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5G

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by EOS Intelligence EOS Intelligence No Comments

Moving Towards 5G – Slowly but Surely

5G technology started to become a buzzword around 2017, when it was still in a nascent stage of development, to say the least. Over the past two years, 5G has evolved from pilot testing phase to small-scale implementation. However, 5G full-scale deployment is yet to be seen and there are still many challenges to overcome. 5G is here, but it is still a long way before it becomes mainstream.

Developing 5G infrastructure is a costly affair

5G uses high frequencies and short wavelength to deliver faster speed and lower latency. Short wavelength requires shorter distance between the tower and the device, since the signal cannot penetrate buildings, trees, or other such obstacles. Therefore, telecom operators need to build 5G small-cell towers very close to the end-users, which is time consuming and expensive.

The high cost of investment is seen as a major pain point by majority of the telecom operators. A report released by a UK-based capital finance firm Greensill in February 2019 indicated that the investment in global 5G telecom infrastructure will reach US$1 trillion by 2020.

Network sharing is increasingly seen as a rational approach to reduce the individual cost of investment. In February 2018, McKinsey estimated that if three players share the 5G network, the individual costs can be reduced by 50%. However, setting up a collaboration with other telecom operators to share networks is a complex and time-consuming process. On an average, it takes about six to nine months to finalize a network sharing agreement. Each telecom operator will need to ink many such network sharing contracts to achieve wide-spread coverage of their services.

Despite the hype, demand for 5G is currently rather moderate

Despite all the promises of high-speed and uninterrupted internet connectivity, 5G is not seen as an immediate necessity. This is because the existing technology, 4G LTE, is able to fulfill most of the current consumer needs. The average 4G LTE data speed globally is estimated at around 17Mbps. Thus, 4G LTE provides sufficient speed for some of the most common mobile applications such as music streaming (~1Mbps), 1080p HD video (~5Mbps), and even online games such as Fortnite (~3Mbps).

As per a study conducted by PWC in September 2018, only about a third of 1,000 home and mobile internet users surveyed in the USA were willing to pay a premium for 5G, provided 5G delivers speed and low latency as claimed by the telecom operators. Moreover, survey finds that, for 5G internet service, home internet users were willing to pay a marginal amount of US$5.06 on average as monthly premium in addition to their current spending on 4G. Mobile internet users were willing to spend even less, a monthly premium of US$4.40 on average. To compare, a US-based telecom operator Verizon offers unlimited 4G data and calls for US$65 per month.

Moreover, most of the 4G devices do not support 5G networks, thus require consumers to spend additionally on 5G-compatible devices. This additional cost factor is also expected to act as a deterrent for mass adoption of 5G in the near term. Another survey (conducted by PWC in May 2019) of 800 internet users in the USA found that if a new device was required to access 5G, 70% of the respondents would not be willing to buy a new 5G-compatible device as soon as it was available, rather wait until they were eligible for an upgrade.

Thus, the marketing hype created around 5G have got consumers intrigued about the technology, however, they are not open to spending generously on the 5G experience.

Net neutrality law dampens motivation to invest in 5G

5G would enable network slicing allowing telecom operators to dedicate a portion or slice of their 5G network with certain functionality such as connectivity, speed, or capacity. In other words, network slicing creates various networks that share the same physical infrastructure without impacting other network functionalities.

For instance, in automated cars, one slice could be used for watching Netflix and other could be used for exchanging reliable information with other cars to avoid any road accidents. Network slicing is a real opportunity for telecom operators to optimize their 5G networks to address different needs of specific application areas.

Furthermore, differentiated services provided with each network slice using the same physical infrastructure are likely to increase revenue potential for telecom operators. A research study conducted by Ericsson in 2018 concluded that telecom operators can generate up to 35% more in revenue using network slicing (the study assumed a 5G mobile broadband had 25 million subscribers with 40 unique services launched per year over the period of five years).

However, the net neutrality regulation adopted by many countries across the world does not permit the use of network slicing technique. Net neutrality laws are in effect in the EU since 2016. In North America, Canada has net neutrality regulation in place, but in the USA the status of the law is under review. Most countries in South America have national laws to protect net neutrality. In Asia, Japan, South Korea, and India are among the few countries with net neutrality regulation. Africa, in particular, is lagging behind other regions in developing concrete framework to protect net neutrality.

The net neutrality law dictates telecom operators to treat all internet communications equally and prohibits them to charge differently for different internet services. Net neutrality law does not allow the telecom operators to use network slicing technique to create distinguished service offerings by blocking any part of bandwidth for a particular application or user group.

Telecom operators argue that this impacts the roll out of mission-critical and emergency services such as remote surgery which needs to be given priority over other applications. With net neutrality in the picture, telecom operators would not be able to benefit from the key feature of 5G technology, network slicing. This may hinder the overall 5G development.

As telecom operators voice their concerns, regulators across the world are reviewing net neutrality laws. EU opened consultations with industry stakeholders as telecom operators in the region propose 5G to be classified as a specialized service which is exempted from net neutrality laws.

In the USA, the status of net neutrality law (introduced in 2015) remains unclear. In June 2018, the Federal Communications Commission (FCC) repealed net neutrality regulation, however the decision was opposed by 22 states. State legislators have challenged the FCC decision in the US Court of Appeals and proposed to authorize the state-level legislations to re-instate net neutrality laws. In the 2019 legislative session, 29 states introduced laws to protect net neutrality at state level.

5G to multiply data privacy and security risks

5G does not drastically change the risk factors similar to those in the existing communication technologies (i.e. 2G, 3G, and 4G), however, it is going to dramatically increase the potential points of cyberattacks. This is due to the fact that the advent of 5G is expected to result in exponential increase in the number of connected devices and associated network data traffic, which will significantly expand the number and scale of cyber vulnerabilities.

A study (released in May 2019 by Business Performance Innovation (BPI) Network, a professional networking organization) based on a global survey of 145 telecom industry professionals, indicated that 94% of respondents believed that 5G will increase security and reliability concerns.

Another survey conducted in June 2019 by Cradlepoint, a cloud-based networking solutions provider, indicated that 73% of the 200 respondents (working with telecom operators) acknowledged that security concerns might delay the 5G adoption.

Explore our other Perspectives on 5G

Industry is turning to standardization and regulatory bodies for guidance on minimizing security threats associated with 5G. But existing standards do not fully address the data privacy and security concerns.

For instance, the existing 5G standard employs Authentication and Key Agreement (AKA) protocol which is a mutually authenticating system between the user device and 5G network. However, in late 2018, it was discovered that the 5G AKA has at least two vulnerabilities that could compromise users’ data privacy and security. Firstly, it allows interception of the communication between two users, enabling cyber spies to steal personal information or corrupt data. Further, the vulnerability in 5G AKA protocol could allow cyber criminals to bill the phone call or other charges to legitimate users.

5G standards are still under development and will take some time to come into effect. Since 5G is a new technology, many data privacy and security threats still remain unidentified. In anticipation of potential security flaws, telecom operators may adopt a wait-and-see approach before moving to wide-scale commercial deployment of 5G.

5G draws criticism over possible health concerns

It is believed that prolonged exposure to electromagnetic radiation from 5G networks can be harmful to human health. In 2011, cellular radiation was classified as a possible carcinogen by World Health Organization. 5G radiation is also claimed to be linked to premature aging, disruption of cell metabolism, as well as neurological disorders. However, there is little evidence to understand the actual extent of the harm caused, and therefore many countries are not giving this issue due attention.

However, rising health concerns are not going unnoticed. In September 2017, 180 medical professionals and scientists from 36 countries recommended the European Commission to postpone the deployment of the 5G network until the potential risks for human health and environment are thoroughly investigated and proven. In response, the European Commission indicated that the member states are responsible for protecting their citizens from harmful effect of electromagnetic radiation and they can introduce choice of measures based on the demographics. This means that, in the future, if the presumed adverse effect of 5G radiation on human health is proven to be true, countries can impose protectionary measures which would limit the development of 5G.

Some countries have already taken a cautious approach to 5G deployment in view of potential health risks. An example of this could be Belgium stopping a 5G test in Brussels in April 2019 due to difficulty in measuring electromagnetic radiation emissions. Around the same time, Swiss government also announced plans to introduce radiation monitoring systems to continually assess health risks posed by 5G radiation. Earlier in September 2018, Mill Valley, a city in San Francisco, USA, banned deployment of small-cell 5G towers in the city’s residential areas.

Thus, growing concerns over impact of 5G on human health is expected to further delay the 5G development and adoption.

Moving Towards 5G – Slowly but Surely nu EOS Intelligence

1) According to McKinsey estimates (February 2018) based on the assumption that three players share the 5G network
2) Based on survey of 1,000 home and mobile internet users in the USA conducted in September 2018 by PWC
3) Based on survey of 800 home and mobile internet users in the USA conducted in May 2019 by PWC
4) As per Ericsson 2018 study, assuming a 5G mobile broadband having 25 million subscribers with 40 unique services launched per year over the period of five years
5) According to May 2019 study by Business Performance Innovation (BPI) Network
6) Based on a survey conducted by Cradlepoint in June 2019

EOS Perspective

While the 5G technology era has arrived, wide-scale commercial deployment is moving slowly amidst challenges it is facing. Cradlepoint study indicated that 46% of the 200 telecom industry professionals surveyed in June 2019 had made little or no preparations for 5G deployment.

4G (introduced in 2009) accounted for 43% of the total mobile subscriptions globally by the end of 2018. Even after a decade, there are still many regions where people do not have access to 4G.

Transitioning from existing communication technologies to 5G is more complex, costly, and time-consuming. Hence, 5G is years away from full-scale commercial deployment. GSMA, an industry association with over 750 telecom operators as members, predicts that while 4G will continue to grow to reach 60% of the global mobile subscriptions in 2025, 5G will account for just 15% of the market by then.

5G has been in the news for some time now and it is marketed as the future of communication and internet technology. 5G has gone through many upgrades and is deemed ready for commercial deployment, at least on a small scale. Many leading telecom operators today are preparing for the rollout of 5G networks while uncovering new challenges in the process.

The road to 5G might be longer than expected, given the challenges on the way. TBR, a technology research firm, expects that only few trailblazers would have attempted to deploy 5G by the end of 2019. Majority of telecom operators will deploy 5G between 2020 and 2026. Laggards will follow them and continue with 5G deployment till 2030.

by EOS Intelligence EOS Intelligence No Comments

Monetizing 5G: The Road Ahead for Telecom Operators

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A new era of mobile communication and data services is set to begin as telecom operators across the world are priming for roll out of 5G. As per the estimates by Hadden Telecoms, a UK-based consultancy firm, as of August 2019, 287 telecom operators have invested in 5G deployment across 105 countries. Investments span across various facets of 5G technology including ongoing 5G base-station deployment and other infrastructure development, commercial service launches, future commitments or contracts to deploy 5G networks, pilot testing and trials, and research studies. As 5G seems to be an inevitable leap to the future of internet technology, the pressing question for telecom operators is how they can monetize the 5G opportunities.

5G mobile broadband is expected to become the key driver of revenue growth in consumer segment

Telecom operators will be primarily banking on 5G-enabled high-speed mobile broadband which is a natural progression from 4G mobile broadband internet services. An annual industry survey (2018), conducted by Telecom.com Intelligence – an information source for global telecom industry, indicated that 45% of the respondents (i.e. 1,500 telecom industry professionals across the world) recognized mobile broadband as the 5G service with greatest commercial potential. Based on 35,000 online interviews conducted with people across 22 countries in May 2019, Ericsson estimated that, with 5G, the average monthly mobile data consumption will increase 10 -14 times. Rising demand for data-intensive applications offering high quality video viewing and immersive gaming experience will be the key impetus for 5G mobile broadband.

5G to make dream of high-quality video streaming come true

Video accounts for the lion’s share of telecom operator’s network traffic today and it is likely to become the key driver of 5G mobile broadband service. Based on survey of 30 telecom operators across the world, Openwave Mobility (a mobile data traffic management solution provider) indicated that video on mobile broadband has registered average growth of 50%-60% year-on-year during 2014-2018. In many developing countries, this growth was over 100%. As per Ericsson’s estimates, video’s share in global mobile data traffic is forecasted to rise from 60% in 2018 to 74% in 2024, witnessing a 35% growth annually.

The growth in mobile video from 2010 to 2015 was attributed mainly to increased watch times. Interestingly, since 2015, growth in mobile video was mainly driven by consumer’s move towards high definition (HD) content. Further, video is expected to evolve from HD to higher display resolution such as 2k, 4K, and even 8K in the future. HD video consumes about 0.9GB per hour, while 2k and 4k would consume about 3GB and 7GB, respectively, thereby demanding higher bandwidth capacity and speed – which only 5G will be able to fulfil. This is because 5G is expected to be 100 times faster and have 1,000 times more capacity than 4G, thus enabling smooth streaming of 4k or 8k video without any buffering or lag. 5G will also become backbone for emerging technologies such as 360-degree video, virtual reality, and augmented reality.

5G will push for convergence of communications and media, opening up new avenues for telecom operators by integration of video content and media into their offerings. For instance, in May 2019, US-based telecom operator Verizon hinted that partnerships with content providers such as NFL, The New York Times, and YouTube TV, are part of the company’s 5G video strategy.

Anytime, anywhere gaming gets closer to reality with 5G

Just as 4G enabled video streaming services to go mainstream, 5G is expected to do the same for game streaming (also known as cloud gaming, meaning the game runs on a cloud platform instead of consumer’s devices). As per estimates of Newzoo, a gaming research company, the global gaming market is expected to reach US$152.1 billion in 2019, out of which 45% i.e. US$68.5 billion will be generated from mobile gaming (games on smartphones and tablets). This indicates that smartphones and tablets have already become most commonly used devices for gaming. 5G is expected to push mobile gaming to a next level by enabling game streaming. This is because 5G’s low latency (i.e. time taken to upload data from consumer’s device to target network) will allow consumers to stream games with virtually no lag. Currently, with 4G technology, the average latency is about 50 milliseconds (ms) because of which the response time between player-cloud server-player is too long. But latency could be reduced to 1ms with 5G, thus providing uninterrupted gaming experience to the players.

With advent of 5G, majority of the leading game developers, including Nvidia, Sony, Microsoft, EA, and Google, have already launched or plan to include game streaming as a part of their service offerings. The game streaming market is expected to grow at CAGR of 41.9% during 2019-2025, to reach US$740 million in 2025 from US$45 million in 2018. Telecom operators could tap into this growing demand for game streaming by partnering with game developers. For instance, in March 2019, Nvidia’s CEO indicated that the company will cash in on delivering game streaming service via telecom operators’ 5G offering and in return, telecom operators will get to keep more than half of the gaming subscription fee collected from the players (i.e. consumers). Such partnerships are already seen to be materializing; for instance, in September 2019, SK Telecom (South Korea’s largest telecom operator) paired up with Microsoft to deliver xCloud (Microsoft’s game streaming service) in South Korea over its 5G network.

5G Fixed Wireless Access (FWA) provides telecom operators with scope of market expansion

While 5G mobile broadband provides internet connectivity to smartphones, 5G FWA offers wireless broadband to homes and businesses through 5G networks. 5G FWA is expected to be a better alternative to fixed wired broadband including DSL (Digital Subscriber Line – internet delivered through existing copper telephone lines), cable (internet provided by cable operators through coaxial cables), and FTTH (Fibre-to-the-Home – the latest broadband technology using fibre optic cables). In January 2019, CEO of a US-based telecom operator AT&T emphasized that 5G FWA will evolve as a replacement product for existing fixed broadband over next three to five years.

5G FWA will be able to compete head on with fixed broadband. 5G FWA can provide faster speed and higher bandwidth, while also remaining more cost-effective compared to fixed wired broadband. To be specific, an article published in October 2018 on Inside Tower, an information source for wireless infrastructure industry, indicated that total capex per subscriber to deploy FTTH was about US$2,000-US$2,500, while 5G FWA capex could be estimated at US$1,000-US$1,500 per subscriber (representing nearly 50%-60% cost reduction over FTTH). Earlier, in August 2017, a Dubai-based research firm SNS Telecom estimated that 5G FWA can reduce the initial cost of installing last-mile connectivity by 40% when compared to FTTH.

Explore our other Perspectives on 5G

5G FWA is expected to become one of the first commercial use cases of 5G technology. SNS Telecom estimates 5G FWA revenues to reach US$1 billion globally by the end of 2019, and the market is forecast to grow at a CAGR of over 84% between 2019 and 2025, to reach US$40 billion in 2025. Another research firm MarketsandMarkets predicts that the global 5G FWA market will grow from US$396 million in 2019 to US$46,366 million by 2026, at a CAGR of 97.5% between 2019 and 2026.

Push for industry digitization by leveraging 5G-IoT technology opens up new market opportunities for telecom operators in business-to-business (B2B) segment

Digital transformation driven by 5G-enabled IoT applications is the key focus for most industries including automotive, healthcare, media and entertainment, retail, energy and utilities, manufacturing, agriculture, public transport, public safety, and financial services. Based on analysis of 400 digitization use cases from ten industries (mentioned above), Ericsson in association with Arthur D. Little (a management consultancy firm) released a report in October 2017 suggesting that the connectivity and infrastructure provisioning to enable industry digitization is expected to generate US$230 billion in 2026. Telecom operators, in their traditional role of operating network infrastructure, have the potential to address 89% of connectivity and infrastructure provisioning opportunity, representing US$204 billion in revenues. As per the Ericsson report, the telecom operators’ potential business from connectivity and infrastructure provisioning is anticipated from number of use cases including real-time automation, enhanced video services, monitoring and tracking, connected vehicle, hazard and maintenance sensing, smart surveillance, autonomous robotics, remote operations, and augmented reality, among others.

Further, many telecom operators are expected to evolve from being network developers to service enablers providing digital platforms catering to industry-specific digitization requirements. Service enablement to address industry digitization is forecast to generate US$646 in revenues in 2026, of which telecom-operator-addressable share is estimated at 52%, translating to US$337 billion.

Moreover, telecom operators also have the opportunity to take on the role of a service creator by developing new digital service and setting up new digital value systems. In this role, telecom operators have the potential to earn US$79 billion in 2026 (representing 18% of the total revenue generated through application and service provisioning).

Thus, if telecom operators partake in every step of industry digitization value chain by adapting the role of a network developer, service enabler, as well as service creator, the total addressable revenue opportunity from industry digitization could reach US$619 billion in 2026.

Monetizing 5G - The Road Ahead for Telecom Operators by EOS Intelligence

EOS Perspective

Traditionally, telecom operators’ business model revolved mainly around providing voice and data services to consumers. Advent of 5G will not only allow telecom operators to unlock new revenue streams in consumer side of business but also expand the addressable market to B2B space.

The onset of 5G will enable telecom operators to explore new use cases and develop corresponding service offerings. For this, telecom operators will need support and cooperation from different players across the ecosystem.

Telecom operators will need to collaborate with application developers, device manufacturers, as well as third-party technology solution providers to co-create services as per the requirement of specific industries. Ericsson research report (based on survey of 50 executives working with 37 telecom operators globally), released in 2017, pointed out that 77% of the respondents believed that third-party collaboration would be vital in monetizing 5G. Realizing the importance of industry collaboration to cultivate commercially viable 5G use cases, most of the leading telecom operators have started building their partnership network. For instance, Japanese telecom operator NTT Docomo indicated that total number of partners in its 5G Open Partner Program (launched in 2018) reached 2,700 by June 2019.

Further, telecom operators will need to modify and tailor their offerings to address the evolving consumer demands and expectations. To be successful, telecom operators will need to strive to develop and offer a complete solution to the consumers. For instance, 74% of the 35,000 respondents (that participated in Ericsson survey in May 2019), indicated that they find the idea of moving away from cable TV and shifting to 5G FWA bundled with 5G TV services very appealing. In view of this, most telecom operators are experimenting with bundling strategy, starting with inclusion of streaming services as a part of their package. Ovum estimates that streaming services (including, video, live sports, music, and game) billed through 5G network bundles offered by telecom operators will grow from US$6 million in 2019 to US$4.87 billion in 2024.

Moreover, telecom operators will need to develop completely new revenue models for enterprises. Telecom operators may adopt a business model widely used by consultants, wherein they can collaborate with enterprises for specific projects and receive a one-time fixed fee or share of project-associated profits or cost savings. Or, like application developers, telecom operators can develop standard solutions for specific industries and adapt licensing model permitting enterprises to integrate the solution into their end-product or subscription-based model allowing the enterprises to use the solution for a specific period of time.

5G’s functionalities and characteristics entice telecom operators to develop new use cases and capitalize on corresponding revenue opportunities. However, the use cases, particularly in enterprise segment, still need to stand the test of practicality and commercial viability. Though 5G offers plethora of opportunities for the telecom operators, it is advisable to focus on a few business cases that best fit to their capabilities and develop the ecosystem (including application developers, device manufacturers, and third-party solution providers) required to take the final solution to prospective consumers.

by EOS Intelligence EOS Intelligence No Comments

Decoding the USA-China 5G War

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The USA perceives Huawei, world’s largest telecom network equipment supplier and second largest smartphone manufacturer, as a potential threat capable of using its telecom products for hacking and cyber attacks. The US government suspects that China could exploit Huawei for cyber espionage against the USA and other countries. Amidst national security concerns, the US government has called for global boycott of Huawei, including of its 5G product range. The USA’s efforts to clamp down Huawei have rippling effect across the 5G ecosystem.

The USA and China have been trading rivals since 2012, particularly on the technology grounds. This resulted in a ban on China-based telecom equipment provider Huawei preventing it from trading with the US firms, over the accusation of espionage of critical information to the Chinese government. As a result, Huawei was barred from selling any type of equipment to be used in the US communication networks. This ban pertained to the 5G network equipment as well, and thus, Huawei’s 5G network equipment was ruled out from deployment in all parts of the USA. Few other countries, which agreed with the USA’s accusations on Huawei, also imposed a ban on the company’s 5G network equipment. The move severely affected Huawei’s exposure to some of the potential 5G markets, but it came as sigh of relief for its global competitors wary of Huawei’s growing dominance in 5G space.

Further, on May 16, 2019, the US government decided to put Huawei on the Security Entity List which restricted the company from buying any US-based technology (key hardware and software) for their 5G network equipment without approval and license from the US government, thus aggravating the 5G war. This not only brought new set of challenges for Huawei, but also created a rough path for the USA’s own technology firms involved in supplying components to Huawei. Considering impact on the US technology firms having Huawei as a key customer, on June 29, 2019, the US government announced relaxation on the Huawei ban, thereby allowing these US firms to continue their supply to Huawei for a 90-day period which got over in mid-August. The relaxation period was further extended till November 18, 2019, giving temporary relief to Huawei and its US-based business partners.

Huawei bears the brunt of USA-China 5G clash

The USA has initiated a global campaign to block Huawei from next-generation wireless communication technology over security concerns and it is pressuring other countries to keep out Huawei from 5G rollout. This invited quite a few repercussions for the company. One of the major and obvious consequences involved a major loss of potential market opportunity in the US territory as well as in other countries which are under strong influence of the USA.

After prolonged persuasion by the US government, in July 2018, Australia banned Huawei from 5G rollout in its territory. Japan also joined the league in December 2018 by imposing a ban on Huawei’s network equipment for 5G deployment, amid the security concerns to avoid hacks and intelligence leaks. Further, New Zealand and Taiwan also followed the suit in shutting out Huawei from 5G deployment.

In June 2019, the founder and CEO of Huawei, Ren Zhengfei, indicated that the company is likely to experience a drop in its revenue by US$30 billion over the next two years, which can be seen as a knock-on effect of growing US sanctions on Huawei. Also, Huawei expects its smartphone shipments to decline by 40% to 60% by the end of 2019 as compared to the total shipments in the previous year.

Despite repeated warnings from the USA, some countries have come out in support of Huawei by rejecting the USA’s claims. The regulatory bodies of countries such as Russia, Germany, Brazil, South Korea, Finland, and Switzerland have taken their decisions in favor of Huawei and allowed the company to deploy its 5G network equipment in their territories, affirming that they do not see any technical grounds to ban the company from their telecom networks.

Moreover, the US government has been persistently urging many European countries, especially the UK, to join its decision of barring 5G trade with Huawei. In March 2019, the EU recommended its member countries not to impose outright ban on Huawei, but instead assess and evaluate the risks involved in using the company’s 5G network equipment. Already earlier, in February 2019, the UK government concluded that any risks from the use of Huawei equipment in its 5G network can be mitigated through certain improvements and checks which the company will be asked to make and hence the decision of completely banning the company’s equipment from UK’s 5G network was not taken.

Among Asian countries, India, the second-largest telecom market in the region, has not decided whether to allow Huawei to sell its 5G network equipment in the country. China has warned the Indian government that the repercussions of banning Huawei equipment would include challenges in catering to the demand for low-priced 5G devices, thus causing a hindrance in rapid development of India’s telecom sector. In June 2019, the Department of Technology of India indicated that, since the matter of Huawei concerns the security of the country, they will scrutinize the company’s 5G equipment for presence of any spyware components. India will see how other countries are dealing with the potential security risks before giving a green light to the company.

The USA’s allegations against Huawei have made all the countries cautious over dealing with the company. Despite having proven technological supremacy in 5G network equipment market, Huawei has come under strong scrutiny for its 5G network equipment across the globe.

Huawei ban: Boon for some, bane for others

Huawei’s troubles are turning into major opportunity for its competitors in the 5G network equipment and smartphones market space. However, suppliers to Huawei, particularly US-based companies providing hardware and software for 5G devices and network equipment, took a hard hit as they lost one of their key customers because of the trade ban.

Huawei ban presents increased opportunities for its global competitors in 5G network equipment market

Major competitors of Huawei in 5G network equipment manufacturing business – Samsung (South Korea), Nokia (Finland), and Ericsson (Sweden) – are positioned to get the inadvertent benefit of expanded market opportunities with one competitor less. With Huawei losing potential market in countries where it is facing backlash, its competitors managed to grab a few contracts.

For instance, in March 2019, Denmark’s leading telecom operator TDC, which had worked with Huawei since 2013, chose Ericsson for the 5G rollout. Further, in May 2019, Softbank Group Corp’s Japanese telecom unit, which had partnered with Huawei for 4G networks deployment in the past, replaced Huawei with Nokia for its end-to-end 5G solutions including 5G RAN (i.e. radio access network equipment including base stations and antennas which establish connection between individual smart devices and other parts of the network). In the USA, Samsung is gaining significant traction as it has started supplying 5G network equipment to some of the leading US telecom operators including AT&T, Verizon, and Sprint.

A report released in May 2019 by Dell’Oro (a market research firm specializing in telecom) indicated that Samsung surpassed Huawei for the first time by acquiring 37% of the share of total 5G RAN revenue in the first quarter of 2019. In the same period, Huawei stood second with 28% share, followed by Ericsson and Nokia with 27% and 8% share, respectively. Earlier, Huawei led the 5G RAN market in 2018, accounting for 31% share of total 5G RAN revenue that year. Huawei was followed by Ericsson, Nokia, ZTE (China), and Samsung with 29.2%, 23.3%, 7.4%, and 6.6% share, respectively. Due to widespread skepticism about Huawei over espionage accusations, a shift in 5G network equipment market can be expected by the end of 2019, since competitors are likely to gain more growth momentum over Huawei.

Demand for Samsung smartphones gets a boost as Google blocks Android support to Huawei

In the smartphones sector, Samsung, which is the world’s largest smartphones manufacturer, may turn out to be the winner in the Huawei ban situation. Huawei, through its low-priced Android smartphones with features similar to Samsung’s smartphones, is emerging as the largest rival of Samsung in the smartphone market.

As per IDC data, Samsung’s market share (by total smartphone shipments volume) declined from 21.7% in 2017 to 20.8% in 2018, whereas Huawei recorded 33.6% year-on-year growth as market share increased from 10.5% in 2017 to 14.7% in 2018. But since Huawei was placed on US trade blacklist, Samsung is likely to benefit from the situation because of the broken deal between Google and Huawei which led Huawei to lose access to Google’s Android operating system (OS) for its next-generation 5G smartphones.

While Google managed to get a temporary license to continue to provide update and support for existing Huawei smartphones, it prevented Google from providing Android support for Huawei’s new products including soon to be released 5G smartphones. Huawei indicated that its latest 5G smartphones Mate 30 series, which will be launched on September 19, 2019, will run on open-source version of Android 10 and it will not have any of the flagship Google apps such as Google Maps, Google Drive, Google Assistant, etc.

Huawei unveiled its own operating system named HarmonyOS on August 9, 2019, but it still seeks support of Google’s Android OS for its upcoming 5G smartphones along with access to widely popular apps such as Facebook and WhatsApp which all belong to American firms. Android OS, controlling over three-fourths of the mobile OS market as of August 2019, is widely adopted by both the app developers as well as the users. As of second quarter of 2019, Android allowed its users to choose from 2.46 million apps. Encouraging app developers to rewrite their apps as per platform-specific requirements of a new OS with low user base is challenging. Conversely, consumers prefer OS which allows them to use all the apps they like. If HarmanyOS needs to be used as Android replacement, Huawei will need considerable time and financial resources to work with app developers to add similar apps to Huawei’s HarmonyOS.

Explore our other Perspectives on 5G

The future scenario for global 5G smartphones market will depend on the pending decision of the US government over allowing US technology firms to trade with Huawei. If the US government allows the trade, Huawei will have high chances of leading in the 5G smartphones sector owing to its competitive pricing and innovative solutions. On the other hand, if the ban still persists in future, the market of Huawei’s global competitors, Samsung in particular, is likely to swell, owing to their trusted brand name and reliability along with the support of Android OS.

US-based hardware suppliers for telecom devices face revenue loss as they lose their key customer, Huawei

The US government’s executive order issued in May 2019 blocking US exports to Huawei led to adverse effect on the revenue of the US-based companies that used to supply key hardware to Huawei for its 5G network equipment and devices.

For example, Qualcomm which was one of the largest sellers of modem chips, mobile processors, and licenses for 3G, 4G, as well as 5G technology in the Chinese market, has experienced a decline in revenue by 13% year-on-year in the third quarter of 2019 along with decline of approximately 36% in shipments of chipsets and processors. Similarly, Broadcom, which supplies switching chips used in network equipment, is also facing challenges with loss of its highest revenue-generating customer, Huawei, accounting for US$900 million of company’s revenue in 2018. Considering the Huawei blacklisting’s impact on financial results in the first two quarters of 2019, Broadcom has even cut its revenue outlook of the fiscal year 2019 from US$24.5 billion to US$22.5 billion.

In view of financial implications of Huawei blacklisting on the businesses of US-based technology firms, the US government, in June 2019, reprieved the trade ban on Huawei till November 18, 2019. Post the relaxation period, the US government may again ban Huawei from doing business with US technology firms. In case the US government puts the ban in effect owing to the security concerns, the repercussions are likely to deepen further for the US firms over losing considerable revenue coming from China’s telecom hardware industry.

Ban on Huawei means telecom operators will have to pay a higher price for 5G network equipment

Huawei ban is also seen to be impacting the US telecom operators as they face a particular challenge of increasing outlay to build the 5G networks. This is because the 5G network equipment provided by Nokia and Ericsson is more expensive than Huawei’s. In March 2019, Huawei claimed that allowing the company to compete in the telecom market in North America would reduce the total cost of wireless communication infrastructure development in the region by 15%-40% and provide an opportunity for telecom operators to save US$20 billion over the next four years.

The cost factor has also made some European countries sway their decision in favor of Huawei. In June 2019, GSMA, an industry association with over 750 telecom operators as members, indicated that shunning Chinese equipment from 5G network deployment in Europe would add EUR 55 billion (~US$61 billion) to the costs of telecom operators and will also cause the delay of about 18 months in 5G network deployment. In fact, to avoid such repercussions, many European countries have already decided to continue buying telecom equipment (including 5G network equipment) from Huawei and other Chinese firms, Greece being the latest one to join the group of countries including Switzerland, Finland, Sweden, and few more.

India, which is a huge market for low-priced smartphones and telecom network equipment, still remains undecided on the proposed ban on Huawei. The 5G network equipment supplied by Nokia and Ericsson in India is expected to be 10%-15% more expensive as compared to Huawei’s. Also, Huawei claims that imposing a ban on the company will push back 5G deployment in India by two to three years. Moreover, the prolonged decision-taking has also affected the 5G network deployment timeline of the country and thus slowing down the overall development of its telecom industry. Dilemma whether to work with Huawei is seen to have wide-reaching implications on overall development of 5G technology in some countries.

Decoding USA-China 5G War - EOS Intelligence

EOS Perspective

The USA-China 5G war has taken many unpredictable turns over the last year, resulting in adverse implications for Huawei and its US-based business partners. The current status of the 5G war indicates a relaxation over the Huawei ban till November 18, 2019. This allows the US companies to continue supply of their technology products including key software and hardware required by Huawei for 5G equipment manufacturing. However, the relaxation of the ban is not intended to remove Huawei from the US Department of Commerce’s Entity List and the US companies still have to apply for temporary license for exporting products to Huawei.

The USA has been targeting Huawei since 2012, and there seems to be no stopping. Considering the implications of the US sanctions, Huawei has been making notable efforts to end the ongoing discord with the US government. Huawei has always denied all the accusations and maintained that the company is willing to work with the US government to alleviate their concerns over cybersecurity. In May 2019, Huawei proposed implementation of risk mitigation programs to address potential security threats. To further appease the US government, on September 10, 2019, Huawei proposed selling its 5G technology (including licenses, codes, technical blueprints, patents, as well as production know-how) to an American firm. This is seen as one of the boldest peace-offering deals by Huawei to win back the trust of the US government. Huawei claimed that the buyer will be allowed to alter the software code and thereby eliminate any potential security threats.

Currently, there is no US company manufacturing 5G network equipment. Acceptance of Huawei’s proposal would enable the USA to gain footing in the 5G network equipment market and mitigate the fears over rising dominance of Huawei in global 5G space. While the move risks to create a competitor for Huawei in the 5G network equipment market, the company could also use this as an opportunity to evolve from core manufacturing business to providing technical expertise to other companies for manufacturing 5G equipment. The proposal is still subject to approval from the USA and Chinese governments.

While Huawei is ramping up its efforts to break the deadlock with the US government, at the same time, the company is also devising a parallel strategy presuming the worst possible outcome of USA-China trade tensions over 5G, i.e. the USA eventually cutting off ties with Huawei. The company is working towards a contingency plan with an ambition to take control of its supply chain and reduce its dependency on the US technologies and supplies.

One of the major actions of its plan B includes developing its own operating system HarmonyOS as a substitute to Google’s Android OS. While Huawei wants to continue with Android OS for its future 5G smartphones, in case the US government blocks Huawei’s access to Google’s services, Huawei will have to switch to own HarmonyOS.

China, Huawei’s home market, is more receptive to the company’s products, and switching to own operating system is expected to work in favor of the company. In July 2019, Canalys, a Singapore-based technology market research firm, estimated that China would account for over one-third of 5G smartphones globally by 2023. Huawei could use this opportunity to develop its proprietary OS based on the learnings in China before expanding globally to compete with more established and mature OS such as Android OS and iOS (which respectively controlled 76.23% and 22.17% of the smartphone OS market as of August 2019).

On the other hand, in anticipation of loss of partnerships with key suppliers such as Qualcomm and Broadcom, Huawei had stockpiled critical components between May 2018 and May 2019, according to a research report by Canalys. This move was aimed at ensuring the continuity of production of 5G products that rely on core technology from US-based firms for three to twelve months.

Further, Huawei has been developing proprietary chipsets for its 5G smartphones and networking products, which are being considered as alternatives for products offered by Qualcomm and Broadcom. On September 6, 2019, Huawei launched Kirin 990, a new 5G processor for smart devices, which will power Huawei’s upcoming 5G smartphone including Mate 30 series. Further, in January 2019, Huawei launched a 5G multi-mode chipset, Balong 5000 that supports a broad range of 5G products including smartphones, home broadband devices, vehicle-mounted devices, and 5G modules. The company claims this chipset to be the first to perform to industry benchmark for peak 5G download speeds.

Seeing such developments at the Huawei’s end, it is clear that the company is striving hard to remain on the top of 5G network equipment and device manufacturing sector. The USA’s efforts to derail Huawei from its path to dominance in 5G are certainly going to impact the overall growth of the company in short term, but, with its plan B, things are expected to smooth out for Huawei in future. Even if Huawei is not be able to retain its current global leading position in 5G network equipment and device manufacturing, it will certainly remain one of the strong contenders. The US sanctions are further encouraging Huawei to evolve as an all-round player in the 5G ecosystem.

On the contrary, the USA’s aggression against Huawei is expected to hit its own technology industry in the long term. For instance, the blacklisting of Huawei will not only cost the US technology firms to lose one of its largest customers, but will also result in intensified competition as Huawei ramps up its in-house capabilities to fulfill the demand of the entire 5G ecosystem. An example of this could be Huawei’s announcement in April 2019 that the company was open to selling the 5G chips to rival smartphone companies, including Apple. Moreover, if Huawei’s HarmonyOS is able to succeed in gaining significant user base, it would challenge the dominance of Android and iOS. Hence, it would be in best interest of the USA and its technology industry, if the country could take a different approach and try to control and minimize security risks related to Huawei’s engagements, rather than placing an outright ban on the company. Similar to what Germany did in December 2018, the USA could encourage telecom operators to establish verification centers and hire third-party experts to identify and resolve vulnerabilities in Huawei’s 5G network equipment and devices.

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