Consulting firm’s deep dive: ‘The 5G pessimists are wrong’

Consulting firm Bain & Company this week released a new report on 5G technology, essentially evaluating the market’s potential and looking at whether operators should invest in deploying the technology. The result?

“The 5G pessimists are wrong,” the report stated.

The findings are notable considering Bain & Company is a management consulting firm that advises companies on various issues, including whether and how they should invest in technologies like 5G. (It’s separate from Bain Capital, the private equity firm). The company regularly publishes industry research into various market areas including telecom for its clients.

And with 5G, the firm said it found significant cynicism.

“When it comes to the next generation, 5G, some telecom executives seem to have lost their faith in the power of technology to deliver more. They’ve become 5G pessimists. ‘The business case isn’t there’ and ‘it will take too much capital’ have become common refrains at industry conferences, on company calls with investors and in published interviews with telecom executives,” the authors wrote, citing a recent survey of mobile network operators that found that more than half (53%) see no near-term business case for the technology.

In its report, Bain & Company sought to counter what it said are three major fallacies around 5G:

  1. There is no business case for 5G.
  2. 5G requires a surge in capital investments.
  3. 5G is all about bringing down (unitary) costs.

On the first point, the report stated that “not every operator stands to benefit equally or in the same way from 5G” and that mobile-only operators that deploy 5G will be able to profit through mechanisms including challenging fixed-line internet providers.

“This can be very economically attractive given that many markets have fixed and mobile profit pools of comparable size. In the U.S., for example, fixed-line broadband and cable TV account for about $75 billion in EBITDA, while wireless accounts for about $90 billion.

The authors also wrote that fixed-line operators can use 5G to further profit off their existing fiber assets, and that “converged operators,” or those with both fixed and mobile assets, can “establish or revitalize claims of network superiority as part of an effort to take market share from competitors with slower 5G deployments.”

But it’s the portion of the report that deals with 5G investments that provides perhaps the most significant arguments.

The Bain & Company report stated that operators don’t need to deploy ubiquitous 5G services, and can instead rely on 4G services where 5G is not yet available. And that most network operators will only need to add 5G radios to their existing sites in dense urban areas, rather than building out new cell sites for 5G.

“Analysts expect that upgrading an existing node with a 5G radio will cost about $15,000 to $20,000, much less than the estimated $65,000 to $100,000 it will cost to create a new node (including the site, labor, equipment and fiber backhaul),” the report stated.

The report also noted that operators will be able to manage 5G alongside existing technologies.

“Specifically, when dynamic frequency division duplexing (FDD) radios become available in 2020, an operator will be able to allocate capacity to 4G and 5G carriers from a common spectrum pool, based on real-time customer demand,” the report stated. “As a result, operators will be able to achieve 5G coverage outside dense urban areas using the same spectrum—and thereby the same relatively large cells—they use for 3G and 4G coverage today. This will obviate the need to create more cells as carriers expand their 5G rollouts beyond cities.”

Finally, the report argued that operators should not view 5G as an opportunity to ultimately reduce capex and network costs.

“If an operator adopts 5G with the overriding goal of reducing its capital intensity, then that means it has, in effect, run out of attractive investment opportunities. That amounts to a repudiation of the decades long belief that strategically investing in next-generation technology will be good for growth, good for customers and good for the bottom line,” the report said. “Operators that push their capital-to-sales ratios too low out of a desire to maximize immediate dividends to shareholders may ultimately find themselves blown out of the water by competitors that are more willing to invest. We expect successful operators will be able to create a virtuous cycle of 5G reinvestment. First, they’ll build an all-digital, 5G network; then they’ll use the cash flow generated by those efficiencies to invest in high-return-on investment 5G uses.”

Concluded the report: “The most forward-looking operators will use those savings to invest in new revenue-generating 5G projects—thereby defying the 5G pessimists and fully embracing the promise of what this latest generation of network technology can deliver.”

The release of the report comes at a critical time in the U.S. telecom industry. Operators including AT&T, Verizon, Sprint and T-Mobile are each embarking on significant 5G build-outs, with the hope that the new network technology can raise flagging profits and stimulate additional lines of business.