5G: Accelerating the Investment Cycle

Co-Authored by Romie Castelli, Director, Americas Service Provider, Cisco Capital

Everyone was talking about the cloud ten years ago – except that, back then, not many people knew what it was, and even fewer knew how the business model would work. Fast forward and we realize that the applications delivered by the cloud have transformed the way we live – from video streaming to ride sharing to holiday rentals and teachers presenting to global classrooms. This has driven a massive investment and build-out of public data centers (which analysts currently estimate to exceed $78B and which has experienced annual growth of 26% since 2010) to help deliver these experiences – and there is seemingly no end in sight.

Today, everyone has high hopes for 5G, the latest revolutionary piece of technology that has the potential to unlock a multitude of opportunities – for starters, increased access to a wider population, productivity enhancements from IoT led by business deployments, digitization of physical industries and more. 5G has the same promise as the cloud did 10 years ago. There are also similar challenges in justifying the business case to invest when revenue for 5G services are still not proven. Like the cloud, the 5G winners will be those first movers that execute on sound business strategies.

There are three main groups of 5G services that are taking shape around the world:

1. Enhanced Mobile Broadband (eMBB) which provides greater bandwidth that will be needed for high definition video streaming and virtual reality environments. Greater coverage and technologies such as fixed wireless access will take broadband to areas where profitability has been challenging, allowing more to easily participate and benefit.
2. Massive Machine Type Communication (mMTC) is a low power cellular connectivity that’s enabling smart cities, sensor networks and devices like fitness bands
3. Ultra-Reliable Low Latency Communication (uRLLC) is designed for mission-critical communications to enable autonomous cars, smart grid, and remote surgeries

To date, the commercially available 5G services have largely begun with enhanced mobile broadband services. In the US we have seen operators deploy gigabit fixed wireless broadband services to rural areas and in Korea, we have seen operators provide speeds of 500Mbps to the handset.

By 2030, research by Morgan Stanley predicts that enhanced mobile broadband services will provide an incremental $27B of service revenues to 5G operators. This equates to a growth of 7% of the size of today’s market.

The much larger opportunity still to be realized is in mMTC and uRLLC services. The Internet of Things (IoT) will unlock many new normals as the physical world around us becomes increasingly digitized. Indeed, Morgan Stanley forecasts these services to provide an incremental $127B of service revenues to operators by 2030. That’s a market growth of 36% from 2020. These are promising futures for new experiences and productivity, however, the fundamental properties for 5G services cannot be profitably delivered over traditional mobile network architectures.

Cisco is delivering new 5G architectures that are massively scalable, automated and virtualized, and provide much lower operating costs to profitability deliver 5G services. These architectures include the mobile packet core and all of the IP infrastructure spanning from cell site to the data center. A good example of this innovation is Cisco’s new fronthaul solution. A move to Cloud-RAN architectures helps lower cost and improves performance and scalability to meet growing 4G and 5G service demands. Support for legacy wireless and wireline services enables operators to truly converge services onto a single transport infrastructure.

Cisco realizes that the path to a more profitable future is rarely clear and obvious. There are many pressures on building a 5G business. The GSMA expects that $1 trillion will be spent on 5G spectrum and infrastructure between now and 2025, and the requirement for this investment is set against a backdrop of maturing 4G markets, increasing competition and declining ARPU. Moreover, there will be increased marketing costs and higher handset subsidies as 5G services are launched.

Cisco recognizes the investment challenges and we’re here to help. Through our captive financing business, Cisco Capital, we help our customers accelerate their investment and take their ideas to implementation. These extended payment terms help to optimize cash flows and allow customers to match the benefits of the investment to the payment of that investment. The funding is available to traditional service providers, as well as enterprises that are building private 5G networks.

As the worldwide leader in networking for the internet, Cisco can be your trusted business partner to navigate the future of 5G. We have solutions to help grow revenue, reduce costs, mitigate risk and accelerate investment. Watch for the results in our Annual Internet Report as well as details on our 5G architectures and new product launches. Let’s work together to accelerate and deliver 5G to the world.

Sources:
650 Group, 2019 for public cloud capex spend
Morgan Stanley Research Estimates, 2019 for 5G service revenue forecasts
GSMA 2025 Capex Outlook: financing the 5G era, 2019

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