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02 January 2018

Upgrade to 5G Costs $200 Billion a Year, May Not Be Worth It

Upgrade to 5G Costs $200 Billion a Year, May Not Be Worth It
by Olga Kharif and Scott Moritz, Bloomberg, 
18 December 2017

  • Carriers explore how to make money in saturated market
  • Internet of Things seen as still a long way off in 2020

In the wildest dreams of wireless engineers, the mobile network of the future controls our cars, lets our refrigerators talk to the grocery store to order more milk, and provides fast, reliable broadband connections to our homes so we can sever ties with cable companies.

But it’s going to cost the mobile-phone companies, chipmakers, device manufacturers and software developers about $200 billion a year in research and capital spending to get to that point, with engineers laboring to work around interference from trees and rain and provide a strong enough signal to handle so much demand.

Even if they’re successful, making a profit on that investment will be difficult in an industry that isn’t growing much anymore. In most developed countries, like the U.S., the wireless market has reached saturation, and there are few new subscribers to sign up without undercutting rivals on price.

“Historically, 1G to 4G, it’s been a pretty straightforward evolution from the point of view of business and technology,” said Chetan Sharma, a wireless consultant. “The revenue grew proportionate to the usage.”

The future of 5G, as the next-generation wireless network is known, is already beginning, as a handful of carriers including Verizon Communications Inc. move from trials to deployments. The first technical standards everyone can use to design their networks, phones and chips for 5G will be released at a summit that starts Monday in Lisbon.

Most mobile-phone companies are tThis time around, it’s not clear that 5G will translate into more revenue until perhaps five or 10 years from now, Sharma said. New applications like the Internet of Things -- using wireless connectivity to let machines on the factory floor talk to each other, and for autonomous cars on the freeway to talk to light signals -- may take years to materialize, and may not pay that much.

After all, many of these applications can be handled by Wi-Fi networks, while others -- like driverless cars - would likely use onboard communications rather than cellular for safety reasons, said Craig Moffett, an analyst with MoffettNathanson LLC.

“What’s left in the middle is undoubtedly still a real opportunity, but it’s not clear it’s a very big one,” he said.

First, engineers have to figure out how to make 5G work. Rain, fog and trees have long been the enemy of high frequency radio waves. AT&T Inc. is among the companies that have been exploring the problem. With environmental conditions “you get degradations but we haven’t lost signals completely,” said Andre Fuetsch, president of AT&T Labs and chief technology officer.

Given the relatively short, fragile nature of high-frequency 5G signals, carriers have to configure networks differently. They’re shifting more of the network hardware from tall towers that are scattered to spread signals over broad areas, to smaller, more clustered sites like rooftops and street poles.

These “small cells” use cabinets that look like mini-refrigerators mounted on poles or rooftops. Inside the cabinets there’s an array of more than 1,000 antennas, says Ed Chan, senior vice president of network planning for Verizon. In dense, urban areas, network engineers will have to install lots of small cells to handle demand for data, adding to the costs of 5G.

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