominated by webscale and over-the-top players.
5G is taking up greater mindshare as commercial deployments begin
Operator networks must ultimately be overhauled to fully realize the potential 5G has to offer, though it will take operators many years to evolve their networks end-to-end. In the meantime, the current focus, and 5G-related capex spend, will be on 5G radios. The potential cost savings offered by 5G is spurring operators to accelerate their deployment timelines, pulling them forward by as much as two years. Efficiency gains remain the main driver to deploy 5G, as a viable business case for operators to grow revenue from 5G has yet to materialize (with the exception of fixed wireless broadband). 5G, which is expected to provide between four- and 10-times greater efficiency on a cost-per-gigabyte basis compared to LTE, will enable operators to more cost-effectively add network capacity to support the prevalence of unlimited data plans as well as continued connected device additions.
There are myriad ideas for new network use cases that 5G could enable, but ROI remains suspect. The most economically viable use case thus far for net-new revenue generation from 5G is fixed wireless broadband. In 2020-2025, which TBR believes will represent the “renaissance” phase of 5G, there will be a plethora of new use cases for the network, particularly in the areas of augmented reality (AR)/virtual reality (VR), smart city, IoT and robotics.
Realizing the full benefits of 5G requires significant investment across the network, not just in the access layer. Operators will invest in fiber, spectrum, massive MIMO (multiple input and multiple output), carrier aggregation, NFV/SDN and cloud RAN (C-RAN), which will provide opportunity for vendors. Though positioned well in key early 5G markets, incumbent vendors are threatened with disruption from NFV/SDN-centric firms, particularly firms in the areas of virtual RAN and mobile core. TBR estimates over 85% of 5G capex spend through 2020 will be driven by operators in four countries: U.S., China, Japan and South Korea. Most Tier 1 operators in these countries have aggressive 5G rollout timetables and intend to leverage the technology for fixed wireless broadband and/or to support their mobile broadband densification initiatives.
TBR covers these topics in depth in its operator, vendor, 5G, NFV/SDN and webscale research streams.