BARCELONA, Spain – The telecom industry is in the middle of a 5G frenzy, but cost concerns could drag out the deployment of those networks for several years.
Dan Hays, principal at PwC’s Strategy& division, said that the lack of clear revenue-generating use cases and the telecom industry’s overall lack of spare cash are significant overhangs that cloud the current hysteria around 5G deployments.
“We are hearing a lot of whispers of doubt,” Hays said from this week’s MWC Barcelona event in Spain. “While the tone around 5G is exuberant, quietly everyone we are talking with from the vendors to the operators to the enterprises are questioning who is ultimately going to pay for 5G deployments.”
Hays explained that one of the financial challenges is finding use cases that require 5G networks.
“There are a lot of interesting and cool demos for automotive, manufacturing, robots, and drones, but when you ask about whether they require 5G, the answer is normally no,” Hays said. He did acknowledge that something like augmented reality could be an exception because it does require the high speed, low latency, and mobility components that are unique to 5G.
Another issue tied to cost is the challenge operators are seeing in terms of updating their networks to support the automation requirements of true 5G networks. Hays specifically cited the need for operators to tap virtualized platforms to replace legacy hardware.
Hays explained that operators are finding it difficult to implement “rip-and-replace” models to install virtualization in their networks. “Operators are beginning to accept that 5G has become that inflection point for their virtualization plans, but that’s still a big move,” he said.
These challenges are set to temper 5G deployments from a “big bang” to more of an extended deployment horizon. Hays said this could stretch over a six- to eight-year period that will allow carriers to absorb the capital expense requirements.
“This will come in two ways: one is that they will install 5G when it becomes essentially a capacity augmentation method as part of their tool kit; and the other will be when it becomes part of the natural lifecycle evolution as a replacement for 4G equipment,” Hays said.
A similar sentiment was noted by consulting firm EY, which in a new report cited financial strain as a key barrier to 5G plans.
“While network quality remains a fundamental differentiator, the report finds that rising capital intensity and a more diverse portfolio of network assets are making it increasingly challenging for telcos to achieve strong returns on investment,” the report states.
This financial concern is not lost at the MWC Barcelona event. A number of vendor executives have highlighted their strong desire to partner with operators on ways to generate revenue from 5G networks. And, of course, share some of that revenue with those vendors.