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Regulation for 5G: Investment and Innovation

This presentation explores the economics and regulatory aspects of 5G investments. It discusses the need for significant commercial investment, challenges in financing, and potential returns on investment. It also explores the role of IoT business models in justifying financing and the time required for building and making returns on 5G infrastructure. The presentation highlights the need for dense physical infrastructure, spectrum choices, and various backhaul technologies. It also addresses the regulatory and investment policies required for fast rollout and accessing the benefits of 5G.

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Regulation for 5G: Investment and Innovation

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  1. Session Theme:Regulatory PerspectivesPresentation Theme: Regulation for 5G: Investment and Innovation Presentation for: Tomorrow in Now: A Workshop on 5G Technology, Operations and Regulation Convened by International Telecommunications Society (ITS) Hostedby TELUS and Chalmers University of Technology28 March, 2019 Erik Bohlin* Chalmers University of Technology, Göteborg, Sweden * This presentation develops joint work with Prof Johannes Bauer, Michigan State University, and Dr. Simon Forge, SCF Associates. A full paper with Johannes Bauer is entitled Roles and Effects of Access Regulation in 5G Markets (2018) is available http://ssrn.com/abstract=3246177Research assistance by Pratompong and Chalita Srinuan is gratefully acknowledged. Research financed by Deutsche Telekom AG. Contributions with Simon Forge are developed for a project funded by the National Broadcasting and Telecommunications Commission, Thailand, on 5G Valuation and Auction Design, with initial contributions presented at workshops in Bangkok, 18-25 March, 2019.

  2. What economics and regulation for 5Ginvestments? As ”sampled” by Simon Forge

  3. Applications with novel business models justify 5G infrastructure costs Internet of Things Factories & Machines Transport & logistics Health systems and hospitals Agriculture Cities & the built environment Consumer goods Media & communications 5G Infrastructure Basestations for small cells Backhaul Core network Data centres 5G networks 5G investments depend on:-

  4. 5G will require significant commercial investment: • China expects 5G to be 3 times capex of previous mobile generations (MWC’19) • One global 5G investment estimate:- US$2.7 Trillion just to end 2020; includes IoT* • Estimate of EU’s 5G infrastructure network investment: 300 - 500Bn Euros • Problems in financing - governments lobbied as lenders, plus new sources of working capital - with new partnerships between telcos, equipment suppliers and vertical industry users - share costs and spread risks. • Needs the IoT business models to justify financing • 5G will take time to build - and to make returns • Commercial rollout for first version 2020, but really 2021 • China expects 10 years to complete technical development and to rollout nationally. • Potential RoI may be spread over 10-12 years* (cf 7-10 years for LTE and 3G) • Needs dense physical infrastructure for urban rollout • Requires numbers of cell sites with backhaul on a scale never seen before – eg if cell located every 10-50 metres along the street – and if 50% of each square km of a city must be covered = over 700 small cells/km2 for a cell spacing of 30 meters. • Spectrum choices are wide-ranging • Fairly different bands round the world :- • UHF 300 MHz -3GHz – eg T-Mobile USA using 600MHz to cover the USA; ‘Mid-band’ 3.4 – 3.8 GHz – EU and others Low end of centimetricband – 4-10GHz eg China 3.5 & 4.9Ghz High end of centimetric - 26, 28 GHz – USA: ATT, Verizon Millimetricbands: 34, 38, 40-50, 60, 70, 80GHz. * Greensill, Australia, Financing the future of 5G, 25 Feb 2019

  5. 5G small cell Satellite Backhaul 3GPP Macro Site Wi-Fi Non- LoS Micro- wave 5G small cell xDSL Backhaul in existing ducts 5G Femto Fibre Optic Broadband Backhaul For urban densification, expect more complex street furniture to serve multiple small cell RAN technologies – both indoors and outdoors, with a variety of backhaul technologies

  6. 5G strategy - Industrial policy (not only telecoms policy) Regulatory policy Investmentpolicy Deployment policy Spectrum Policy Fast rollout for dense configurations of small cells Preparing to access the benefits of 5G What is needed:-

  7. However, a recurringproblem setting: Whatregulatorymodels for investment take-up? Source: Mobile WirelessPerformance in the EU & the US by Eisenhardt, Caves and Bohlin, 2013

  8. Capex per inhabitant in US$ (2018-2020 estimated) Source: GSMA Intelligence, World Bank World Development Indicators; own calculations, as presented in Bauer & Bohlin, 2018. Note: If the EU14 invested the same amount per capita as the United States, total capital expen­ditures in 2020 would be $27 billion higher. Over the five-year period between 2020 and 2025, when capex will predominantly support 5G network deployment, the accumulated investment gap could be more than $100 billion. EU14 is here Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Portugal, Spain, Sweden, and United Kingdom

  9. Total mobile connections in the EU14 (2018-2025 estimated) Updating the GSMA 2013 Report EU14 is here Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Portugal, Spain, Sweden, and United Kingdom Total mobile connections in the United States (2018-2025 estimated) Sources: GSMA Intelligence; own calculations , as presented in Bauer & Bohlin, 2018.

  10. 4G and anticipated 5G adoption per 100 inhabitants (2018-2025 estimated) Source: GSMA Intelligence; World Bank World Development Indicators; own calculations, as presented in Bauer & Bohlin, 2018.

  11. Monthly ARPU in US$ (2018-2025 estimated) Source: GSMA Intelligence, World Bank World Development Indicators; own calculations as presented in Bauer & Bohlin, 2018.

  12. Policy mix of three scenarios Source: Bauer & Bohlin, 2018

  13. Framework Driving the Scenario Analysis (I) Source: Bauer & Bohlin, 2018

  14. Framework Driving the Scenario Analysis (II) Source: Bauer & Bohlin, 2018

  15. Conclusion • A dynamic view of regulation for investment and innovation is needed for the converging future 5G infrastructure with its huge innovation potential • In the dynamic environment of 5G services, it will be important to take direct and indirect effects and feedbacks into account. The overall effects of these counteracting, positive and negative, forces on 5G deployment and innovation are difficult to anticipate. • Some network operators and players at higher layers of the value system will recognize complementarities and embed them in their business decisions but other players may seek to foreclose competition in undesirable ways. • Overall, the need to support entrepreneurship and innovation experiments in 5G markets and to allow the freedom to develop innovative contractual approaches suggest that enabling market forces should be the primary focus of 5G regulation. • Traditional regulatory approaches that design regulation as an intervention to mitigate market power may result in a 5G market design that does not support its full innovative potential. • Experience provides strong testimony that entrepreneurship and experiment in the market place are the drivers of innovation.

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