At Azenby we are always busy helping our clients in the mobile world with their projects or with their business development but every so often we like to spend some time on our observation deck and cast our eyes further afield and look into the future. Looming on the distant horizon is 6G and last year we took a look at how the Framework for IMT2030 was progressing and you can catch up with this here.
Today we are giving some thought to how the IMT2030 framework may playout with regard to the business prospects for Mobile Network Operators and Service Providers. We acknowledge that there are differences in the way that markets work around the world, but the fundamentals of MNO business plans have many similarities.
We do see opportunities for MNOs in 6G, but we also see some dangers that need to be thought about now, well ahead of deployment in 2030. In part one we look at the potential hazards and dangers to MNO that 6G will bring.
Where’s the data going?
Competition for providing and selling data services to mobile customers with technologies other than cellular is intensifying at an ever-quickening rate and there a range of analyst reports available which suggest 90% of mobile device data is carried over WiFi in western markets but this also is something that is trending worldwide. To some degree this suits MNOs especially for heavy data users and HD video downloaders but there is a downside and that is the need to stay relevant for each new generation of mobile user. We also see that for the first time in some 15 years the compound rate of increase of mobile data has declined.
Who gets the spectrum – who wants the spectrum?
WRC-27 seems a long way off but the lobbying and positioning for spectrum is already well under way. Battle lines are being drawn between those pushing for spectrum to be unlicenced and those that prefer spectrum to be licensed to give exclusive use and to create a barrier to entry for new market entrants.
It is inevitable that supporters of unlicensed spectrum will see the amount of wireless data carried over WiFi as the trump card to play when new spectrum is allocated. New spectrum for 6G is challenging in its own right for traditional cellular coverage. Current consensus is that it will have to be in the 7-15GH frequency range as this offers the best possible balance (from what is available) between coverage needs and capacity requirements. Nonetheless its far from ideal for MNOs. After this it is about looking at sub-THz spectrum and that seems light years away from the original deployments of MNO networks at 900Mhz!
The deployment costs for 6G in new spectrum, in the current way that the MNO business model work, look to be challenging when it comes to achieving a rate of return. There might be more than one MNO Chief Strategy Officer that’s thinking it might not be such a bad idea to miss out on licensed spectrum for 6G!
The MNO business model
Another point that unlicensed spectrum protagonists will make is that the current MNO business model of invest in deployment with up to ten-year payback timescales will prove to be unsustainable for 6G. The case for WiFi is that the user pays for the base station (access point) and the backhaul. This, they argue, speeds up deployment of new technologies. This assumes that the infrastructure provider provides the connectivity only. We may be reaching an inflexion point between using spectrum more for local coverage than in the macro layer. A key point to note when considering just how much data is being consumed over WiFi is that the predominant use case is indoors. If 6G is about competing against WiFi then the challenge is to somehow obtain more indoor coverage from the macro layer. This is not a new problem for MNOs to solve but the need to do so is becoming more and more critical for them if they continue to see a high degree of indoor coverage as being a competitive priority.
Inability to monetise core features
In each step function change in core technology from 2G onwards, there has been the promise of new revenues beyond bundled tariffs for voice, data, and text (e.g. offering premium services over an assured level of QoS). The reality however has told us that this has never happened in any significant way. That’s not to say the enabling functionality in each standard has not provided new opportunities but by and large the new revenues have been creamed off by OTT players. This has left MNOs making the business case for new generations of technology on better economics for cost per Mbps, lower latency and increased coverage.
We believe that the business case for 6G will be challenging for MNOs based on past deployment practices and 6G rollout will need to be approached very differently.
Is mobility still the killer app for MNOs?
Until now, MNOs have had a valuable USP, mobility. The biggest difference between a Wi-Fi connection and a cellular connection has been mobility, the ability to keep a call or data session whilst on the move. There is a but though. If 90% of mobile data is already going over Wi-Fi, this would suggest that mobility is becoming increasingly less important to users. It is not good news for mobile service provides if usage is increasingly static. There will always be a need for mobility, for people in cars, trains, and buses and even for those walking the street with their eyes firmly on their social media or map app. These are, however, in the main low data applications and can be adequately delivered over 4G – and if rollout permits, 5G. 6G certainly isn’t needed for mobility and if that is the case then the business case for 6G has just got a whole lot harder to make.
Regulators aren’t helping
This is not new news. The heavy hand of regulation can feel to the MNOs as if they are being beaten with 3 big sticks at the same time. The first big stick is Treasury’s unwavering determination to “monetise spectrum” at the time licenses are granted to the MNOs. Although the ludicrous spectrum licensing we saw for 3G is now history, regulators still see spectrum in terms of premium value licensing. Their thinking on spectrum licensing has become outdated and is not serving the industry – or consumers – well. Extracting huge sums of money from one single point in the economic chain (i.e. the infrastructure providers using the spectrum) is an inhibiter and disincentive to investors in critical infrastructure and furthermore is blind to the application layer where, let’s be honest, all the money is being made.
The second big stick being used on the MNOs is the unhelpful and enduring insistence upon coverage of a very high percentage of land mass and or population under license terms – even though a very large percentage of the land mass is uneconomical and loss making for MNOS. We have pleaded before for regulators to start thinking outside of their comfort zone and furthermore suggest that if they don’t, 6G could be a non-starter.
The third big stick being used on MNOs is implicit retail price control, primarily being imposed by means of merger control. It is all very well telling MNOs they have to pay a lot for new spectrum and must pay a lot to roll-out that spectrum quickly to fields full of sheep and cows, but it doesn’t take a modern-day Einstein to point out that something has to give. Companies can just keep absorbing costs if they cannot recover those investments in their prices. The market leaders may be able to sustain the pain for longer than the weaker ones, but if those small players find it impossible either to hike prices or exit the market, then the spiral of woe will be continual to an inevitable conclusion. And that won’t serve anyone’s interests. Not the consumers’; not the MNOs’; not the Regulators’; and certainly not the Treasury’s. Something has to give. If governments want money for spectrum and ubiquity of all spectrum, then prices will have to rise to pay for it.
Competition for coverage
Another of the MNO USP is ubiquitous outdoor coverage but yet another thing that 90% of data going over Wi-Fi tells us is that outdoor coverage, like mobility, is something a lot of users find less important but nonetheless is still something that has a strong pull for most users. A lot of the outdoor usage, as we mentioned, is low data applications and only some of it is likely to be the high data / low latency of the type that needs or would justify a wide area deployment of 6G”
Satellite mobile (direct to device) coverage is on the up. It’s extremely expensive today but prices may fall before 6G arrives and could be a better option for rural coverage. We shouldn’t ignore the pace at which FTTH is gaining traction and is increasingly proving a reliable and fast back-haul for WiFi Aps that previously may not have been possible. Couple this with the research and standardisation work on extended Wi-Fi coverage and we see increasing competition and options for mobile users.
Devices galore
A traditional strength of the MNO has been providing devices bundled into tariffs. This has made mobile phones, especially high-end devices, accessible to more MNO customers. Whereas many people still like to renew their airtime subscription in conjunction with a device upgrade, there are a growing number of customers now sourcing their phones directly from retailers offering discounts and payment terms. These users then tend to look for SIM only deals and are prepared to shop around and change service provider. This is reducing traditional customer loyalty that MNOs had got used to.
The passing of the physical SIM
Following on from a weakening in attracting customers with device deals the disappearance of the physical SIM is the last of things to induce sleepless nights for MNOs. This will certainly make changing service provider much easier and also allow device manufacturers to have a much greater say in how mobile users pick and chose what they do with their devices and what access technology will be chose for them by the device.
Wrap up
The justification for investing in 6G in current MNO business models isn’t apparent (in fact some MNOS are even struggling to justify 5G SA investment). We have little doubt that the way 6G will be deployed by MNOs will follow very different practices than we’ve seen previously. It is not clear to us that 6G will bring anything like the increased revenues that will be needed to provide a return on investment. Neither do we see 6G adding anything significant for the MNO to offer their customers over and above 5G.
This leads us to propose the prospect that the WiFi networks continue to become de facto bearer for the vast majority of high data and static applications, leaving the mobile networks, very much focussed on mobile use cases which by their very nature are lower bandwidth. We believe that mobility is a fundamental requirement, walk around any city and you will see zombie like people of all ages, completely absorbed in their phones as they collide with unsuspecting passers-by and the occasional lamppost. This in turn makes us think, well if that is the case, then surely 5G is enough, isn’t it?