Are you ready for 5G?

[McKinsey ]

The fifth generation of wireless technology promises lightning-fast speed, incredibly low latency, and the capacity to carry massive numbers of connections simultaneously. Not surprisingly, the imminent arrival of 5G is creating a buzz in both the industry and the wider world.

Although standards will not be fully defined until the 2019 World Radiocommunications Conference, early progress indicates that two distinct “flavors” will emerge: low- and mid-band 5G focused on spectrum below 6 gigahertz and high-band 5G on spectrum above 6 gigahertz, particularly in the millimeter wave bands. Both these flavors will be used to augment and enhance existing LTE networks rather than replace them.

Internet of Things. With the explosive growth in the number of connected devices, existing networks are struggling to keep pace. The advent of 5G will unlock the potential of the Internet of Things (IoT) by enabling more connections at once (up to one million per square kilometer) at very low power. This could create additional monthly revenues for carriers, but average IoT revenues will be a fraction of those for mobile broadband because of low usage. Moreover, 5G will have to compete against other technologies, such as Wi-Fi and Zigbee.

Mission-critical control. As connected devices become increasingly central in applications that demand absolute reliability—medical devices and vehicle safety systems, for instance—latency will serve as a limiting factor. Because 5G has the potential to deliver significantly lower latency (to about one millisecond), it opens the door to use cases in healthcare, utilities, and other time-critical contexts. But, as with IoT, operators can expect the associated revenue to be incremental at best.

Fixed wireless access. Fixed wireless access (FWA) has existed for years, primarily in areas with no viable wired broadband. 5G, particularly in the millimeter wave spectrum, is capable of delivering speeds of more than 100 Mbps to the home, making it a viable alternative to wired broadband in many markets, especially in markets without fiber. As such, 5G FWA could represent a truly new revenue stream for wireless operators, but typically only in areas where consumers don’t already have access to fiber to the home and DOCSIS 3.0/3.1 cable broadband.

Yet the economics, business model, and ability to monetize these use cases at scale in the near term to justify a nationwide rollout of 5G in any country today remain unclear. That said, 5G’s performance characteristics are getting proponents excited about the next wave of killer applications that could justify such deployment before too long.

could justify such deployment before too long.

The economics

In considering the economics of 5G, it’s best to look separately at the two flavors discussed earlier.

A low- to mid-band 5G network, especially in bands below two gigahertz, would look and cost much the same as current LTE networks. For example, deployment costs would be similar for cell sites of comparable density.

Delivering the promised performance improvements of 5G through high-band spectrum, on the other hand, would require a fundamentally different architecture with much denser networks—something like 15 to 20 sites per square kilometer in highly populated urban environments, as opposed to two to five sites today. The total cost of ownership of deploying small cells at this density would be four to six times higher than for LTE macro-cell deployment