5G and the Evolution of Telecom
Dr. Evangelo Damigos; PhD | Head of Digital Futures Research Desk
- Connected Intelligence
- Sustainable Growth and Tech Trends
- Emerging Technologies
Publication | Update: Sep 2020
According to James Andrew Lewis, CSIS Senior Vice President and Director, Technology Policy Program at the Center for Strategic and International Studies in Washington, D.C., fifth-generation mobile technologies (5G) have become one of the most high-profile domains where this competition is playing out. Each competitor has different plans for 5G. 5G will play a central role in the development of smart and self-driving cars, and all countries with an automotive industry will compete in this. Germany intends to use 5G for industrial applications as part of its Industry 4.0, and its strong manufacturing sector may give it an advantage. South Korea also benefits from having a strong app economy, but its main advantage in 5G comes from Samsung, the telecommunications equipment and semiconductor giant. Chinese companies have already created valuable consumer apps, like WeChat, and a strong developer base, and they will also pursue industrial and enterprise applications. China had an advantage in developing apps for the internet of things since its companies are the source of many of these products. But Chinese companies also face trust issues, since any Chinese-made device that connects to the internet could be exploited by Chinese intelligence agencies.
Understanding the economic benefits of 5G requires understanding where it fits in the tech ecosystem. It is important to divide the 5G market into segments and look at each segment both in terms of profit and security. There are the producers of 5G technologies, including telecom hardware—the leaders here are Ericsson, Huawei, Nokia, and Samsung. There are the companies that make the chips and software that are the essential components for telecom hardware. These are mainly American and Japanese. There are the consumer-facing networks and apps we know from our smartphones and there will be an increasing number of enterprise applications such as smart seaports and factories.
The real competition will be in writing the software applications that take advantage of 5G so that companies with access to 5G services more are profitable. Consumer applications are less important in this space—people can already watch videos on their phones and are unlikely to pay more for a slightly faster speed. In contrast, the enterprise and industrial applications that 5G can support will be the space for growth. The German firm Trumpf is developing Axoom, an industrial app designed to let companies manage smart factory solutions.
5G (and Wi-Fi) will enable connections between sensors, data, and powerful internet computing resources. Innovators can take advantage of these connections to create new services and applications. These will include new enterprise and industrial applications such as smart hospitals or factories. Self-driving cars are part of this and 5G will speed up their use. U.S. companies are strong here, but so are European and Chinese companies.
Europe and China have announced they intend to dominate 5G the way the United States dominates 4G, and U.S. companies face new competition, but success depends on making products and offering 5G products and services that appeal to the market. It is not credible to expect the nimble, well-resourced, and entrepreneurial U.S. tech sector to be squeezed out of profitable markets where they currently lead.
The initial standardization efforts of 5G technology were completed in June 2018, and preparations have begun to upgrade networks globally. While some carriers have been discussing the potential for 5G technology for three to five years, there remains a skepticism on its use cases among investors.
Telecom companies that focus on wired solutions could see new competition from 5G wireless networks. Possible areas of competition include a broadband replacement service for consumers as well as more-flexible voice and data solutions for small businesses and branch offices of large enterprises. Other companies that could face disruption from new 5G networks include:
– Fixed broadband companies, including telecom companies but also cable operators, and alternative telecom providers could be displaced by wireless broadband solutions that can provide similar technical attributes with the benefit of mobility.
– Network equipment companies that produce technology that could be displaced, such as Wi-Fi and Ethernet, would be at risk if they do not successfully pivot to 5G.
Telecommunications technology is now going through a transition similar to the transition in computing that began 30 years ago with the introduction of the internet.
Telecom technology used to be static, changing slowly. It relied on specialized hardware. New technologies like cloud computing6 were layered on top of existing equipment and protocols. This is now changing as software-based, “open” network technologies begin to offer the same functions as conventional telecom technology. The shift has major implications for security and business as this disruptive technology can provide cheaper and more agile services using a supply chain open to any supplier.7
One way to think about this is to compare it with computer networks. At their cores, these are essentially a combination of semiconductors and software. In very simple terms, your computer connects to servers and routers that then connect to the internet. These connections work irrespective of the manufacturer, so one company can make the computer, another can make the server, a third the connecting software, et cetera.
A simplified (and arbitrary) portrayal would divide 5G networks into four parts: device, RAN, core, and cloud. An “end device” such as a mobile phone or a car, connects to a “Radio Access Network” (RAN) cell towers RAN connects devices to the telecom networks. The core of these networks use specialized routers, switches, and other packet handling technologies to aggregate and manage billions of calls. Some core processing (along with billing and other functions). Most of this is now done in the cloud (the cloud refers to managed computing resources that can be accessed over the internet). In 5G, some processing will move to the RAN, creating both opportunities and risks for security by providing hostile actors better access to data unless the 5G network is carefully designed to manage this—something that some say is impossible.
The companies that make the modular components for an open architecture telecom network involve both familiar names and new startups. Qualcomm, Intel, and Samsung make chips. Microsoft (which has built a huge 5G lab in Redmond) writes operating system software. Cisco, Sienna, Xilinx, Nokia, Fujitsu, and NEC make other essential components, as do a number of new companies, such as Altiostar, or InnoEye, and firms that are well-established in the telecom space, such as Airspan. Many of these companies along with telecom service providers have banded together in the O-RAN Policy Coalition (or other groups) to develop common approaches to the new technologies.
It is important that we do not underestimate the difficulties posed by integrating new technologies into telecom networks so as to be able to serve tens of millions of customers with the same level service they get now. One advantage of existing technologies is that they are proven to deliver this level of service.
Another is that they pose little challenge for integration, as opposed to multiple technologies developed by multiple vendors. Integration and scalability are major issues and suggest that the next generation of telecom technology is still some ways off. However, the supply chain for telecom will depend on semiconductors and specialized software.
Objectives and Study Scope
This study has assimilated knowledge and insight from business and subject-matter experts, and from a broad spectrum of market initiatives. Building on this research, the objectives of this market research report is to provide actionable intelligence on opportunities alongside the market size of various segments, as well as fact-based information on key factors influencing the market- growth drivers, industry-specific challenges and other critical issues in terms of detailed analysis and impact.
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The Global Economic Model
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The model is a hybrid statistical model that uses macroeconomic variables and inter-industry linkages to forecast sectoral output. The model is used to forecast not just output, but prices, wages, employment and investment. The principal variables driving the industry model are the components of final demand, which directly or indirectly determine the demand facing each industry. However, other macroeconomic assumptions — in particular exchange rates, as well as world commodity prices — also enter into the equation, as well as other industry specific factors that have been or are expected to impact.
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The degree of necessity. Luxury products and habit forming ones, typically have a higher elasticity.
Proportion of the budget consumed by the item. Products that consume a large portion of the consumer’s budget tend to have greater elasticity.
Elasticities tend to be greater over the long run because consumers have more time to adjust their behaviour.
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