5G: Money Talks

5G: Money Talks

In our blog post from last week, we talked about the various partnerships and alliances in the edge computing market. Then Verizon announced that it completed the first end-to-end fully virtualized 5G data session in the US. They see these technologies as the foundation for wide-scale mobile edge computing and network slicing. Earlier this month, Verizon launched 5G mobile edge compute live for developers with AWS Wavelength at Verizon’s 5G Edge locations in Boston and the Bay Area. This caught our attention because we will be covering these trends in an upcoming webinar with Jennifer Clark of Heavy Reading.

Technology demonstrations are great, but the reality is that new 5G services will need a significant footprint to drive meaningful revenue.  Operators need to get to a critical mass of coverage.  As we were working on the material for our upcoming webinar, we started talking about the dynamics of the 5G market. One aspect that stood out is how interrelated the different segments were.

Operators are investing in spectrum which is a prerequisite for investing in the 5G RAN especially with small cell sites.

The US Federal Communications Commission held their first auction of mid-band frequencies for 5G, with winning bidders committing almost $4.6 billion on licenses in the 3.5GHz range. This was higher than many estimates. While the winners have not been announced, Verizon and the nation’s cable companies appear to have the bulk of the licenses including big and small markets. This will allow the cable companies are widely expected to grow their mobile business while reducing the amount of money they spend with MVNO network partners.

The spending is not done. 5G spectrum in the 3.7GHz to 4.2GHz band is set to be auctioned by the FCC in starting in December.

These RAN networks will add a large number of small cell sites that will drive investment in the 5G transport network.

Operator commitments to Open RAN are growing. Rakuten, Vodafone, and Telefonica are all endorsing O-RAN. Telefónica had already announced plans for O-RAN trials, covering both 4G and 5G technology, in Germany, Spain, the UK, and Brazil this year. Up to half Telefonica’s investments in radio access networks between 2022 and 2025 will be in O-RAN according to Enrique Blanco, Telefónica’s chief technology and information officer, writing in Light Reading.

We have written extensively on how the growth in the number of cell sites, the increased bandwidth demand coupled with the disaggregation, and virtualization will require a significant greenfield buildout in the transport networks to serve 5G.

The core is also critical.

With more cell sites delivering new services and much greater bandwidth, the core needs to be ready to handle this increase. The investment is growing here too.  According to a new report from Dell’Oro Group, revenues for the 5G Core market are expected to approach $1 billion for 2020, with continued strong growth into 2021 as service providers ramp-up 5GC deployments. In 2Q20, 5GC accounted for nearly 15 percent share of the Mobile Core Network revenues.  Moreover, Network Function Virtualization (NFV) exceeded 50 percent, for the first time in 2Q20.

It’s easy to be cynical and invoke things like the Hype Cycle. However, actions speak louder than words and money talks. The spending on spectrum will drive RAN buildouts, new transport capacity, and a corresponding investment in the core. Operators are making these investments because they see new revenue opportunities. Their success in the market will depend on getting to critical mass in their buildouts.  While that will take time, the process is well underway.