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No quick wins with 5G for Telstra

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Despite the big PR splash from Telstra in relation to its 5G announcement, there was not much news beyond phones that look very similar to 4G phones and (video) services that can also be provided over 4G.

I remain convinced that 5G is not going to provide any new revenues for Telstra and for Optus and TPG/Vodafone for that matter, for many years to come.

For starters most users of 4G are very happy with the quality and the speed of the service, full compliments for all the players in the market, as on the fixed telecoms side there is a constant flow of complaints and unhappy customers, so here the technology is clearly not delivering.

When 5G arrives nothing much will change, for the customers while the speed might be faster for most users that would be hardly noticeable. There is little hope for people going to spend more money on 5G. At the same time it is unlikely that customers are going to be charged more for 5G, when we moved from 3G to 4G there was also not a price difference in the services. As we saw from the Telstra launch 5G smartphones are now starting to appear and they might initially cost a bit more.

Surely there will always be the early adopters who always want the latest gadget whatever the price, but that will be a small minority.

In order for the operators to start generating new revenues from the much talked about Internet of Things (IoT) services – such as smart city applications, autonomous vehicles, smart energy, smart transport – we will have to wait until there will be a significant level of coverage of the 5G networks and for such complex services  a technology called ‘millimetre wave’ needs to be added to 5G, for such services to be reliable this will require cells at around every 250 meters in cities, it could take 5 to 10 years to see such a coverage eventuated.

Of course, less sensitive IoT services could be developed and of course will be developed but it remains to be seen if the operators can profit from this or if the major gains here will again go to the application providers.

The good thing is that by that time 5G handsets will have replaced most of the 4G phones there will be a captive market for such services. IoT will also be an industrial market with companies need connectivity to sensors and devices throughout their own infrastructures, but here 5G will get fierce competition from the already existing IoT providers who are using their own – less expensive – wireless networks.

Ever since Malcolm Turnbull (as shadow communications minister) mentioned that we wouldn’t need the NBN because wireless would be sufficient we have been saying that there is no way that wireless will replace fixed, natural laws around spectrum makes that physically impossible. However, it is amazing that a decade on that question keeps on coming back, now with 5G: “can it replace the NBN”. The answer of course remains no

Having said that large numbers of NBN customers are not happy with the quality of their service and this opens a way for other technologies to offer competitive solutions and 5G could be one of them. However, the nbn company will not sit still either and by the time 5G does get more of a national coverage –  around the middle of the next decade – also the fixed broadband service  will have been improved. With a good quality – and an affordable – NBN the need for alternatives would diminish and this would mean that a mobile alternative – such as 5G – would be limited.

In the short term and with for example a quick initial roll out of 5G in the cities this mobile network  could capture 15-20% of the broadband market (i.e. mobile only broadband users), Telstra thinks that with the current 2nd rate NBN this could grow to possibly a 30% marketshare, this sounds very optimistic and could only be achieved with very competitive prices for such a service and again also this is difficult to believe as the operators will need to recoup the multi billion investments they have to make in 5G.

Paul Budde