Operators Must Adopt New Tactics to Build 5G Networks

BARCELONA, SPAIN, February 27, 2017 – The increased performance of 5G networks is going to come at an increased cost, according to global consulting firm Oliver Wyman. 5G will mostly use higher frequencies than 4G cutting the range of antennae to a third or less, which Oliver Wyman estimates would mean Europe will need to add an extra 200,000 new antennae sites. The sites will cost approximately 15 billion euros to build, on top of operation and maintenance costs, which equal the initial investment.

Unfortunately, these costs are coming at a time when mobile network operators’ revenues are stable at best, their cash flow and profitability are down, and they have had to reduce costs and expenditures to meet analysts’ expectations. Without radical new approaches, operators will not be able to afford to build out 5G networks.

Oliver Wyman outlines three courses of action that could help fix the problem:

1. New Alliances: Rival operators, instead of setting up their own networks, should actively consider alliances to spread the costs. It won’t be economical for any given operator to set up a 5G network on their own; we estimate that at most 15-20 percent of these additional 200,000 sites will be deployed by one operator on its own, the remaining sites will be built and operator by alliances, which in many cases have yet to be established.This will also ease the issue of residents in many communities blocking the construction of cell phone towers in their neighborhoods, put off by the ugliness or other concerns. Local governments are often very slow to give permission, and sharing sites would reduce these burdens as well as the costs.
2. Cooperation with Over The Top Technology (OTT) providers: Other players who benefit from mobile data should be involved, specifically OTT players as they gear up for improved mobile experiences and partner with operators to deliver them. While operators have been struggling financially, the likes of Samsung and Apple have built loyal customer bases, and Internet stars ranging from Google to Facebook have been going from strength to strength – all thanks to the existence of mobile networks. For 3G and 4G, network operators failed to set up alliances and deals that would generate financial contributions from the Internet giants. They need to do this for 5G, otherwise they will again watch as others reap the benefits of their investments.
3. Additional Revenue Streams:  Network operators need to figure out additional revenue streams to ensure that 5G yields top-line growth. 4G has shown that improved performance – meaning fast, reliable, and extensive networks – is highly sought after by customers and quickly results in the emergence of new services in turn driving rapid growth. However, operators will need to make sure they monetize the extra capabilities beyond connectivity in smarter ways.  Once operators are opening the Pandora’s Box of unlimited data proposition without any additional differentiation or service understood by their clients, consumers will enjoy ultimate comparability thus driving a race to the bottom on who gives the most for the minimum price. This is a development industry needs to avoid at all cost.

Rafa Asensio, partner and global head of the Communications, Media & Technology practice at Oliver Wyman, says: “If operators get these points right, the rewards could be great. Moreover, a dense 5G grid in high-traffic, urban areas could turn into a serious alternative to cable and fiber – up to now seen as the only meaningful way to cope with high data volumes.

“To position themselves correctly, operators will need to move early, which implies planning much further in advance than for previous generations of mobile network. 5G will not only provide new capabilities, but will also significantly change the business models the industry has developed over the past 20 years. Currently, the industry is far from being ready for the massive upcoming shift.”

Oliver Wyman partners will be in attendance at the World Mobile Congress in Barcelona and are available for further discussion on the building successful 5G networks. 

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About Oliver Wyman

Oliver Wyman is a global leader in management consulting. With offices in 50+ cities across 26 countries, Oliver Wyman combines deep industry knowledge with specialized expertise in strategy, operations, risk management, and organization transformation. The firm's 4,000 professionals help clients optimize their business, improve their operations and risk profile, and accelerate their organizational performance to seize the most attractive opportunities. Oliver Wyman is a wholly owned subsidiary of Marsh & McLennan Companies [NYSE: MMC]. For more information, visit www.oliverwyman.com. Follow Oliver Wyman on Twitter @OliverWyman.

5G Background

5G will use technologies such as massive MIMO, flexible carrier aggregation, 256QAM, and license-assisted access (LAA). By adopting SDN/NFV and cloud-based approaches such as Cloud RAN, it will lead to big performance gains that support diverse uses, from low-rate IoT to ultra-fast mobile broadband. Reliable and superfast, its connections will be usable by connected vehicles and emergency services.