Momentum is growing around 5G, the fifth generation of wireless technology, slated for rollout around the world in coming years. 5G technology promises to usher in a new, ultra-connected age of digitally networked devices, from phones, tablets, and televisions to refrigerators, delivery drones, manufacturing equipment, and automobiles.
Wireless networks were at a similar inflection point as 4G services launched early in the decade. The United States took action as government made new spectrum available and carriers responded to accommodate twenty-fold growth in global mobile data traffic. The investment in wireless network infrastructure rewarded consumers with better performance within coverage zones at affordable prices, and resulted in robust economic growth. A transformative moment is coming with 5G, but with two important differences. First, the economic stakes are likely to be much higher, where connected devices, applications, and business models could dramatically stimulate economic productivity. Second, the United States is not as well prepared to take full advantage of the potential, lacking needed fiber infrastructure close to the end customers—also termed “deep fiber”—in order to carry the increased data loads beyond just the radio access network (RAN)—where much of 5G technology is focused.
Should 5G achieve its potential, it promises significant benefits for both businesses and consumers, introducing new opportunities to drive productivity, innovation, and job creation. Per a 2011 Deloitte report, the launch of 4G offered the opportunity of some 700,000 jobs; a recent Qualcomm report estimates the 5G mobile value chain could support up to 22 million jobs by 2035.
New infrastructure needed for 5G
5G uses signals from higher-frequency bands of the radio spectrum, including millimeter-wave radio frequencies. Higher frequency radio waves are shorter in length than the signals used by 4G; as a result, they are only able to cover a smaller geographical area and can be blocked by obstacles like buildings and trees. For this reason, adequate geographic coverage for 5G requires a denser network of cell sites and other network access points. Such densification presents a variety of challenges, including current fiber deployment limitations, and the upgrade costs, and deployment cycle times associated with traditional network architecture. Small cells need connections to fiber/cable backhaul to realize capacity and speed potential, just as macro-cells do. Hence, carriers will need to extend fiber much deeper into the network, deploying far greater numbers of network access points including small cells, “homespots,” and hotspots.
Also, while 5G standards in development may focus on a new generation of technology—including capabilities for speed and flexibility to connect the Internet of Things, provide mobile broadband, and supply critical communications—the lifeblood of its potential will come from the wireline network with the ultimate goal to extend fiber deep into the network near the customer. Deep fiber also supports the national infrastructure imperatives of increasing choice between providers for residential and business consumers and closing the digital divide.
5G infrastructure: The $150 billion challenge
Demand for mobile data traffic is projected to quadruple between 2016 and 2020. Yet today, years after the first fiber-to-the-home deployments, only 38 percent of homes have a choice of more than one provider offering speeds of 25 Mbps or more, according to a 2016 FCC Broadband Progress Report. In rural areas, people with access to wireline broadband offering speeds of at least 25 Mbps can also pay three times as much as suburban customers do for the same service. The speed, reach, and affordability of 5G are clearly huge adoption drivers.
According to Deloitte, however, building the necessary deep fiber infrastructure to support 5G backhaul—i.e., fiber infrastructure close to the end customer—is going to take $130–$150 billion in investment over the next five to seven years in the United States alone. Whether 5G fulfills its great promise depends on whether, and how soon, that investment is made.
Meeting the challenge—and seizing the opportunity
Given ever-growing demand for mobile data and the current network capacity shortage, there is a strong business case for investing in deep fiber infrastructure. Investment should come from a variety of private-sector sources, including communications service providers, financial investors, and public/private partnerships.
At the same time, if the government is serious about meeting the national goal of eliminating the digital divide, it must take action to encourage investment in communications infrastructure, including adding fiber assets to carrier networks for improved operational efficiency, and avoiding regulation that limits carrier innovation.
Potential monetization models
To justify investing in 5G infrastructure, providers are seeking new ways to monetize the last mile of their offerings to businesses and consumers. Three potential models stand out:
Adjacent services. Carriers have an opportunity to add new revenue streams by offering integration, network security, and traffic management services that help customers manage and optimize an increasingly complex quantity and mix of IoT devices and ecosystems.
Ecosystem participation. To expand their market or improve their product, over-the-top providers such as streaming services may choose to fund deployment of deep fiber infrastructure, either by owning assets directly or by partnering with carriers.
The last mile as a real estate play. With growing demand for mobile data services, and insufficient existing fiber infrastructure to meet that demand, the fundamentals for deep fiber infrastructure investments are strong. The investment case is particularly strong for REITs, mobile providers, and tower companies.
As interest grows among nontraditional fiber investors, expect the emergence of shared-infrastructure models for last-mile fiber access. In the same way that, after starting by building and maintaining their own towers, wireless providers increasingly turned to tower companies to access shared infrastructure, expect 5G carriers to require shared deep fiber infrastructure. With the ability to lease fiber when needed, carriers will be able to better optimize asset utilization.
The way forward
As 2018 progresses, we observe that 5G networks have been going through field testing and are being rolled out worldwide. The technology has the potential to reshape the way we live, work, and interact. But to achieve the potential of 5G, the private sector must invest now in deep fiber infrastructure—and government must act today to encourage that investment.
Craig Wigginton, Deloitte & Touche LLP, leads the Telecommunications industry in the US, globally, and for the Americas. With more than 28 years of experience, he serves as a key advisor to senior executives. In his current industry roles he leads a cross functional practice and has unique insights into the critical issues affecting our clients as well as the mobile ecosystem as a whole. He speaks at conferences worldwide and leads Deloitte’s Global Mobile Consumer Survey.