1. The Economics of
ByDr.KimKyllesbechLarsen,Group Technology,DeutscheTelekom.
Tehran5G Conference.
Tehran, Islamic Republic of Iran,
October 17th, 2016.

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. 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. 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. 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. 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. 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. Dr. Kim K. Larsen / The Economics of 5G 8
+€
???
Revenue opportunities with 5G?.

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. 5G NEEDS TO BE
MORE THAN
MORE OF THE SAME!
10Dr. Kim K. Larsen / The Economics of 5G

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
-€
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. 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. 1414
So …
Who will
pay
for 5G
? 14Dr. Kim K. Larsen / The Economics of 5G

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. 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. 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. MODERNIZED INTEGRATED
INCUMBENTS
MAY BE THE ONLY TELCOS
TO AFFORD FULL SCALE
5G DEPLOYMENT.
18Dr. Kim K. Larsen / The Economics of 5G

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. 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. 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!