Do consumers need another G?

Anyone who works in telecoms and technology circles knows that all the buzz about networks has turned to 5G and the extensive opportunities that it will unlock. That’s despite the fact that 5G has not been fully defined yet.

But does that matter if there is likely to be pent up demand? That’s if you believe Nokia Bell Labs’ forecasts that global data demand is going to increase by 30-45 times on mobile devices by 2020?

What we do know is that 5G is going to radically transform mobile data speeds. And it is fast, no doubt about that. The University of Surrey, which is at the forefront of developing and understanding this technology, has achieved data speeds of 1Tera byte per second. Although that is in somewhat theoretical lab conditions it doesn’t take much imagination to see the potential.

In fact, you don’t even need to use your imagination. Look to Japan and NTT DoCoMo and you’ll find 3.6 Gbps in field tests. That’s about 12 times the current speeds 4G users enjoy in the UK. It really is amazing.

But if you start to peer through the smog of geeky excitement and look at all the insight related to how consumers are using 4G you start to wonder whether we really need that extra speed and if it will actually be that appealing to consumers. Is 5G really going to make a difference?

It’s not like we haven’t been here before. Back in 2012 all the hype was about 4G and how the speed would allow incredible changes in consumer behaviour, from high-speed mobile gaming to mass market streaming services.

The hype translated into UK networks spending £2.34bn on licensing new spectrum to make 4G services a reality and as we stand, based upon OFCOM’s figures (which are slightly inflated as they look at 4G price plans rather than 4G use), 46% of adults have access to a 4G plan.

That’s 39.5million consumers. Or to put it another way that’s a £60 investment per user to ensure they can watch Breaking Bad on the bus. And let’s face it, the entire mobile population won’t be doing that, and we know they’re not, despite the millions being pumped into advertising.

You have to question then the return on investment that 4G is delivering let alone what 5G will bring. The average revenue per user (ARPU) continues to fall to the extent that it dropped by 8% after the launch of 4G, and although there were many factors at play, the consumer behaviours tend to suggest that customers don’t like to use mobile for services that need high speed data, either because of the quality or the cost concerns.

That’s not a surprise. The panic we seen in people’s eyes when they don’t have access to “free” wifi is the evidence. It’s a simple fact that today the vast majority of data consumption on a mobile actually occurs on wifi. And if you needed numbers to prove it Anlysys Mason’s recent smartphone report showed that just 19% of mobile data traffic is handled by the mobile network. A stark reality for operators.

Compared to 4G, wifi is everywhere and for the majority of high bandwidth data activity consumers are choosing to use a fast, high quality reliable and often free wifi network rather than wait for mobile coverage. Plus of course many of the activities we do on our smartphones are undertaken in the home.

So what about high data consumption activities such as streaming music or watching Netflicks on the go? The sort of thing you can only do with a high speed and widely available mobile data network.

The truth is that these have not yet really achieved mass-market appeal. Music streaming services is used by around 19% of people and combined audio and video services are used by around 38%. True they are growing but does it justify additional investment in a newer, faster network allowing HD or 3D on your mobile screen if we’re not yet achieving levels near to 80% for what we already have?

So what’s the barrier? Very simply it’s coverage.

And this is my fundamental challenge with 5G.

The most popular web related activities on mobile phones are still relatively data light services such as messaging, accessing social media and general web browsing, all of which can be carried out quite adequately on a 3G signal which is ubiquitous compared to 4G, which even in urban areas can be a bit elusive.

Although 71% of UK premises have access to 4G services from all networks, there is still a dramatic digital divide between rural and urban areas. If you live in the country that number drops to just 21%.

So would the networks be better to invest in improved coverage for 4G and sweat their £2.34 billion existing investment a bit harder, rather than investing further in high-speed urban coverage that will give marginal improvements for a limited number of consumers?

Well here’s the thing. Although 5G will bring enhanced speed and reduced latency for mobile users, allowing you to download a box set of Game of Thrones in seconds, the real business case is built around the internet of things.

Gartner have predicted that by 2020 (that magic date again) there will be 20.8 billion connected devices. Currently it’s estimated that there are 6.4 billion. To put those numbers in context the World’s Population in 2016 was estimated at 7.4billion.

Each one of those devices will be sending data and, depending on the applications, that data has to be sent and received with no latency. The whole premise of smart cities falls over if there’s any delay.

If 5G can guarantee coast-to-coast coverage then we could well see our driverless cars being controlled by 5G networks, able to make amendments and corrections in milliseconds due to a secure and redundant super high-speed data network.

Qualcomm have even suggested that remote operations and surgical procedures could be undertaken using 5G networks communicating with machines and artificial intelligence.

There is no reason why these predictions shouldn’t happen but I suspect initially the reality will be a bit more mundane than this. It’s far more likely that it will be a radio chip communicating the whereabouts of my parcel via 5G rather than a postal drone delivering it controlled by the 5G network.

But however simple or sophisticated the idea, it’s IOT applications that are more likely to drive networks to develop 5G then consumer demands for faster data.

The networks will be reviewing 5G through the broader lens of their IOT strategy, assessing, how they can monetise what will be another extremely significant technology and claw back the spectrum investment versus the exciting services that IOT will enable.

But importantly the value in IOT services is wrapped into the whole service, not just the communication layer, so networks’ strategies are likely to focus on finding the right B2B partnerships and providing the level of ubiquity and security that the consumer services will demand.

Ultimately the consumer is buying into a connected house experience or an autonomous vehicle taxi journey, not a 5G mobile network with superfast data. They will simply want to know that it will work when they want it to.

This comes down to a marketing gamble. Selling the dream of a smart life and telling the story of the way it will transform how we work and play. Those operators that win will leave behind the story of 5G. It will be the hygiene factor and irrelevant. It will only become a deal breaker when it doesn’t work.

Any IoT developer or integrator will get this, and will want to partner with networks that do too. Consumers will be left puzzled as to whether they need another G in their life if the message is technology lead.

And rightly so, because for the vast majority 5G won’t be relevant. Only when the majority of the population embarks on the journey of connected cities, with autonomous vehicles and AI doctors will it be.

Then it will be the businesses providing those IoT services that will drive network performance. For them it will be about brand reputation and an implicit requirement that 5G must be everywhere to fulfill their end of the bargain. And who knows, by the time we cross the threshold of mass adoption, they may even be pushing for 6G.

James Gray

James Gray

Managing Director at Graystone Strategy
James has over 20 years of experience working in the telecoms and retail industries. He is an expert in subscription-based business models, CRM, direct and indirect channel management and major proposition development and launches. He has held a number of Marketing Director and Consumer Director roles.
James Gray

About James Gray

James has over 20 years of experience working in the telecoms and retail industries. He is an expert in subscription-based business models, CRM, direct and indirect channel management and major proposition development and launches. He has held a number of Marketing Director and Consumer Director roles.