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The Economics of
ByDr.KimKyllesbechLarsen,Group Technology,DeutscheTelekom.
Tehran5G Conference.
Tehran, Islamic Republic ...
2
While waiting for 5G.
FROM PHONES TO SMARTPHONES TO SMART-THINGS
2G
3G
LTE
5G
1991
2001
2009
2020ish
LTE
adv
LTE
Pro
201...
5G @ Deutsche Telekom.
Highlights at MWC 2016.
3– strictly confidential– 3Dr. Kim K. Larsen / The Economics of 5G
FIRST 5G...
Projecting 5G connections.
By 2025 ca. 700 Million Global 5G Connections expected.
4– strictly confidential– 4Dr. Kim K. L...
5G starting small, smaller & smallest.
The most likely 2025 spectrum scenario.
5– strictly confidential– 5Dr. Kim K. Larse...
5G WILL CO-EXIST WITH LTE
LATE INTO THE NEXT DECADE
AS A TOOLBOX OPTION
FOR SMALLER & SMALLEST
CELL DEPLOYMENT.
6– strictl...
The 5G opportunity – Year 2025.
7– strictly confidential– 7Dr. Kim K. Larsen / The Economics of 5G
247 Billion US$
(April ...
Dr. Kim K. Larsen / The Economics of 5G 8
+€
???
Revenue opportunities with 5G?.
Is 5G the 4th wave of new revenues?
Without new revenues, telco business will decline.
Time
SMS REVENUE
VOICE REVENUE
DATA...
5G NEEDS TO BE
MORE THAN
MORE OF THE SAME!
10Dr. Kim K. Larsen / The Economics of 5G
11– strictly confidential– 11Dr. Kim K. Larsen / The Economics of 5G
1
1
11
Towards 5G Telco & its Business Models.
Conver...
12 12
-€
SMS Revenue
In decline
Voice Revenue
In decline
Data Revenue
Slow to pick up
The traditional mobile access-based
...
Low-Latency & reliability requirements.
Some illustrations.
13– strictly confidential– 13Dr. Kim K. Larsen / The Economics...
1414
So …
Who will
pay
for 5G
? 14Dr. Kim K. Larsen / The Economics of 5G
Network drivers.
€
User Experience
(Speed, Quality, Latency, Reliability, Pricing, ….)
Network
Coverage
Network
Capacity
•...
Technology cost of 5G.
An illustrations.
Increased Capex stress from
• Massive cell densification.
• Smaller & Smallest ce...
5G economicalchallenge.
European Telco Industry returns below its cost of capital.
Return on Capital Employed (ROCE)
Sourc...
MODERNIZED INTEGRATED
INCUMBENTS
MAY BE THE ONLY TELCOS
TO AFFORD FULL SCALE
5G DEPLOYMENT.
18Dr. Kim K. Larsen / The Econ...
5G economics take away.
19
5G provides a lot more of the same
A lot more Quality per User (really a lot).
A lot more Bandw...
Acknowledgement Minoo Abedi
and many other
colleagues who have
contributed with
valuable insights &
comments throughout
th...
21Dr. Kim K. Larsen / The Economics of 5G
Illustration
Router
Edge
Cloud
Front-end Data Center (FE-DC)
Cloud SDN
with NFV
...
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The Economics of 5G

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It was a great pleasure having this presentation presented at the Tehran 5G Conference in Iran this October, 2016. It kick started my thinking & analysis of the economics of 5G, While 5G have many great technology promises, a lot have to happen with our business models and economics to also cash in on those promises. Enjoy this presentation and stay tuned for many more on this important topic.

A special thanks to Minoo Abedi who presented this work at the conference in Tehran.

Published in: Technology

The Economics of 5G

  1. 1. The Economics of ByDr.KimKyllesbechLarsen,Group Technology,DeutscheTelekom. Tehran5G Conference. Tehran, Islamic Republic of Iran, October 17th, 2016.
  2. 2. 2 While waiting for 5G. FROM PHONES TO SMARTPHONES TO SMART-THINGS 2G 3G LTE 5G 1991 2001 2009 2020ish LTE adv LTE Pro 2014 2017ish new new new This is what we are waiting for  Broadband > 1Gbps ( lots of spectrum).  Ultra-low Latency ~ 1 ms (target).  Ultra-high reliability & predictability.  Massive increase in connected things.  e.g., ~2+k IoT/km2 & 15+ IoT/HH by 2025.  Broadcast-like services.  Life-line communications. Note: Bold italics indicates truly new properties & Normal Font more of the same (just better). 2Dr. Kim K. Larsen / The Economics of 5G
  3. 3. 5G @ Deutsche Telekom. Highlights at MWC 2016. 3– strictly confidential– 3Dr. Kim K. Larsen / The Economics of 5G FIRST 5G E2E NETWORK WORLD-WIDE INCLUDING WORLD RECORDS < 1 ms latency. > 70 Gbps speed. > 1.5 Gbps per device.
  4. 4. Projecting 5G connections. By 2025 ca. 700 Million Global 5G Connections expected. 4– strictly confidential– 4Dr. Kim K. Larsen / The Economics of 5G 2020: 2G ~10% & ~700Mn 2020: 3G ~40% & ~3.6Bn 2020: LTE ~50% & ~5.0Bn 2025: 2G <2% & <200Mn 2025: 3G <8% & <1.0Bn 2025: LTE 85+% & <9.0Bn 2025: 5G ~5% ~0.7BnGlobal Mobile Connections 5G Source: Pyramid Research Global Mobile Forecast until 2018, author’s own technology diffusion model 2019 – 2025. Most of WEU & US + Some of Asia Connections In Billion connections.
  5. 5. 5G starting small, smaller & smallest. The most likely 2025 spectrum scenario. 5– strictly confidential– 5Dr. Kim K. Larsen / The Economics of 5G LTE spectrum (with a bit of 2G & 3G) ~85% LTE connections 2.6GHz 700MHz 3.xGHz 10GHz 32GHz 40GHz 66GHz Initial 5G spectrum regime (ex.) Illustration (not to scale!) Few – Tens of MHz Hundreds – Thousands of MHz (5G potential: 700MHz, 1.4/1.5GHz, 2.3GHz) Small cellsSmall cells Smaller cells Smallest cells Massive amount of 5G smaller & smallest Cells 24GHz
  6. 6. 5G WILL CO-EXIST WITH LTE LATE INTO THE NEXT DECADE AS A TOOLBOX OPTION FOR SMALLER & SMALLEST CELL DEPLOYMENT. 6– strictly confidential– 6Dr. Kim K. Larsen / The Economics of 5G
  7. 7. The 5G opportunity – Year 2025. 7– strictly confidential– 7Dr. Kim K. Larsen / The Economics of 5G 247 Billion US$ (April 2016 FC) 65 Billion US$ (August 2015 FC) 690 million global connections (August 2016 FC) Global Mobile Service revenues 2025 Global Mobile Service Revenues ~1.6 Trillion US$ ca. 30 US$per 5G Connection 2015 Global Postpaid ARPU ca. 34 US$ 2015 Global Blended ARPU ca. 13 US$
  8. 8. Dr. Kim K. Larsen / The Economics of 5G 8 +€ ??? Revenue opportunities with 5G?.
  9. 9. Is 5G the 4th wave of new revenues? Without new revenues, telco business will decline. Time SMS REVENUE VOICE REVENUE DATA REVENUE TOTAL REVENUE 5G NEW REVENUES (The 4th Wave*) 5G € ? * The 4th Wave is attributed to CHETAN SHARMA, MobileFutureForward. 9Dr. Kim K. Larsen / The Economics of 5G
  10. 10. 5G NEEDS TO BE MORE THAN MORE OF THE SAME! 10Dr. Kim K. Larsen / The Economics of 5G
  11. 11. 11– strictly confidential– 11Dr. Kim K. Larsen / The Economics of 5G 1 1 11 Towards 5G Telco & its Business Models. Converged Access Internet of Things Internet of Industries Internet of Moving Things Internet of Apps AI Driving E2E Latency < 10 ms Very High Redundancy. Medium BW requirements E2E Latency ~ <50 ms Very high availability Elastic BW requirements E2E Latency ~ 50+ ms Privacy & Security protection Extreme elastic BW requirements Ultra-high Availability Very high security required Elastic E2E Latency requirements FTTx + LTE  5G Ultra-Efficiency requirements Cloud & Virtualization Seamlessness across all platforms e.g., Fixed, Mobile & other screens Ultra-Personalization. 11Dr. Kim K. Larsen / The Economics of 5G
  12. 12. 12 12 -€ SMS Revenue In decline Voice Revenue In decline Data Revenue Slow to pick up The traditional mobile access-based business model of Voice, SMS & Data inevitably will decline. +€? Access in decline Monetizing 5G Telcos at a cross-road.
  13. 13. Low-Latency & reliability requirements. Some illustrations. 13– strictly confidential– 13Dr. Kim K. Larsen / The Economics of 5G Example: http://www.peloton-tech.com/ Connected cars & moving things. Industry 4.0 Remote Compute VR. Remote Robot Surgery “The Tactile Internet: Provides an ultra- responsive & ultra-reliable network connectivity will enable it to deliver physical haptic experiences remotely.” Augmented Reality
  14. 14. 1414 So … Who will pay for 5G ? 14Dr. Kim K. Larsen / The Economics of 5G
  15. 15. Network drivers. € User Experience (Speed, Quality, Latency, Reliability, Pricing, ….) Network Coverage Network Capacity • Frequency (i.e., low is better). • Number of Sites. • Technology. • MHz Bandwidth (i.e., higher is better). • Number of Sites (i.e., more is better). • Technology (e.g., spectral efficiency). 5G Innitially (launch – 2030) will drive  Massive cell densification (lots of smaller/smallest sites).  Major transport modernization & massive upgrade.  Cloudization & virtualization (need for modern DCs) 15Dr. Kim K. Larsen / The Economics of 5G
  16. 16. Technology cost of 5G. An illustrations. Increased Capex stress from • Massive cell densification. • Smaller & Smallest cell connectivity. • Operators likely Backbone modernization / uplift. • Core, IT & Platforms more likely to be within spend profile (on average). • Depends on complexity, e.g., slicing... ↑↑↑ ↑(↑) BaU BaU ↑↑↑(↑) ↑(↑) (↑) ↑ ↑ Cost Increase, ↓ Cost decrease Increased Opex pressure from • Overall poor economical scalability of small, smaller & smallest cells. • Opex Impact will depend on level of Fixed-Mobile integration & technology modernization level. • Level of automation & degree of zero- touch network planning, optimization & operations implemented. ↑ Cost Increase, ↓ Cost decrease 16Dr. Kim K. Larsen / The Economics of 5G
  17. 17. 5G economicalchallenge. European Telco Industry returns below its cost of capital. Return on Capital Employed (ROCE) Source: “Barclays European Telecoms and Technology Hardware 5G - A new dawn” WACC* (*) KPMG “Cost of capital study English 2014 KPMG” study relates to Europe. Tier-3 MNOs and beyond Integrated & modernized Incumbents Îf correct expect substantial regulatory interference to create equal 5G playing field. At least Tier-3 and subscale MNOs in general might not afford or be able to finance 5G! 17Dr. Kim K. Larsen / The Economics of 5G
  18. 18. MODERNIZED INTEGRATED INCUMBENTS MAY BE THE ONLY TELCOS TO AFFORD FULL SCALE 5G DEPLOYMENT. 18Dr. Kim K. Larsen / The Economics of 5G
  19. 19. 5G economics take away. 19 5G provides a lot more of the same A lot more Quality per User (really a lot). A lot more Bandwidth & Capacity. A lot more scalability supporting massive IoT. 5G provides new network enablers & new business models. Ultra-high reliability & predictability. Ultra-responsiveness, i.e., ultra-low latency. New business models to emerge: massive IoT, connected moving things, AR, VR, remote & autonomous robotics (e.g., surgery), remote compute, …. 5G economical challenges. Few Telco’s might be able to return on their 5G investment (at least initially). Massive demand for cell densification likely leading to substantial Capex & Opex pressures - Despite technology leapfrog in efficiency. 5G will force intense backhaul & backbone modernization & upgrades. 1919Dr. Kim K. Larsen / The Economics of 5G
  20. 20. Acknowledgement Minoo Abedi and many other colleagues who have contributed with valuable insights & comments throughout this work. I am indebted to my wife Eva Varadi for her great support, patience & understanding during the creation of this presentation. 20 Contact: Email: kim.larsen@telekom.de Linkedin: www.linkedin.com/in/kimklarsen Slideshare: http://www.slideshare.net/KimKyllesbechLarsen Twitter: @KimKLarsen Dr. Kim K. Larsen / The Economics of 5G
  21. 21. 21Dr. Kim K. Larsen / The Economics of 5G Illustration Router Edge Cloud Front-end Data Center (FE-DC) Cloud SDN with NFV FE-DC PSTN FPLMN Edge Computing LTE/5G >>100 Gbps 10 – 100 Gbps Target Min 100+ Mbps at consumer edge. Delay supported down to 1 millisecond target (note: realistic < 10 ms). Network slicing supporting large span of service categories & specifications. FE-DC: Front-end Data Center, SDN: Software Defined Network, NFV: Network Function Virtualization, PSTN: Public Switching Telephony Network, FPLMN: Foreign Public Land Mobile Network, LTE: Long Term Evolution. Backend Data Center <100 Gbps < 100 km Distance (re: Latency) 100 Mbps to 1+ Gbps 100+ Gbps @ 100s – 1000s smaller cells Beyond today’s cellular networks. A critical enabler for the 5G Society!

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